Wednesday, January 4, 2012

Official End of Santa Rally.

So there was little bit of juice left in the market after all. The day started poorly but ended OK. I however closed all my long positions in the morning, for two reasons.You can view the trading results here:

Reason one is that I think this  cycle has reached its top. It does not mean we will start down drift tomorrow. On the contrary, tomorrow we may see another attempt to breach 1284 in SPX. But I am no longer comfortable on the long side even if the SPX goes up few more points. The risk reward calculation does not justify it. So I would rather take the profit on the table and run. Leave something for the next guy.

The second reason was personal. I had meetings throughout the day and going in and out of office. I was not able to devote proper time to exit in a phased manner and had to exit at one go.

So now I am market neutral. Cash and cushy.   

Apart from cycle top, liquidity flow, seasonality etc, FX is sending a signal which I do not like. AUD tried three times to break 1.0380 but failed all three times. In the process it made lower lows.
Also if you note that AUD retraced from 1.0300 levels in the morning to 1.0371 in the afternoon, almost the same level as yesterday afternoon. But indexes did not follow it up. It is a kind of divergence which is worrisome.  If SPX is not following AUD up, then AUD will follow SPX down. In the process both will come down. If that were to happen, AUD would possibly go down below par. The AUD rally is looking more like a corrective rally.
Dollar index took back yesterday’s loss and despite that gold gained $8.50 and bonds lost value. So we have divergences all around. Direction is not clear and taking a position seems risky to me. I expect gold to retest $ 1620 and fail. But there again I am not going to short it. Same story with crude. The maximum  upside I can find in Oil is $105 and we have already seen $ 103.60 tested twice. Iran story notwithstanding, Oil is due for a correction and will possibly happen tomorrow when the inventory figure comes out.

I think indexes will go down a bit for about two weeks, starting next week. Do not let them scare you with their horror stories of Euro crisis or Iran phobia or some other BS. Markets go up and down and for us, stock market going down is not a crisis, it is an opportunity.  Just wait for a clear direction.

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