Friday, July 31, 2009

To be of not to be?

Conventional wisdom, as measured by a quick straw poll of the financial press, has the breakout of the USD on Friday due to increasing risk appetite - which translates into losses for the safe haven currency.

I'm getting a little concerned maybe I have been reading the tea-leaves all wrong. The resounding bounce in the CRB off the lows is making me nervous. The key reversal stands, but a breakout in commodities over the recent high seemingly negates this indicator.

So while sentiment data is pushing to levels that suggest capitulation buying - money piling in before it is too late (Traders Narrative has an even more recent summary sentiment indicators), there is nothing to say that this run couldn't just keep on keeping on.

We are counting swallows here. And while we have had a bird or two breaking from the pack, the flock has yet to take wing and follow. The liquidity that the Fed (and its central banking clan) have injected into the world's economy may be overwhelming the fundamentals.

One final question with all this - is the USD still a 'safe haven'? What I mean be this is - does the USD breaking down signal a further appetite for risk - or the opposite? Time will tell, and being the cautious type I'm going to wait for confirmation one way or another.

For the moment, I'm sticking with the short...but my conviction is waning.


  1. Anecdotally I've noticed a large upswing in message board traffic. Posters are once again talking about what they are buying. It's been at least 10 months since I saw so much buy talk. I took that as a massive contrary signal the other day and stayed up late two nights in a row to trim my US stocks.

    There's also the 200 DMA crowd piling in and all those funds managers who were not fully invested are surely worried about there jobs and getting on board too.

    Still I wonder what an alchemist is doing fighting the tape so much. What's that quote about no difference between being early and being wrong?

    Another anecdote. I was down Smith St today and my partner said "What Recession! Look at all these people!"

    Good luck with the short.

  2. I think I agree with you moreld, this rally may yet have some way to run. No doubt it will eventually come to an end, but being short at this stage could hurt.

    A couple of writers whom I follow, who you would probably almost classify as perma-bears, have begun to concede that the reflation effect could be a lot stronger than anyone expected.

  3. Now I'm starting to feel like the shag on the rock...

    My trading view is that we have a retracement over the next 1 to 2 weeks before a last push higher into September.

    I have paid up for time value with the put, so happy to let it run and see how the market pans out over the near term. We are too close to resistance to close out here. Overlay the faltering price action in the Nasdaq and the bullish sentiment measures and this is why I'm looking for weakness.

    At the end of the day, if I stop out, it won't stop me continuing move to cash in the portfolio...A move (I'm thinking) you both would agree with