Thursday, July 5, 2012

Cake Is Still Baking.

The cake is still getting baked. Or at least not ready to cut yet. May be some decorations are due. Which may well happen tomorrow? So far in the week, we have reached 1375 twice and we need to see 1380 tested soon. Tomorrow is NFP day. The ADP report has been better than expected. So will the NFP report will also be better than expectation? If that happens, then the hope of QE is dashed again and only a market panic can induce the required milk of kindness from Bernanke. So kind of crucial day tomorrow when bad news will be good news.

Reuters headline screams that “ Three Central Banks take action in sign of alarm”. There was small 50 Bil. pounds of QE program from BOE. The market shrugged. ECB cut rate below 1 and as there were no mention of LTRO 2, market was disappointed. Euro sold off. PBOC reduced its lending rate. But the commodity sector did not budge.  So next time the Fed brings out QE, it better be huge, or it is not going to matter. It is called the law of diminishing return.

Many of you are itching to short. May be you are already short but I would still urge caution. The technical indicators have not rolled over yet. When it does, we will have a long way to go. So why not wait for confirmation.  Let the beast exhaust itself so that we do not have much fighting to do. I think it will get over soon. So patience is requested.  If tomorrow we see 1380 being tested and S&P fails to hold on to it, maybe we can start to dip our toes to test the water. In case I do, I will send twitter.  So please join me in twitter to get the real time market action. (@BBFinanceblog). In any case, the higher the market goes from here in the next few days, more safe I would feel shorting it. There is no rush.

One thing I would like to stress is, let us not invest or trade with a bias. If they are going to flood the system with freshly minted money and Obama is keen to keep his job at any cost, why should we not join the party? However till they bring in the money, we have a chance to short. But we do not know what all shenanigans TPTB will play and what other tricks they have under their sleeves. So shorting is always a risky proposition under the present situation. It is not a free market and fundamentals have been suppressed.  Therefore, even if we know that things are bad and unsustainable, we should not trade or invest with our belief. Conviction is good, but profit is better.

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