Wednesday, June 2, 2010


The last few days have been terribly frustrating for investors - bulls and bears I am sure. A drop yesterday that looked deathly which mauled the bulls followed by a day today that took a chunk out of bears. Today was even worse because it looked like we were rolling over I am sure catching alot of people off guard on the wrong side of the trade. It has alot of investors/traders doing the wrong thing at the wrong time.

Part of the problem for the bears is yesterday we were going down for the wrong reasons for the drop to be actually legitimate. Yesterday it was all about BP and the oil trade. Oil companies (basically all of them) got slaughtered. This weighed on the markets until it finally drug the entire market down. The market got BP'd. It isn't about BP though. If the news is all about BP that is bullish because fundamentally BP doesn't matter to the broader market. Europe has very quietly dropped from the financial headlines. BP is everywhere. That is bullish because it is Europe and the financial system which is going ruin the system. As I talked about several days ago, Spain is a major shoe to drop. Is it now or is it like Greece in February and it can be ignored for awhile?

Rumors started floating around during the day about how unbelievable the jobs numbers is going to be on Friday. Rumors ranging from 700,000 to 1,000,000. Vice President Biden and President Obama mentioned the number today also very likely adding to the probability of what an eye popping headline number it will be. Of course jobless claims have stayed above 400,000 and really over 450,000 for months now. Most of those jobs will be added census workers which will be a negative starting in July. I fully expect this to be a buy the rumor sell the news type of number. That makes tomorrow being up a high probability and even a gap up on Friday. If you get that you sell into it. Easy trade.

What the market is doing helps the bears if it doesn't get out of hand. We got way way oversold and we are working off the oversold nature with the markets going nowhere. We are right back to where we were a week ago. The danger for the bears is Europe starts quieting down and we have a month or two before this whole thing starts really turning. The world economies do seem to have peaked out and slowing but it takes time and the markets may have gotten ahead of themselves. 1105 now is the 200 day moving average. Heavy resistance around 1110 to 1115. You break that in a meaningful way and it seems 1140 to 1150 becomes likely. On the downside 1070 followed by 1040 seem to be the lines drawn in the sand.

If your trading it and we open down tomorrow for any reason I think you do lighten up on the shorts expecting a reversal rallying into Friday mornings number. If your more like me sitting tight isn't bad either seeing if 1110 ish holds.

One other note of interest. Yesterday the Prime Minister of Japan resigned. This started greatly weakening the yen because the new candidate supposedly is in favor of quantitative easing and a weaker yen. The important indicator the last month or two has been the yen/euro cross. If the yen strengthened the markets went down as derisking was occurring. Well now you have the yen weakening. I think the decline in the Euro may becoming to an end for awhile though another low towards 1.20 is decent odds. Everyone is on one side of the trade and it is the game of the ugliest pig. The Yen could be chosen as that pig for a little while. I just think you could see a move towards 1.40 for the Eur before long. This could mean one of a few things. One, the market will settle down and make a trek for 1140 as the carry trade is back in favor. Two, Japan could become a systemic issue for markets after many years of pushing off the piper. Three - the entire correlation of the Yen/Euro cross may break down.

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