Wednesday 6 June 2012

Rip The Face Off Rally.

That was some monster rally! It was special in many ways. This was the biggest SPX rally since 12/20, biggest VIX Drop since 5/21 and biggest 10 year yield jump since 3/14. But we are not surprised because we knew it would come. I have been writing about it since: gosh, I even forget myself. This is the reason I did not short the market even when SPX broke 1284. I am afraid I keep repeating myself so very often that you might find it un-exciting. But on the other hand, I have called most of the major turns and bounces correctly without being dramatic. Now that the rally is here, what do we do with it? That depends what is your goal. Are you able to follow the futures overnight and be ready to pounce on the keyboard of your computer the moment the market opens? Do you consider yourself a nimble trader? If so, then you are ready to play. But if you have a regular job with kids and family, you have to go to office in the morning and do hundred other things besides being glued to the computer, you might give it a pass. For those regular folks, cash is king.

There is nothing fundamental in this rally. I have been showing this chart from the age of Adam.

This is a weekly chart. So let us see where it reaches by the end of the week.

What I am sure off is that we will test the lows but I am not sure whether we will have new lows. Like the Elliot wave guys, I have two possible counts. The preferred count is that we go up this week or early part of next week and selling resumes from June 20 when Bernanke extends Operation Twist and does not come up with real free money. The alternate count is, this being a presidential election year cycle, we deviate from earlier script and keep going up if Bernanke starts QE 3 on June 20.
 (Actual not updated)

 For now though I will stick with my preferred count.

In the morning before the market opened I sent out Tweets that I plan to go long on Nasdaq, Crude and Gold. If you have joined me in Twitter you would have got the actionable twitter even before the market opened (8.30 AM Eastern) and you would have been ready to take part in this spectacular rally.  The model portfolio has been updated with the positions. But I am not really happy with Gold and I might dump it in a day or two depending on its price action. It is signaling that there will not be any QE on June 20th. Euro on the other hand declared that the world is not going to end just yet. I know it is a false hope but if that gives the bounce, I will take it.

Let us see how the market digest this rally and what is in store tomorrow. I would be happy with 1330 and surprised if we reach 1360, although that has been my range. But market is the boss. We just want to be in the good books and on the right side of boss.

Thanks for reading . Please forward / re-tweet / post it on your wall and join me in twitter to get those actionable tweets. (Twitter @ BBFinanceblog)(Stocktwits: Worldoffinance)


  1. Interesting and not boring staff at all. You have an excellent sense of market!

  2. BB, do you think tonite Bernanke will tell us something interesting?

    1. He is speaking before congress tomorrow, isn't it? If you see, this rally has come despite Draghi not starting another LTRO or reducing rates. It was scheduled at this time. So for this rally , it does not matter what Bernanke says. However if he gives soundbites for QE, it will help.

    2. Thanks BB. I am just worry if the rally will be finished very soon... or even not till early next week. What do think the chance?