Wednesday 14 March 2012

Just A Pause.

The market is digesting the gains of yesterday but that does not mean we are done with the flight to galaxy. Thursdays have been most bullish so far and tomorrow we may see another attempt to break through 1400 in SPX. I don’t think anybody knows what is going to happen short term but everyone is scared to short. Today was a bearish reversal day but TA has not worked well lately, so not much to read into it.

In the mean time my call on “Gold” has been spot on. I think gold has still further to fall before we can take a position.  It lost another $ 40 today but longer term, the target for gold is about $ 2000 by year end. Before that the mood has to turn sour on gold.

Both EURO and AUD continue to lose ground. Oil gave back much of its gain of yesterday. Only equities continue to defy gravity and logic. Has it de-coupled from the rest of the assets classes?  On Feb. 29, US$ index was at 78.80. Today it is above 80.50 and we can see the effect of rise in US $ in all other asset classes except equities.  Is it just a short term deviation or beginning of new trend? If the stock markets can continue to climb higher despite all divergences and no QE3, then there will not be any more free money. That is not an ideal situation for the TBTF banks. The 1 Trillion Euro which was doled out by ECB to 600 banks in Europe may not be sufficient to juice the markets here in USA. What next? They cannot wait too long and start QE3 in August / September because that would be too blatant and obvious political sweetener.  They cannot bring in the QE with SPX near all time high. I think answer lies in creating panic and sell-off in equities for the next few months and create suitable environment for the Fed intervention.  That fits well with my cycle analysis. Moreover when the free money comes, the BOYZ would like to buy cheap.  It is all a question of timing.

Looking at timing, have you seen the parabolic move of Apple? Intra-day it was about $595. I know it is a great company with solid cash flow and a PE of only 17, but I still wonder who is buying it at this level now.  Do they know something which we don’t? I think we will see this same blow up parabolic move in SPX very soon. When we see that we would know that the end of this beautiful Bull Run is close by. Yesterday was one such day and we need few more.  I think we still have another 30-50 point left in SPX before the trend reversal.

Treasury bonds which were moving in a range from last October fell off the cliff yesterday and continued to sell today.  The 10 year interest jumped to 2.27 %, a jump of almost 8%. When 2/3rd of all Govt. programs are being funded by borrowing, Bernanke can ill afford to let the rates rise. There will come a time when he will not be able to control the rate. TBT will be such a sweet deal then. But that day is still far off. For now, be ready to make money from long bond one last time.

We are near an infliction point and safety of capital is utmost importance. So whatever methods you are using to trade / invest, check again and be double sure. Keep a very tight stop loss.

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  1. We are using the money making method of trading. If you know that the market has 40-50 points of upside then why not buy it? I have been and will continue to do so.

    1. Because I am not in day trading.I have missed the major part of the up move ( from 1300 onward) and I do not want to take risk at the end. Opportunities will come again. A 40 point up move has a 100 point down move risk because you can never be sure of these rats. Now is the time to be careful.

  2. Another confirmation that something is not right out there:

  3. bb- You are correct. There are divergences in RUT. Until they reconcile themselves, I am going to be careful.

  4. Just bought RUT -- TNA 60.8 and 61.6. Looking for 10%. GL!

  5. Looking to buy DUST calls, SLV, SLW Puts.