Monday 1 October 2012

Going Round In Circle.

One more day gone with lots of sound and fury but little result. At some point during the day, SPX was up almost 17 points but gave up most of the gain and closed little less than four points high. Considering it was the 1st trading day of the month, that was a disappointing show. But we know that the markets are going to be in the chop zone for some more time and we are not going to play suckers!

Yes there is a QEI in place and the mad scientist was justifying his action today. He thinks that he knows that it should work but so far it is not. If the objective is to reduce unemployment in USofA, he will have to wait till 2016 at the least.  And pump in $ 40 bil. per month till then? Who knows how USA would look like then, may be like Zimbabwe.

In the morning, the unemployment figures in Europe were announced and it was not a pretty picture. And how the market reacts? By jumping higher! Given the flow of liquidity and past experience with QE, we can only expect that risk assets will go higher. But maybe, just maybe, this time it will be different and unforeseen circumstances will make it play other way round.  Europe is becoming more difficult to manage and here is the latest;

Spain may be ready to ask for bailout but Germany is not ready. Cool! And China delayed the convention till November 8th, which is highly unusual.

However much I think that a long term top is close, we still have to contend with the presidential election cycle and of course QEI. Many good folks are looking for a correction when they would be able to get in.I  think they will not get that chance. After today’s price action, I have changed the target from 50 DMA to 30 DMA and while a test of the 30 DMA is possible this week, unless the market convincingly breaks down the 30 DMA, the up-trend will resume soon.

Gold make the intra-day high for 2012 and looking at the gold futures chart, I think Gold will challenge $ 1750 soon but will most likely bounce from there. In case of Silver the bounce level is between $ 33.50 and $ 34. Anything lower will be a sell signal.

The linear relationship between precious metals and equities will most likely break down going into 2013. The flood of liquidity will still be chasing assets and more and more folks will go for ABCD, which is “Anything Bernanke Cannot Destroy”.  The equities will suffer because fundamentals will catch up and when the global economy is entering into a recession coupled with inflation, who is going to buy stocks? GS has now reduced their 4th QTR GDP target to 1.8%. If the global economy suffers, I do not see crude prices going higher, unless there is a war in Middle East. Therefore the only place all these liquidity can go is something which people can hold on to. But that is still few months away.

Today bonds, VIX, PM sector , Oil, and of course equities were up. Rare on a Monday. Did you notice that for the past 18 weeks, Stocks have been down on Mondays and today was an exception to that trend. Does it mean that bull market is set to resume?  If that is the case, we better have a test of 30 DMA very soon. Time may be running out for the bears to inflict any damage. We need to test the DMA 30 which means a trip to the downside before I can be comfortable to long. However, do keep in mind the various time frames we are discussing. The Bull Run is till about 10th November and a dive from there till February/march 2013. But one month at a time   and I will make every effort to preserve capital.  So stay tuned.

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  1. >> Today bonds, VIX, PM sector , Oil, and of course equities were up.

    Although equities were slightly up indeed, but man - what an intraday reversal. But there was Google to save the planet today.

    They will probably try this trick few more times: moving same capital between goog and aapl, let one go down and pump the other and then pretend that nasdaq going up.

    Not going to work in long run :) In long run I mean give it few more days. This week might be very ugly.
    Also, there is a huge divergence between bonds/equities, it's a very safe play to short both or leg in on any pop.

    1. This shenanigans will run till election. As you know the short term cycles are down till early next week but if we do not get the correction by then, we will have to wait longer.
      Safe play would be PM sector.