Thursday, December 8, 2011

I Feel Pretty!

I could sing the song from “Anger Management”.

Readers, you have shown real patience, commitment and conviction to stick to my call for the “Top” and with the short play. But we are not done yet. We will declare victory only when we have pocketed the gain and not before that.  So for now, let’s keep control over our emotions and get the job done. I sent out Twitter before the market opened today, urging patience.

Jon Nadler of Kitco is one of my favourite writers. Let me quote from him today;

“…prices went into somewhat of a freefall following less than encouraging words from Mr. Draghi at his news conference. In effect, the markets threw a mini-tantrum when they learned that the ECB declined to signal that it might ratchet its debt purchases higher in order to put the crisis fires out in Europe. The Dow fell 70 points in early dealings this morning after Mr. Draghi declared that his institution’s hands are ‘tied’ and that the decisions that matter are really up to politicians now. The new EU fiscal compact cannot come soon enough. The question is: will it stick? Investors are voting with their feet, this morning at least.

Meanwhile, President “Sarko” warned that the failure of the euro is a ‘luxury we cannot afford’ and his minister for European affairs warned that the “euro could explode” and that Europe could “unravel.” Explode, implode, the net result is the same: when in serious doubt, flee to the greenback (it surged nearly 0.50% to 78.81 on the index). Gold lease rates fell to a record -0.57% (yes, that’s a minus) as stories that European banks are on the hunt for dollars and will do anything to track’em down circulated among professional traders. If verified, such a development can at least in part explain why gold is acting in the manner it is acting”

But the question is does the tail wags the dog?  I have called for short term top a week in advance. I did not imagine it or dream it. The signals are coming from the markets. So the notion that news moves the price is erroneous. It is the price movement which creates the news. The 24 hours news channels and the talking heads in various propaganda machines have to fill in the time and bid the agenda of their masters. We should learn to ignore the noise. Difficult task indeed!

Coming back to markets today was a major distribution day. So do not expect a big down day tomorrow. Most likely it will be a range bound day or small green. If indeed it is red, then consider it a gift from Santa. But I doubt it.

How far the market can go down? From the low of November 25, to the high of December 6, SPX has gone up by 105 points. By the rule of Fibonacci retracement, it can easily go down to 1200 but there again, I would be happy to get out much before that. We should keep some 5-10% for the next guy.

Another reason I think we would see more down side is coming from AUD. In the morning, I sent out many charts of AUD explaining my thinking why markets should come down. I once again present you a comparison of Euro vs AUD on a daily chart.

As you can see, for better part of 2011, both these currencies have moved together. The divergence has come only recently and would correct itself.  So either Euro goes up to the level of 1.38 in few days, or AUD comes down below par. Even if they meet halfway, AUD still has to come down substantially. With that, it will bring the general market down.

And then there are my cycle analysis, liquidity analysis, COT analysis etc to live with, which are indicating a short term bottom by middle of next week.

Hope you have enjoyed my analysis so far and thank you for joining my Twitter (@BBFinanceblog). That way I can keep you updated with real time trades. Please forward your comments and suggestions. If you do not like it, let me know, if you like it, tell your friends. Visit to profit from World of Finance.