Who is right, the bulls or the bears? PART2

Bull's do not get excited too much, but for the time being I am with you...

FED did not say anything meaningful today and, to my mind, markets took it ok... such statements as "we will do anything we can" always have two ends and it really is a gamble how markets will treat them .. there are basically two options:

1. we believe you and everything should be ok if you say you are prepared to do anything and
2. hmm, let's see what you are made of and we will test your ability to do what you have promised.

Clearly the collective mind of financial community decided to go with the first option... I hope we won't have a need to test FED's abilities in the nearest future.

Especially as I am packing to go for vacation, so there will be no posts for 1 week.

Have a good weekend!

History does repeat itself... or it doesn't? PART2

In the end history does repeat itself...

With dreadful economic data coming out from the world's biggest economy, markets managed to pull a gain yeserday. Still not sure whether economic data is to get better or this is Q.E. (quantitative easing) expectations. Time will tell.

Meanwhile, all the bulls, please switch to the first gear as temporary bottom is in place, what is more important stop levels are known. Lets see what is going to work out of this rally. I do remain a bear over the long term, but feels like this one still has a potential. One thing I learned is that I never should underestimate weak dollar... Currencies led the rally and looks like commodities are catching up:

Oil has put a daily bullish reversal I was looking for. And we're back into the channel (yet move upwards still is a corrective one in the overall bear market):

Copper has found some support at 200d moving average as expected. Overall, visually, copper consolidations normally are continuation patterns:

Dollar index is being squeezed between 11d and 50d moving averages, so something has to give up, and if the trend of the last days continues we will see a move towards 200d:

1040 area in S&P looks to be a good support:

As I said stop loss levels are know, lets see what is going to work out of this one.

Who is right, the bulls or the bears?

looking back through my posts I noticed one thing: I do change my mind often. Even though I started writing this post in May I had a few opposing ideas on market direction during such short period of time. Feels like I just cannot make my mind... well, no not really...

Consider this, we have seen the equities market falling by over 50% and then rallying by almost 80%... (funny thing these percentages - even though we rallied more in % terms, we're still lower then when we started). Anyway, so investors are aware that in fact we can do both, fall hard and rally hard. This changes people's mind as they know now that such things are possible. So nobody is surprised by such wild moves any more.

Big swings are common these day and I believe there will be no more panic in the market for the time being and 10% moves either way will be common going forward. Bulls got it right - we see 10% rally and everyone gets excited... we fell 10% - no panic whatsoever. But this is what probably is keeping smaller investors away from the market... small investor that has buy & hold attitude... you just cannot afford these swings in your portfolio. And it is ideal environment for traders as markets remain directional short term and they don't care which way market moves as the can go either short or long.

So I say everyone is right these days, bulls and bears. There is reasonable chance to have both bull market and bear market within a much shorter time frame then people were used to. you just have to choose your side carefully and the most important thing is to be able to switch them.

History does repeat itself... or it doesn't?

Just in the wake of last FED's meeting I warned that market psychology can play tricks on us... as a reminder the statement was: "the worse the data is to come the more market will think that FED is to deploy quantitative easing"... but at that time I called for an intra day bounce.

This time market is making a shift again towards expectations of more easing rather then focusing on bad data. And I get a feeling this will not be intra day, but something that will be with us for some time. Looks like it is time to switch to beginning of 2008 attitude when the market was moving up on bad data rather then good one...

This will probably end up with another crisis, but I would not even try to call a top for this as I still remember calling a top in oil at 120 while it rallied for another $27 after..  So where do we start:

1. Dollar  obviously... Dollar index looks to have found a top at 50d moving average... moreover we might see a bearish daily reversal if we close below 82.84... good risk reward play selling it probably through long EURUSD.... in fact I would prefer any currency pair vs USD with the exception of Yen. Dollar index chart:

EURUSD is also bouncing off and while it has fallen through most of the moving averages, if dollar fall to continue, EUR will be the beneficiary of its weakness:

2. Equities and commodities...Need  to see also some sort of reversal pattern today and/or tomorrow to confirm a bounce. S&P still looks weak, but not disastrously weak as it held the range:

Oil is a dangerous play, so need to wait for reversal:

Copper probably would be a better play as there is some support under it (100d and 200d moving averages):

In general feels like any bad news will be met with renewed dollar selling - the scars of 2008 have not healed yet... good news will support the market as usually.... The other possible explanation I can find is that market has bottomed as economic data is set to improve going forward.

Over the longer term I still remain a equities and commodities bear and dollar bull, but you just cannot ignore such signs.

Time to get contrarian

going back to my question whether the glass is half full or half empty... well, we're slowing down, but its not dramatic (except for housing in the US of course). It just does not feel right now as the end of the world as I imagined it... I do believe we will see negative growth due to either
a) sovereign problems or one of other pillars of financial system is to collapse or
b) consumers retreat and we will see deflation as the result


but I don't see it yet in the system... even deflationary fears I spoke about earlier retreated to give space to food inflation.

So I think we will see another swing up in the markets, however I don't feel there is anything worth trading now. The picture neither looks complete for a move up nor for a significant move down. This statement however is a step away from technical picture I see in the markets which is calling for more losses in equities, oil and gas, consolidation in base metals and FX. Again I would not chase any scenario yet... not until September when most of the people come back from vacation.

Have I been wrong all this time?

To some extent I got carried away with all this kububrum thing and while the markets traded according to my scenario up to now I think it is not yet time to call it the end of the world. Some positive developments are taking place right now and pose a risk to risk off trade... and this is taking place in China. I mentioned already that it feels like Asia is gaining more weight in driving not only commodities markets, but equities and FX as well. Earlier I wrote a post on Shanghai composite and how it respects horizontal lines. Well, we're sitting right under it at the moment:

And if we break higher through 100d moving average at 2700 we will confirm head and shoulders pattern that will target channel resistance and 3000 and possibly higher towards 3 100 - head and shoulders minimum target...

I however believe that if we fail through 100d moving average that would send the markets much lower as
we tried to break through this level 5! times.

If bullish scenario is to materialise this will push oil towards the channel resistance at 83-85 and possibly higher if momentum is good:

US markets are likely to extend higher on Chinese news and main risk to the bearish scenario is the break of 1130-1135 which will confirm head and shoulders in S&P as well which will target 1250 as minimum:

This latter is still in making so I would not bet on this yet, but Shanghai and oil look like as possibility... I think we will see it as early as tomorrow and I feel it is a a little bit dangerous to stay short going into tomorrow.

Have a good evening...

Forecasting extreme weather

Hurricane forecasting involves dynamic modelling of temperatures on the surface, see and air tracking of pressure levels and much more. One of the drawbacks of weather forecasting is that currently science does not have enough computer power and even formulas to model weather in 3D. From what I heard everything is simplified to 2D calculations and that puts a big question mark on reliability of data.

Right now I will offer a brief analysis of current hurricane season and my conclusion is, on contrary to everyone else, that this hurricane season in the US will be a non event... Hurricanes have big impact on energy markets in the US as they might disrupt oil and gas production in Gulf of Mexico as well as refinery operations on the coast. So, I think, in order to forecast weather, you should not look any further but at gas prices and refineries margins. Quick look at the charts says that market is not building any premium of hurricane disruption into the price:

1. Nymex gas had been very weak after breaking 4.55 level (see earlier posts on this) and I am not sure where the bottom is if we break $4.20...Moreover time spreads are not showing any change even though we are close to the peak of the season. Here is the front month graph:

2. Gasoline crack (for oct10) is the weakest since a while so there is no premium there as well:

Obviously there are many assumptions in my "research", but you rarely find a model without drawbacks. and I think the simpler the better... I honestly would bet on nonexisting hurricane season or at least the one with no disruption to energy operations in Gulf of Mexico.