Tuesday, October 19, 2010

What Color is That - Red???

I saw a color I hadn't seen in a couple of months today. In fact I had just assumed it got taken out of the color spectrum. Yes it was red. Red across my screen. I had to go buy a pair of sunglasses because it was bright compared to the "nice soothing" green that we have had for months.

A bunch of things converged at once to create this move. Apple and IBM earnings which were good but were already priced in and than some. China with a surprise rate hike overnight. Continued problems and protests in Europe. German business survey that came in below expected. PIMCO, the Fed, and a host of others indicating intentions to sue Bank of America for bad mortgages. Now if any of this news would have come alone it would have been "good" news because it meant more money for the ponzi. All of it together poses risk to the ponzi. Hence you have a major selloff and boy was it a doozy. Gold was down over $40. Copper, oil, the Euro, everything was sold hard. The dollar screamed higher. I had been thinking for a couple of days that we were seeing a possible topping pattern in the Euro. Remember I thought that 3 weeks ago and it ended up being false. This time not so false. Many will be confused by the gold move. Remember gold has gone parabolic the last 10 to 15%. Was it fundamental or liquidity driven? At least for today it shows it was liqudity driven. That poses continued risk to the downside for gold.

I think the elections are starting to become a drag also. The Republicans are really starting to pick up steam. I have postulated for months that a big Republican win would not be good for the markets. A small Republican win could possibly be because it would increase gridlock somewhat (I even think a small win would not be good for the markets over the longer term) but a big win could mean that Republicans try to fix things. A balance budget, more constraints on the Fed etc. Stuff that was much needed several years ago but now I think it would collapse the ponzi. It would cause a big drop in the economy because Washington is holding up the economy. In otherwords I don't think it is fixable anymore which means it is either up or die. You can go up until you can't and than you die. So die now or die later. That is a little dramatic but the analogy for the point I am trying to get across works.

So the markets? Shzz is it tough. We haven't broken any major technical stuff. Need to go below 1155 before that happens and really below 1130. From a pure guessing point, assuming we have put in a top, the highest probability is that by the end of this week we will be lower than we are now. Somewhere next week, maybe mid week or maybe later the markets bounce hard and the Euro bounces hard correcting this latest sell off. It will the last buy the rumor before the elections the following Monday and the Fed on Tuesday. After that you roll over and a huge sell the news event. If you short now you will be risking that A) the high really isn't in and B) you have to go through a big rally next week. If you don't short now you risk that you actually don't get the bounce.

In general I feel like the Euro has had its topping process. It is done and it is going to be heading much much lower (remember a big Republican win is probably bullish dollar). The markets didn't have as nice of a topping process as I would have liked. A topping process isn't a necessity but it is nice. Remember however that in June/July of this year the Euro bottomed first and than the stock market bottomed a week or two later at 1010. It could be similar.

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