Posts Tagged ‘rally’

Last phase of the rally

Posted: April 3, 2014 in Uncategorized
Tags: ,

We are fast approaching the last phase of the rally.

– Volumes in US markets are dropping so much that High Frequency Trading is switching to the For Ex market

– Institutional are selling with “Pass the candle” strategy ( Bloomberg Font: in the last 5 days investor sold Equity ETF for USD3.7 Billion  and bought USD1.3 Billion of Bond ETF – Sector wise Financial lost the most assets under maangement

They are doing it with what I call “pass the candle strategy” – Only institutional can do this. They buy a lot (usually options) in Pre Market…so the retail investor flocks to buy the great new rally day and they dump their positions.

So what is in it for us?

The market can drift higher for a while – sometimes  there is here and the a bad day that wipes out 5-6 days of drifting higher.

This could go on until end of April

I like what he says as he has direct connections with Central bankers.

In a short summery.

The exodus from EM is not finished. Going towards US Bond, US Tech and healthcare stocks, but temporary.

Talked to FED and they are not worried about EM market – not because it does not worry them, but because it fits their purposes…it makes bond go up (yield down), improve lending condition and mitigate asset bubble.

THERE IS CONTAGION RISK Foreign Debt outflow (Hungary, Philippines, Indonesia, Poland, Turkey and Mexico) and Stock outflow (Hungary, Taiwan, Korea, Brazil and Thailand). It will persist over the year.

VIX around 19 signal Bearish undertone. (14.5 rally over 21 massacre).

Summary: lot of technical damage, but he thinks there could be a last leg up (under the recent top) before the end of the rally started March 2009. Pretty dangerous condition.

We are entering the phase of a Market – Blow Off Top. This is extremely profitable and scary condition when liquidity starts to chase liquidity with very little economic sense. The last Blow Off Top of epic proportion was in the NASDAQ with the famous Tech Bubble. This condition can last a few month (as the Nasdaq case it lasted from November to March) and always ends in pain and tears.

This blow off top is feared by the US FED. Maybe they will do something during this week meeting – but they are between a rock (Blow Off) and a hard place (Congress stalemate). 

Now we could see what for the Elliott theorist (complicated wave theory) a 5th leg rally extension. It could be sparked by the “normal” Republican defeating the “tea party” Republican or by a liberalization of the Chinese financial system during the 18th November meeting (there are indication that Chinese will be allowed to invest overseas).

But all indicators signal that this rally is not economic data driven, but by liquidity…money chasing money.

When and what will end it. Statistical data shows that this condition can technically last till April 2014 (I would think a bit earlier).

The termination of this rally can be spurred by an issue on the US Treasury Bonds (specially 10 and 30 years) as, since September 13, the Fed is looking more struggling in keeping the yields low. For now it is successful, but there are signs on increasing stress.

Or, naturally, a political shock. Now the main issues have faded, but three main potentials are still there:

_ The Tea Party wins against the normal Republican

_A revolution in one of the Southern Europe countries (EG the military take over Greece)

_ A unilateral pre emptive strike of Israel against Iranian nuclear facilities.

_Saudi Arabia is really upset against the US for their behavior against Syria/Iran (no war) and could pull their equivalent of “nuclear option” which is end the petrodollar oil transaction (the use of US Dollar as currency for oil transaction is one of the main real reason why the US Dollar is the world reserve currency. This also explain why the US has always so keen to keep the Saudis happy (remember President Bush Sr and Jr). A well media planned and abrupt change in this policy could provoke a major shock.

All this events (apart the last one) are pretty far ahead in the future.

Enjoy this rally, but consider it a wave. Soon or later will hit the rocky shores.Image

FED Reserve Surprise!!

Posted: September 18, 2013 in Uncategorized
Tags: ,

Wow! That was a market surprise. The Fed did not start tapering!

The main issue has been the spikes in yields and consequences on the mortgage. Already there were some signs of decrease mortgages sign up and so the fed evidently got worried of stalling the feeble recovery.

So this data – point signals that, in reality, the US recovery is much more feeble than before.

This fact anyway clear another obstacle to the massive rally. The SP500 is by any mean overstretched and should pull back a little (3-5%), but this market is more an emotional black/red gamble than a technical market.

The Red/Black Casino style events still on the path are

US Debt Ceiling – unless they decide again to postpone/stopgap the issue

German election – it should be uneventful as PM Merkel is solidly ahead in the polls

Berlusconi – even if thrown out he should not make the Government fail otherwise he will have a polls backlash

Syria – 21 September first deadline of the Russian/US bluff/deal

Update:

Institutional Investors are in neutral

Last days rally had been driven mainly by short covering position (shares. AUD, Oil, Gold)

The Mutual Fund Survey (US) is showing retail investor clearly going bullish.

Markets is priced to perfection. Any tail risk will have great consequences