Saturday 10 March 2012

Hurry Up, Sit Down and Start Running!

Bizarre as it may sound, this is what happened in the stock market last week. Like a dog chasing the tail and going round and round. When the index fell in the 1st part of week, remaining bears started making noise. ZH was painting the town red with the news of coming   Eurocalypse. And I was telling readers to wait and not to front run. I said repeatedly that trend change is not confirmed and whipsaw is expected. Technically the market was oversold to start with. Again, as absurd it may sound that while the prices were making higher high, the market was oversold, it was true. How can we expect a decent sell-off in such a situation? And not to forget, the cycles were showing a top due by March 6-9. Last I said, may be Friday, March 9 will be the fade date.

So where we are now and what do we expect in the coming week? For answers, let us look at some common, garden variety TA charts. The 1st one is NYMO which reflects the market breadth;

NYMO was in deep oversold territory and is only just coming above zero line.

While on the other hand NYSI has turned down quite a lot and is trying to move up a bit.
RSI in NYSI is in deep oversold region.

BPSPX which shows the bullish percentage index has reached the historical high and has started turning down. 

Read together, I get a feeling of indecision. While the market has lost upward momentum, it is not ready to plunge down as yet. Taking a position in either way is blind front running.

Normally Fridays have been the most bearish days for quite a while. Also, normally NFP days behave either as start high go lower or start low go higher. But this last Friday, it did not do either of the two. I twitted before close that I am not shorting the market, yet. On the bear side, the price action can be considered as testing the previous high which it had failed to breach. But on the bull side, it did not break down the lows either. Friday, both the “Risk on” and “Risk Off” trade moved higher. Equities, gold, oil etc moved higher. As well, bonds and USD moved higher.  One of the asset class is not behaving truly and we do not know which one. Only point to note that FX carry trade favourite AUD was moving lower while equities were moving higher.
US $ made solid gain on Friday and Euro moved below 1.3200.
 But it is no guarantee that Euro and AUD will not come up now that disorderly Greek default has been avoided. ( It is a default anyway) If you put a gun on my head and ask me to make a wildest, est, guess about market movement next week, this is what I would guess. This is SPY hourly chart:

There is a bit of gap on the downside which may be filled in the early part of the week and then go up again by OpEx. Again, this is just for fun and do not trade based on this. Never.

Do not forget next week is triple witching OpEx. The BOYZ will screw maximum number of people. It is better to avoid the shark infested water unless we are very sure of what we are doing. That is the reason I did not want to hold any position over the week end. I may take a stab at the market on Monday morning depending on what kind of strength or weakness it shows at open. The good news is (for bears) the cycles show a short term bottom by the last week of the month. And we can expect the major sell off to come in April.

So, stay nimble, trade safe and do not front run based on your bias.

Thank you for reading . Hope you are enjoying the weekend. Please forward / retweet the post to your friends and join me in Twitter. (@BBFinanceblog). As always, I welcome your comments and suggestions.


  1. so called avoiding disorderly default means that banks like GS and JPM are now in for payment of CDS, since the event is recognised as a default. guess where do they get the money.