I have to admit. The market condition now is slowly starting to give me the creeps. It is a gut feeling that cannot be justified or backed up with any data or indicators, but from years of experience and dabbling with market psychology, i just get this feeling which cannot be quite explained.
There are extremely over bullish sentiments about the market right now. Considering the jaw dropping recovery that we have had since the meltdown of 2008, market continues to break new odds and spiral its way higher. Though much of these recovery can be credited to availability of TARP funds, QE policies by the various central banks and some aggressive fiscal policies undertaken, there doesn’t seem to be clear vibes of the repatriation of funds. Though the giving has stopped, the growth hasn’t quite stopped. A quick glance at DJIA and S&P500 indices gives us the snapshot that though the strong “V” recovery is indeed happening, we are not quite back to where we were. Regardless, look at the trading volume. There is increased speculative activity than there ever was before the financial crisis when record highs were made.
High Trading Volume, but not quite the evaluation
Increased trading volume - Not so on valuations
Am i being paranoid or does this mean something for you?
I mean, just take a look at the recent events we have had;
- Debt crisis in Dubai
- Debt crisis in PIIGS, notably Greece, with still no end to the actual resolution and implementation of the bailout program
- Extremely high P:E ratios, some being more than 1:50!
- Goldman Sachs fraud probe – The way the market totally disregards this news is rather scary
- And we haven’t even started talking about the problems in the US?
I am not sure about you, but it sure does make me feel a little edgy over the whole situaton. I am not asking you to plug out your longs and start shorting the market rightaway. However, keep this skepticism at the back of your mind while you look for new long positions in the market.
So, what happened last week?
Here is a review of how all currencies fared against the USD.
1) Eur – -ve 0.68% (made lower lows since oct ‘09)
2) Gbp – +ve 0.65%
3) Jpy – -ve 2.29%
4) Chf – -ve 0.9%
5) Cad – +ve 1.53% (testing parity for 3 weeks now)
6) Aud – +ve 0.67%
7) Nzd – +ve 1.42%
8 ) Gold – +ve 1.66%
Except for the GBP, all currencies lost strength against the dollar except the com-dollars. We are still holding our position on Cad/Jpy since March. Coupled with yen seasonal weakness and rising Oil prices, this is proving to be a tremendously profitable position.
What lies ahead?
We take a look at the USD index to give us insights to any weakness/strength that could be looming for this basket of measure;
Showing no signs of weakness as yet
As we have seen for weeks now, the USDx has achieved a very comfortable position above the 80 level and shows no signs of weakness as yet. A break below the 78 level is where we could re-consider USD weakness. However, nothing of that sort looks imminent for now.
Bottomline
With rising oil and gold prices, USD weakness was to be expected. However, this correlation is seemingly getting weaker and weaker. I wouldn’t bet my horses on such correlation as evidently, much of them are being devalued as new market feedback teaches us otherwise.
Technically, I am biased for most currencies having a correction against the USD this week, at least for the first half of this week based on chart patterns given by daily TFs. Most of them gave reversal signals last Friday and will expect new momentum of buyers before going in long. I don’t have a longer term view as yet on most currencies as they all tend to be confined in a range, for now.
Fundamentally, there is much news heading out of Aussie, Kiwi and US land this week. So much is to be expected of the forecasts, especially with FOMC meeting midweek. I will write more about them to you on individual posts.
Stay true to your trading plan, cover your risks and always be happy when trading.
