Thursday, July 1, 2010

Weird - Simply Weird

Today was a weird weird day. May have been the weirdest day of the year. Even weirder than the flash crash day. The Euro surged. I mean took a rocket ship higher. A move you very rarely ever see in currency land. The supposed reason is liquidity squeeze in Europe which meant that European banks desperately needed Euros to meet obligations denominated Euros causing a mad rush for Euros. That is a net negative longer term for Europe and the Euro but the technical nature of it caused a massive squeeze in the Euro. This caused the dollar to plunge.

Now I had been warning about the potential of dollar weakness and Euro strength. Did not think it would happen this way. It was a very negative event in Europe that caused the Euro to spike and this could go on for awhile before it plunges again. What caught investors off guard though is the plunge in the dollar was accompanied by a plunge in commodity prices in dollar terms!!! Oil down over 3%. Copper down over 2%. Gold down over 4%. Down $50.00 an ounce!! Adjust that out of dollar terms and it was an incredible liqudiation. Just annihilated.

Stock market was also interesting. US stock market was down. I was really expecting a gap down at the open and then big reversal up. We basically opened close to flat. Sold off hard until mid morning and than had a big reversal still finishing down. The non farm payroll number and the long holiday could cause a spike tomorrow. That is very possible. Challenging the 1135 area is very possible but everything that went on today screams of market stress, of a system that is falling apart. One has to be careful from a leverage standpoint because some kind of squeeze could happen that could cause the stock market to go up 4% in a fashion caused by a negative event. I don't know what but I wouldn't have thought that my idea for Euro currency strength would be because of negative events in Europe that caused a massive negative technical squeeze.

It is very dangerous out there. We are standing on the edge of a precipice. We are below 1040. At least on a short term time horizon you have equal danger for the bears. When the markets get this out of whack it is very hard to be a massive winner because the risk on both sides are very large.

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