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Risk Break Out?
From Nic Lenoir of ICAP
The market continues to chop around aggressively in the 1,055/1,100 for the S&P future.
Copper has broken out which is one of the markets we had our eye on. The next big resistance beyond 317 is 328/329 (huge overlap and 61.8% retracement). The next two mornings we walked in to strong bids in the commodities space and higher equity prices in China. The Shanghai composite has lost 33% from the highs of the summer 2009, so the market has a lot of room to bounce and that's why maybe copper which is highly correlated to economic and market activity in the region has taken the lead breaking out. Note that the Nikkei has not recovered much from the lows so far but has held the key support at 9,090. I would be tempted to play long in that market at least since I see the future moving up to 10,600 if the bounce continues.
However more broadly the Bovespa which has been a key indicator representing the commodity/Emerging Market trade has not yet validated a market wide break out for risky assets, and we currently are right on the resistance formed by the 100- and 200-dma as well as the neckline of an inverted H&S. We would need confirmation of a break there to really feel strongly about the possibility of a prolonged move towards more risk appetite. Similarly AUDUSD has almost come back to test the 200-dma and the 0.8980/0.9060 zone should be relatively strong resistance. If bypassed then clearly expect quite a few more days like today.
With Fixed Income already pricing a double dip watch for weaknes there if the breakout occurs. The Bund almost saw the key resistance at 129.50 overnight and rejected it strongly, now we focus on a break of 128.10 which would mean further acceleration lower.
Good luck trading,
Nic
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Yes, we know that. I don't think you need a chart to figure it out.
Take a hike plonker. Nic is well respected & well read.
+1
Like one of the articles this morning, I wonder when commodities and stocks might decouple. $80 oil isn't bullish for anyone but the oil companies. Similarly, might copper break out on a run into resources on dollar/fiat weakness? When does China start buying as much as it can with it's recently appreciated but structurally flawed Treasuries? Does correlation breakdown?
Trader,
Correlation does break down. Shatter.
At the inflection point that is approaching, the death-grip coupling we saw in and since Sept. 2008 will be fast replaced by wild de-coupling as the market makers in each segment put their cards on the table for a final shake-down.
No wonder they show so much poker on ESPN nowadays.
ORI
http://aadivaahan.wordpress.com
personally, I prefer chicken entrails
Consumer confidence will be key once again. A new plunge (below 50) will generate another blood bath.
But the market won't break any substantial support even with a poor reading. The market rallies, gets sold off on some poor macro news, and just rallies back to the same level in preparation for the next dip.
Wash, rinse, repeat.
The tsunami of 0% money is lifting all boats: stocks, commodities, and bonds. Weird isn't it?
not really. infinitely expanding money supply should reduce its value against commodities, stocks, and bonds. all three are not nearly as easy to devalue.
Looks like the stage has been set here for a rally in the US barring some really awful news. We've already discounted any bad economic data and consumer confidence. The major earnings reports haven't been bad and some have been pretty decent. Fed is back on the side of the longs in the market. On and on.
Seems like all the bad news is in and they will take it higher. Once we close above 1100 SPX, I think the mood shifts back to buy the dips rather than sell the rips.
Re: "Copper has broken out which is one of the markets we had our eye on."
Actually, copper failed to break out above 200-MA (3.1757) today (closing price was 3.165).
The recent copper rally has nothing to do with the fundamentals in the US. Copper rallied on arbitrage between copper price in Shanghai vs. LME.
Shanghai markets (and copper) are up for 4 straight days (5 tomorrow?) on speculation the government may relax curbs on property and lending.
http://www.bloomberg.com/news/2010-07-22/china-pledges-pledges-policy-st...
IMHO, today's S&P rally was a head fake on extremely low volume -- lack of sellers (and the syndicate traders squeezing the shorts today -- knowing that the shorts are nervous and less likely to be aggressive before the EU stress tests announcement). Also, the probability of a selloff tomorrow after the stress test is 60% (buy the rumor of every single bank passing, sell the news) -- we had a huge run up ahead of the stress tests (all banks passed the stress tests news are priced in, it will be easy to disappoint). Contrary to a popular belief, it was FASB loosening mark-to-market accounting rules that saved US banks, not the stupid stress tests.
Contrary to a popular believe, it was FASB loosening mark-to-market accounting rules that saved US banks, not the stupid stress tests.
I was wondering when somebody was going to recognize that. Actually the third thing that happened right around the same time in March 09 along with FASB ruling and Stress Tests was the Fed coming out with QE1. Of the 3, Stress tests were by far the least important in my opinion.
March 18, 2009, a day that will live in monetary excess infamy.
But now, the balance sheet is starting to shrink...
And the idea that the government was not going to nationalize any of the banks. Created a floor under the stock prices.
I think I will go out and buy some spinning chrome hub caps for my truck, on credit of course.
An upmove in dollar/yen could really get things moving.
yes that would be an unwind... COT is a bitch
suddenly everybody is a bull. isn't this like lemmings running off the cliff?
Look at the bright side, bullish equity momentum on abysmal market fundamentals will likely drive the price of gold higher and break through upper resistance:)
yeah that would be fine. i just think it is funny how over the last 24 hours the whole bearish/ death cross/spiral down camp seems to have thrown up their hands and decided they are beat. im not sure they are yet somehow, but i see the obvious signals...
Here is an unbiased voice of reason
http://www.financialsense.com/contributors/chris-puplava/crossroads
Nic - thanks for the post. One question, if risk was about to break out, would you have expected more Yen weakness by now? If not yen/usd, then weakness in the euro/yen cross? Thanks again.
or oil strength where is it?
shanghai dips so does oil, gold, risk currencies
it happended today.
Copper miners are not sitting on a pile of projects waiting to bust out of the gates. Most "growth" projects are actually an attempt to keep production where it currently is. The Bingham Canyon pit on the outskirts of Salt Lake City for instance is tits up in seven years so must go underground in a hurry to keep the lights on. Freeport and Codelco are in the same boat. So in the long run, this will be a supply side issue as the cost curve shifts upwards. Short term action merely is recognition of the down draft in the $US.
Got FAZ?
Ken Feinberg to accuse Goldman, Citi and other 15 other banks of improper payouts of $1.6 billion tomorrow morning at 10 o'clock.
http://www.nytimes.com/2010/07/23/business/23pay.html?_r=1&hp
Dems should ratchet up bank-bashing as we are approaching the November elections. They need the scapegoat to blame for collapsing economy and people are getting tired of "it's all Bush's fault" game.
Yawn. I used to think that stuff mattered. It doesn't. Remember the AIG hearings/bashing. Market rallied. Feinberg's got no power, just a soapbox. MSM is behind the banksters, as they pay the bills.
The EU stress tests might be a catalyst down if no one but a couple of sacrificial lambs fail.
I finally threw in the towel with shorting financials last month when the morning after the "new tough financial reform" passed the sentate in the middle of the night(or was it the house? bah..who cares) and the banks opened 6% higher.
Icap the perpetual bulls (even when they sound bearish)
That dude should run the Bovespa against the CNY and the Indian INR and refer to India macro cond getting somewhat worst and their balance payments going south into h2.
Then he would see that commod based indexes are pricing in too much risk and have topped out.
Traders should shift to Asia slowdown issues, like a counter balance when europe/US go bullish on a daily asia sells.
I'm still bullish... I expect the previous high to be broken soon.
My last comment was kind of a phail, since Dow Jones fell to 10100, but I play mostly Brazil and here stocks are like 15% from the year's low already.
As I have stated before, Brazil is a leading market, believe it or not, and I expect US to follow... Nasdaq bubble all over again.
I love Brazil, the women, the beaches, Cachacha with lime...
But Brazil will be a short sellers dream in 3mths or so
I prefer the short side as well (see my previous posts), but I really can't stand being short ATM here...
Maybe this will amuse u, Jim Rogers posted it today on Facebook
http://networkedblogs.com/66UBu
My target for the Bovespa index is 78k... It's currently at 65k..Above the previous high, 74k I'll start selling all my stocks and maybe go short...
If I was american I'd take a close look at Ebay... That shit must fly.
I'm currently long gold, Dow Jones, Nasdaq, Bovespa (glad Tyler is posting charts on it!), oil, AUDUSD, USDJPY and S&P500... My biggest position of course is in brazilian stocks...Eike Baptista's companies mostly, which are high beta and maybe too risky for you americans.
The positions I like the least ATM are gold and USDJPY, both seem pretty weak... But, maybe they are just laggards... Gold has tested 1178 which was a major top some time ago, and I hope it's just trying to scare buyers away.
good luck on ya trading
ES is ready for the Friday pumpup following the Thursday meltup in anticipation of the Sunday Propup as preparation for the Monday green shootup.
Long Banks?
(Reuters) - Europe's attempt to restore confidence in its banks comes to a head on Friday with widespread expectation that up to 10 lenders will fail the exam and have to raise capital.
TGIF.