Friday 27 January 2012

Calm Before The Storm.

GDP report came weaker than expected. Fitch downgrades five European countries. And SPX barely moved! You still think news drives the market and there is no market manipulation! Which rational investor will buy equities when countries are downgraded? All the power to the believers.

Today was a kind of consolidation day where the purpose of the day was to kill the short and bring in the wavering bulls. The problem as I see it, the capitulation is not complete yet. The SSI (Speculative Sentiment Index) is still negative for the Euro and AUD.  The SSI has to turn positive before we can see any meaningful pull back.
AUD completed the week at the top of the range and I think there is not much room to go higher from here. But I have been proven wrong in the past. Even now I think the cycle for AUD has topped and it should go down. But so far it is not listening. From 9 AM Eastern, AUD started the upward journey and followed the trendline. The trendline was broken only after 4 PM Eastern after the close of NYSE. Let us see how it behaves next week.
NYMO is also hanging on and refusing to break down below the trend line. So the change of trend is not confirmed yet.
From a TA point of view, it is possible for SPX to move towards 1200 level in the next seven to ten trading days.  But that is based on the assumption that TA is allowed to work independently.
The correction, when it comes may not comply with the TA parameters. What makes me worried about the correction is the huge long position that the commercials have in Euro for last so many months. At some point of time, they will take profit from their long position. When that happens, indexes will go through the roof. Take a look at the latest COT report.
The million dollar question is, when? I wish I knew.

For now however, US $ is testing the support at 9871-9823 region and in near term, may see a bounce which is consistent with the reversal in equities and other risk assets.
Thank you for reading  and following me on Twitter. (@BBFinanceblog). Have a relaxing weekend folks.


  1. Hi, may I ask why will the index shoot through the roof when the commercials take profit from their Euro position?

    1. To make profit on their long position, Euro has to go up substantially, pushing all risk assets higher in the process.

  2. well, you have to admit, you are wrong about coms taking profit on thei position..
    when they take profit (if any, now it is more like loss), eur goes down. exactly like when big spex take profit on their short posi, it goes up...

    1. Covering a short is like buying the entity and when many are buying the same entity, how can the price go down? Interesting!

  3. I share your views on the dollar and Euro. The dollar is currently oversold and the Euro is overbought-both on a short term basis in my opinion. The question is exactly as you stated "How much will the market correct" once these 2 rebalance. Believe the Euro is showing that equities will rise medium to long term.


  4. My focus is squarely on the bullish wedge developing in the
    VIX. This wedge will be exhausted, at the latest by the 3rd week of February and most likely before that time. Nothing good develops for equities when the VIX is below 16. We'll just be patient until the VIX price breaks above the trend line.

  5. BB, would love your perspective on this latest article:

    Thanks - Mike P.

  6. Mike,
    I have read this gentleman of and on and my understanding is he does not know any better than Joe the six pack. if I understand correctly, he is calling for a USD crisis in 2014. It just proves that he does not understand how the macro economics works. We are in a deflation phase and sooner or later, Euro is going to blow up and the debt super cycle is going to end.
    It is foolish to predict what will happen in 2014 because we do not know what will happen tomorrow. But one thing I can tell, USD is not going to end.