Saturday 6 October 2012

Please Don't Front Run.

I see and read in many blogs and forums that folks are talking about “Top” and as we had a failed test of high, the trend is now changing. Knowledgeable writers are saying that market rose from June low on the hope and expectation of QE and this rise was in fact a hope rally. Now that the surprise factor has been taken out and as tops are formed at the high, time is ripe for a major pull-back.

While I do not doubt the fact that it was a hope rally, I do not agree with the assertion that we have a top. I have learned that calling a top or a bottom is a fool’s errand.   However I do see is a giant top formation which, according to my analysis, will take few more months to complete. We must also keep in mind that the powers that be is pumping money at a rate never seen in the history of mankind and that itself will delay the fall.

I have been on the sideline since June and I see lots of impatience all around. Taking a trade because we think we are missing out on the next big thing is a sure recipe for losing money. Instead, I have suggested watching the range. It is almost certain that SPX will now test the lows and we will see a correction. Rather than guessing how far it will go down and front run based on that guess or some secret instrument like one particular TA which you think has never failed, why not watch the range?  Like I said yesterday, if /ES or emini or SPX Futures goes below 1430, we know that the correction has some substance and we may take the short side. But if it bounces from this level, we can think of going long, at least till it re-test 1468 again. 

Given that we are at the final stage of the election cycle and having shown all those beautiful charts and graphs, may be you would agree that folks who can manage to show that employment rate has indeed gone down below 8%, are capable of pushing the stock market to new high. That was the sole purpose of QEI. If you remember my posts of May/June/July, I did mentioned that QE will definitely come and it will come in September, simply because they will have sufficient time to juice the market for election. Timing is everything. Too early and the market will peak well before election. Too late and it is of no use. So a QE made sense in September purely from the election point of view, however much Bernanke may say that his decision has got nothing to do with politics. Pure baloney.

Technically speaking, in the weekly chart of SPX, I do not see any negative divergence like the one we saw in 2011.

After election, these folks would not care much about what you and I think anyway. If O wins, you will find a much different administration because he won’t care much for compromise which was his effort in the 1st term. After all, he cannot get re-elected for 3rd term and therefore, he could care less. Therefore a severe economic contraction is guaranteed in 2013-14 but we will cross the bridge when we come to it. For now, for the next week, let us see, if SPX futures are able to bounce from the range, whether gold and silver hold their line which I mentioned last night and play accordingly. Wait a little while longer before taking the plunge.

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  1. I assume the bounce targets you mentioned for gold and silver, "Bounce target for gold:$1760, silver $33.80." are for a futures contract. There appear to be a couple of gold and silver futures. Which ones are you referencing?

    1. You are correct. They are the futures for gold and silver and the symbols are /GC for gold and /SI for silver.
      But I do not think there is much difference in prices even between the current month future and spot.