Friday, January 27, 2012

Calm Before The Storm.

GDP report came weaker than expected. Fitch downgrades five European countries. And SPX barely moved! You still think news drives the market and there is no market manipulation! Which rational investor will buy equities when countries are downgraded? All the power to the believers.

Today was a kind of consolidation day where the purpose of the day was to kill the short and bring in the wavering bulls. The problem as I see it, the capitulation is not complete yet. The SSI (Speculative Sentiment Index) is still negative for the Euro and AUD.  The SSI has to turn positive before we can see any meaningful pull back.
AUD completed the week at the top of the range and I think there is not much room to go higher from here. But I have been proven wrong in the past. Even now I think the cycle for AUD has topped and it should go down. But so far it is not listening. From 9 AM Eastern, AUD started the upward journey and followed the trendline. The trendline was broken only after 4 PM Eastern after the close of NYSE. Let us see how it behaves next week.
NYMO is also hanging on and refusing to break down below the trend line. So the change of trend is not confirmed yet.
From a TA point of view, it is possible for SPX to move towards 1200 level in the next seven to ten trading days.  But that is based on the assumption that TA is allowed to work independently.
The correction, when it comes may not comply with the TA parameters. What makes me worried about the correction is the huge long position that the commercials have in Euro for last so many months. At some point of time, they will take profit from their long position. When that happens, indexes will go through the roof. Take a look at the latest COT report.
The million dollar question is, when? I wish I knew.

For now however, US $ is testing the support at 9871-9823 region and in near term, may see a bounce which is consistent with the reversal in equities and other risk assets.
Thank you for reading  and following me on Twitter. (@BBFinanceblog). Have a relaxing weekend folks.