Global Macro Update: Houston, We Have A Problem!

Submitted by Nic Lenoir Of ICAP

Let's start by summarizing my convictions and market outlook: the rebound which we managed to anticipate from 1,040/1,045 in the S&P future was purely technical. That is why at 1,085 we recommended closing tactical longs and observe the price action. The market caught most bears trapped as it broke above the 200-dma, but the volume and price action did not really confirm a major acceleration. Fundamentally the economy has started to roll over, H2 could be a real disaster as the underlying fabric of Western economies is feeble, and stimulus is dissipating with a decreasing political support for more monetization and bailouts. As such we were hoping to sell the rebound should it reach 1,150 in S&P future.

Unfortunately I don't think we will have that pleasure. First of all everybody is waiting for that level so we either fall short or we will blast through it to shake all the weak hands. Secondly, today's price action tells us the tops for the rebound could well be in. We have a key reversal day in the SPX and AAPL (AAPL is the most impressive), and bearish engulfing candles in EURUSD, GBPUSD, USDCHF, Nasdaq, Gold Silver, and probably a gazillion other securities... In theory we will not close above the mid-point of the body of the today's candle. That would mean shorts in SPX with a stop on a daily close above 1,118. As we had pointed out the other day the fixed income market had not confirmed the euphoria with 10Y Treasury futures not breaking through the key support at 119-23/26. We failed this morning once again to break through support. So technically things are very ugly. [ZH: we don't recall encountering this technical term in Advanced Trading strategies]

Now a quick word on this mockery of a Sunday night rally in risk: a revaluation by China is nothing positive for risk in general. This is nothing less than implicit tightening by one of the biggest monetizers in the gobal ponzi scheme. How that could be a good thing for Australia, Copper, or anything else is a mystery to me. As a side note I am waiting to see what this revaluation really ends up being. This was a pre G-20 announcement which could well be nothing more than a political maneuver. You have the American delegation walking in with the Sheriff's boots ready to talk tough, but before they can even start their speech the Chinese basically kill their entire game plan, while falling short of doing the actual revaluation for now. Seems to me like cutting rainman's fish sticks so he stops whining.

Watch closely on all the respective markets as the bearish engulfing candles are in, and the mid-point of the bodies should not be violated. We need another round of risk aversion so that central banks start printing again to extend a bit more the masquerade.

Good luck trading,

Nic