Monday, December 12, 2011

Patience Is Paying Off.

It never fails to amaze me. How quickly the mood swings from despair to euphoria to despair to God knows what. Like an addict the market mood swings violently between utter joys to ultimate sadness.
On December 8, the bears were rejoicing, on December 9 it was the turn of the bulls. On December 8, everyone was sure that there cannot be any Santa rally. On December 9, everyone was dead sure about the rally. Today it seems both have some hope. The market fell for the 1st three hours, rose for the last four. So the bulls are sure that the selling is over but bears have not given up either.
Such a comedy!

I have mentioned that the bottom is due around December 14. So it is highly unlikely that we are done with selling today. I will present some reasons for my thinking.  Some of the reasons which are open knowledge and are available to everyone.

To start, let us look at the liquidity flow. Today the Fed sold 3 yr notes worth US$ 32 Bn. Yes, billion. Tomorrow, it will sell 10 yr notes worth US$ 21 billion and day after 30 year notes worth US$ 13 billion. So in the next two days, another US$ 34 billion will be removed from the market. Pray, who is going to buy the shares? Retail investors are absent from the market. Day traders chase momentum. So I wonder where the money is going to come from.

I am always looking over the shoulder and trying to see what AUD is doing vs. USD and JPY. AUD is on sell signal and I think it will continue to show weakness. In all time frames, the RSI for AUD is at oversold level, so it might show some bounce. But the trend is firmly downward. Something can always happen between now and tomorrow’s opening which will reverse the trend, but I do not expect any miracle to happen overnight.
With the negative lease rate on gold, which I wrote about few days back, I would be surprised if gold prices recover tomorrow. There will be some oversold bounce but nothing more than that.

On last Friday, December 9, I added to my existing short position and I also took up some new short position on gold. I had Twitted the trade in real time to my readers. Today I closed half the position. I plan to close the rest tomorrow.

Asian markets are down as we speak. So is AUD and EURO compared to the closing level at 4 PM. It is better that we get the bounce now in the Asian and European session so that we can continue the unfinished business tomorrow. Again, the bottom will not fall off, We would be lucky to get to the level of 1210-1220 in SPX but at least that is the target.

Personally, I believe in Santa. So I think he will reward the Boyz with a yearend rally at least to save the face.  The OE week is historically a good week for the bulls and it will help us to remember that in the last week the volume will be abysmal and chance of pushing the market higher on gas is very high.

But we will take one day at a time. So far the calls that been correct and I pray that the record of correct calls continue. We will flip from bear to bull by December 15.

I keep updating my readers regarding the important movements in the market during the day and they also know my actual trade through Twitter. So join me in Twitter (@BBFinanceblog) and visit regularly to profit from the world of finance. Have a great evening.

P.S: There is still some gap between Euro and AUD. This gap was widest on December 6, with SPX at the top. The gap is closing down and AUD is down to 1.0064. If tomorrow AUD comes down to 0.995 level, this gap will be bridged.
If that happens tomorrow, ( not during night, though) we will see some more selling in SPX.