Sep 7 2011

Equity markets gapped up on no volume today to halt a few day Europe-emanating skid that threatened to get ugly. The big indexes are now in a “bear flag” pattern – the sharp drop to early Aug, followed by a choppy wide upwards channel. Traditionally, these are continuation patterns – not reversals. The thinking is that a sharp drop gets too oversold. Gets ahead of the bad news that is being anticipated. So the market drifts choppily upward for a few weeks on no news – and then fails on some bit of “good” news. And then another whoosh down. The key here is time. We are four weeks into the flag. Flags should be resolved within eight weeks. My SWAG for the “good news event” that fails is the Sep 21 FOMC meeting. Could be something earlier – (a G7 meeting this weekend?) The market is expecting to be saved by central bank liquidity – and here in the US the delusion that nothing in Europe will really affect the US. That is precisely the sort of expectation that deserves to be shattered. These flag patterns are even uglier in Europe. There it looks more like someone hanging on to a cliff with their fingernails. Asia doesn’t look very good either. And everything is completely correlated – except Indonesia which isn’t exactly where I’m gonna ride out any storm.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: