Aug 11, 2011

American and Asian markets want to bottom in here. Europe is the problem. Gold is dropping after CME hiked margins. Expect more of that as long as gold gets the attention as a safe haven. The SNB has announced its version of QE which makes short-term interest rates negative and which will hit margined currency traders the hardest. It has denied rumors that it might peg the swissie to the euro — but that might just be a trial balloon. The recognized “safe havens” are now extracting a very high price/risk for that “safety”. Unrecognized safe havens — pound, krona, platinum – are far better IMO. Once those “fill up”, then the world is gonna have to deal with the reality that the dollar is the only safe haven large enough to have big wide open doors. Course it won’t stop them whining and bitching and moaning about Fed policy or America.

The S&P is at a real crossroads at 1120. This is the 50% line of the entire 2007-2008 bear market. Below this, people may wake up to realize that the entire rally from the 2009 lows is merely a really long bear market rally with brutal downside ahead. If it holds and rallies here, then people can see the rally as something separate from the preceding bear market. 50% is an artificial number – kind of like the Fibonnaci numbers – but symbolically it matters. And symbols matter to chartists/technicians. Also, the US market has basically completly eliminated the post-QE rally. This is a HUGE vote of non-confidence in Fed policy.
Finally, we are, basically, right back where we were last summer when Europe had the first round of crises. So this is a HUGE vote of non-confidence in ECB policy.

Short-term, I am now neutral. The broader markets will be gut-wrenchingly volatile but go nowhere. Big fundamental issues need resolving and that resolution will point the way for the market. The stock market is supposedly a discounting and anticipatory mechanism. I’m not sure I believe that anymore with computer algorithms completely dominating all trading activity. Those algorithms are not programmed to anticipate anything more than 6 nanoseconds into the future.

Right now, until that resolution, it may actually be the time for individual ideas that de-correlate from the broader markets.

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