Friday, May 18, 2012

Someone Is Lying.

The correlation between Euro and SPX has been strong. And yet, something funny happened today. Around noon, Euro surged and SPX dropped. You can see the divergence in the following chart.

One of these two is lying. I guess it is SPX. For one, it is more difficult to manipulate the forex market which is many times bigger than the US equities market.

Let’s take a look at US $ Index.

It’s down substantially. I wrote few days back that US $ is hitting multiyear resistance and is making a double top. So here it is.

Something is fishy out there. And it got me thinking!

I am thinking that someone wants to create a bit of panic. So that retail sells and they buy cheap. May be I am just nuts but I am expecting some good sound bites from Camp David summit. Don’t get me wrong. I fully expect another 10-15% correction but I only beg to differ on the timing. And timing, as you know, is everything in investing or trading. Ask those who bought gold at $1900 or Apple at $625. Getting even is not a good score in this game.

This is not a sprint. This is a marathon. Most of us want to play this game for another 10 years or more. If we can catch 75% of all up swing and 40% of all down swing, on a consistent basis for a long period of time, we will retire as millionaire. I did not have this discipline when I started out. 20 years after, I am still learning and battling with my own impatience, fear and greed.  I would make good profit in most trades only to give it back and some more in a few bad ones.  To recover a -50% we have to make +100% in the next trade.

Back to the market, oversold became more oversold and is reaching extreme level. Can it go down further? Yes, it can but not much. I think we would reach a tradable bottom soon.  Lots of stop loss levels have been taken out; lots of new short positions have been initiated.  It was only 30 days back, when the sky was all blue and everyone was talking how indexes were going to new high. I was writing about panic that will come because without panic, Bernanke cannot give free money to the Banksters. It serves two purposes, it shakes out retail investors and makes them sell out at the bottom and then pump all the way up with the liquidity provided by the Fed. And if they can co-ordinate this up-swing from July – October, victory is election is guaranteed. And again, mark my words; this is what going to happen.

So I am still waiting and I have no worries of losing because I am in cash. Only I should not get greedy and do something silly. It is not going to end well but we will have to time it right.

That’s all for today. A gorgeous a long weekend is here. Let’s enjoy the sunshine because there is more to life than sitting before computer and worrying if the market will go up or down. If you care, please re-tweet this post to someone who might like it and follow me in Twitter @ BBFinanceblog. Thank you for reading