Blog Summary
Large amount of updates this week. Lots of technical price patterns that e are all watching recently, with many triangles evident in many asset classes. These type of patterns usually develop with uncertainty. Currently, uncertainty arises from awful deterioration in credit markets which is bearish; and optimistic improvement in economic data which is... I guess bullish, at least for the time being.
Soybean complex surpsied on the upside this week, but apart from that it was the regular safe haven assets (I'll would call them anything but that) gaining this week. US Dollar and Treasury Bonds manage to record another week of gains. On the downside, the talk was all about the metals Gold, Silver, Platinum, Palladium and Copper were all totally destroyed this week, with each down more than 6%. As a matter of fact, at one point in time Silver was down almost 13% this week. Equities and Crude Oil were also major losers this week too!
Talk Of The Week
All eyes are on the Eurozone Debt Crisis week after week. The question now is, are we going to get some type of a relief soon? It seems that the market participants are now positioned for a total collapse of the Euro against the Dollar, which is much much worse than it was in June of later year. The chart above shows record net short exposure against the Euro, which means either a total crash from these levels or a more likely outcome of Eurocrats announcing some type of non sense that will make everyone cover and create a super short squeeze.On that note, I hope everyone enjoys the rest of their weekend!!
There some ways to see that out of Europe.
ReplyDelete1) From Steven Briesse books "Cots Bible": when some asset fail to make a new high (or low) with a higher (or lower) open COTs position, this is a sign of trend change. April11 COT+ is higher than Sept09 COT+. Is the same can be told about the lows? I don't know, this trend had not reversed yet.
2) Due to Basel3 and Sov Downgrades in EU, EU banks must raise cash to meat year-end regulatory requirements. They start to sell Emerging assets and buy back EU. They start to sell EU shares and buy back EU. This is the magical hand which hold EU so strong now (nothing to do with the Chinese or US who want the EUR goes higher).
3) CESI-US is quite high regarding the overall situation.
I expect EUR to test its long term trend at around 1.26 by jan12. Maybe lower.
After that, I still wait for deflation fears go higher and make Central Banks capitulate (translate: print worldwide, even ECB). This will be the start of the next up-leg for Gold. In that case NOK and SEK could be interesting plays too.
Fred
Hey there Fred, hope you are well!
ReplyDeleteFirst point you put forward is quite interesting. I have never read that book. I usually look at COT positioning relative to the current mood and feeling of the overall market and economic conditions. So in other words, maybe we have higher net shorts on the Euro because this crisis has been dragging itself for over 2 years now, and as news gets worse and worse, more and more speculators pile in regardless of the price level.
Point three is also interesting. Many people keep saying economy has been better and data has been improving as we can see from Citigroup Economic Surprise Index. However, the readings on that indicator are at levels where downside surprises are more probable than anything else really.
On top of that, equity market price characteristic is not acting like we are about to enter a bull market. I could be wrong of course, but you just look at breadth swings with 90% downside and 90% upside days and you look at volatility and daily swings. This type of indecision, which is also shown by triangles in almost all major asset classes, is not your typical bull market start... so yes, we do need a game changer like money printing to clam it all down!