Saturday, October 3, 2009

Reflection on Market Movements ending 10/2/09

  • Weak US jobs data along with relative dollar strength.

  • Dollar strength with oil up around 70.

  • Strong Dollar Weak Equities.

  • Strong Dollar Strong Gold at 1000+ levels.

The only play that may have made sense was risk aversion to gold due to economic weakness. It seem that the Euro and Asian Equities are just following the US drop. With Correlations out of whack, Im just glad I'm a technical hybrid.

It will be interesting to see if gold will break out of its range bound trading. Technical resistance at 1000 has been holding for so long now. Price Pressure certainly must be building.

The best way to play this market, when nothing seems to be fundamentally sound, is using Technical and Sentiment analysis. Carefully observing the sentiment indicators and technicals should give a trader/manager leading indicators as to how markets might react to trumping fundamentals. If this doesn't seem feasible, one should be in cash or close to being fully hedged.


PS: much of this volatility maybe due to pricing in of a bad upcoming earnings season. If one believed the past earnings season was due to cost cutting and severely reduced expectations, this upcoming season must be a bearish one considering underlying economic fundamentals have not significantly changed. One key sector that may lead this move is the financial/banking sector. One can confirm overall SPX movements by individual equity analysis vs expectations in the sector if they believe the financial sector to be of significant importance. If a bearish thesis plays out I expect the SPX to hit 1010 within a four week time frame.

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