I was travelling for better part of last two months and now back in Toronto. I spent considerable amount of time in Western India, Northern India and Eastern India. I got a chance to meet people from different walks of life and got a glimpse of the mindset and thinking of the people of India. India is important in the global business, just as China was twenty years back. I plan to write about my analysis in the coming days as I recover from jet lag.
Back in North America, nothing much has changed since my last post. I am long gold with a very tight stop. If gold closes below $1765, I will get out. If we get past November without triggering the stop loss, then it would be OK to hold long gold. I am avoiding silver altogether. Europe continues to lurch from one crisis to another. I had written months back (When it was not in fashion) that the pink elephant in the room is Italy. And now the markets have found out how much vulnerable Italy is. I wrote that we will get a rally once “Bunga Bunga” goes out. We did get a rally but it was short-lived. Now super-Mario will form a government and most likely we shall see little calm in the next few weeks.
I had written in last June / July that I expect two Euro. And reading the various comments coming out of Germany, it now seems that the Germans are seriously working on that. They will not put their necks on the chopping block for their profligate southern neighbours. The EFSF remains a joke and team Merkozy is engaged in the policy of buying time without spending too much money. Now everybody realizes that the French banks are in deep soup with the sovereign debts of the PIIGS countries and France, the core of Eurozone, is in spotlight. With so much trouble in Euroland, one would expect the Euro to disappear but the markets can remain irrational longer than we can imagine. So I expect Euro to hang around some more time, may be till the end of 1st quarter , 2012. After that things may start to unravel quickly.
Something interesting happened last week in the Forex market. GS came out with a recommendation to buy Euro. Their stop loss was 1.35 and limit was 1.40. Normally I tell my clients to do the opposite of what GS advices. In this case, I was expecting GS to sell Euro above 1.35. Surprisingly or may be not, Euro sold off and 1.35 limit was triggered. Now may be they are buying Euro and it will go up again. If Euro closes below 1.3440, it will probably be a sell signal.
Back to Equity, I expect the market to grind up slowly till December. Already it is in positive territory for the year, marginally so. We will continue to see massive sell off one day and gap-up open the next day. These are the typical signs of the top and both bulls and bears will get burnt. Yesterday’s late rally was as silly as it gets and so today might be a red day. My advice is to stay out of equities altogether and if one has not gone out already, one should use the next high to unload. I am short Apple again with a very tight stop and otherwise I am just watching the madness of the market from the sideline.
Be very careful out there.