Tuesday, August 9, 2011

August 9, 2011 - Some market thoughts

Markets from the beginning of August have been in panic selling mode. Most of the moves of risk aversion have been largely exaggerated and knee-jerk reactions. Algorithms creating biased momentum. The move is not very characteristic of strong risk aversion with UST rallying negating their double top formations, however with the dollar remaining relatively under pressure. True risk aversion should see strong dollar rally, the move in the dollar has been very subdued in trend but very volatile in price action.

Crude oil markets have almost completely deleveraged from the early 2011 (FEB) oil shock highs and subsequent correction from the 90-100 range. Fundamentals and prices are finally aligning more sensibly. The move in itself in the 90-100 range made no sense, but from here out price action should be much more clear. IEA estimates in early oil outlook reports along with OPEC reports have been far off for an annual average of 103. If prices continue to print in the 80 - 90 range for the rest of the year this average will be significantly lower. Contango has massively come off as demand normalizes prices. The USA weekly petroluem status should have hinted in this move to come as lower imports and continue stocks falling were consistent week to week.

Equities across the board have finally hit strong technical support post FOMC meeting. The big question is if a temporary floor of support forms only to lead to another drop further or are QE3 rumors and speculations enough to drive prices back to the 1300 range on the SPX.

Again, I've been aside through this period but risk positive biased. I rather be looking for buy entries at these lows when the whole market can only see fear and panic. Either way the bears and bulls and everyone else are between a rock and a hard place.

Analyze Capital LLC
Alexander Lê
Managing Partner

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