Tuesday, February 7, 2012

Nobody Knows!

And that’s a fact. All the great names in technical analysis and market timing have thrown down the towel. It seems longer the Greek drama goes on, higher the market will go up.  So we have a renewed momentum and a higher high today and a hair away from SPX 1350. If this continues, we may well see SPX 1460 before March end.

In the process the bears have been ridiculed, mocked and decapitated.  I have seen many market booms and busts and one thing that never changes is the market sentiment. So I ask myself, where are we now in this graph?

And then I try to understand what is moving the market. With my limited understanding I think the only way the market can move up is because of the LTRO financing. It is QE3 by the Fed in another name and a cleaver one at that. They are providing money indirectly to the ECB, which is giving this free (almost) money to the big banks, who in turn pumping up the equities and other risk assets. The size of LTRO is about $ 1 Trillion. This it is much bigger than QE2. Out of that so far only about $ 500 billion have been used. That leaves another $ 500 billion. How far the market can go up then?  At least another 100 points in SPX.

With retail participation in the market at all time low, volume almost non-existent, the market has grind higher and consolidate overbought conditions through time lapse rather than actual correction. The HFTs and ALGOs have bought the dip along the way. In the process extremes have become more extreme. But as we all know, over bought can remain over bought for a long time, it is now time to stand aside and just wait for market to complete the course.