Wednesday, May 23, 2012


WOW! That was some intraday reversal.  Are we still playing the old tape?

It may not be exactly similar but the theme is very familiar.

This market is insanely dangerous both for bulls and bears. It’s like walking in a minefield at the middle of night blindfold. That is why I keep repeating “don’t do anything, just wait.” I was looking for a bounce but I waited till the last half an hour to decide whether to go long. I think we have had a test of the earlier low and reversal there from.  A close below last Friday’s low will take SPX to 1380 level. Please remember, this is not “Risk On”. This is ‘Risk-Off, Off”. There is a difference.

The model portfolio has been updated with the picks but they have a very tight stop. And as promised, I tweeted my intention well in advance. This bounce is going to be a technical bounce and counter trend rally. So don’t expect too much for too long. However, it is going to be a massive short squeeze.

Germany sold $6 Bn. 2 year bonds at 0 %. Yes you are reading it correctly. But that’s all a galaxy far away. In the immediate neighborhood, the Fed has to sell $ 35 Bn. 2 year notes yesterday and another $ 35 Bn. 5 year notes today. No wonder they had to create little panic to get good rates.  The TNX (10 year treasury yield index) was at historical low.

The recovery for the day was without any volume. But isn’t that the case always?  As I said in the beginning, it is just a technical rally from oversold position.  Seasonality is also a factor.  From now till the first two days of June, it is a bullish period. When bullish seasonality combines with oversold market, we do expect a rally, even if it is a counter-trend one. It is called “Memorial Day Rebound”. The following table is from “ Stock Traders’ Almanac”.

Tomorrow is expected to be bullish. Let us see where and how far it pushed. It is always good to remember that the market is the boss and it inflicts maximum pain on maximum number of people. So be nimble and trade safe. If you are an Investor, it is better to avoid the market now.  A better opportunity will come by 3rdweek of June.

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