Darshan's Blog

Darshan's Daily Market Ponderings

Monday 23rd November, 2009

Turkey or Stuffing Week For The Markets?

Morning all!

Before we begin - here is our compulsory Monday morning reality check...

Monday US Bank Failure Update: The Commerce Bank of Southwest Florida takes the honour of being the 124th bank to go bust in 2009.

Yet again, another bank failure, a broker FDIC and the futures are rising. So, what about the markets this week hey?

Now that OPEX is out of the way, we have yet more headfakes due this week - it is a shortened trading week due to Thanksgiving. As suggested last week, any lows would be bought up and well we're back to square on all markets today. That of course, all due to the dollar pulling back from Friday highs. This is key, especially since the USDX is what is providing some conflicting signals at the moment. It definitely needs lower and so the markets need higher - however what happens in the meantime? We shall see later in this note.

Eagle eyed readers might be wondering what is happening to my gold short - well I was stopped out last week but have just gone short again, as we are overbought on the daily timeframe and even though Gold is not just a runaway mine train (Shoot me for that pun, even if it was unintended) powered by the momo players looking for yield. Remember, there is huge call interest on the $1200 strike price for December options, which expire tomorrow. So the question is, do we hit that target or do we simply tease those call holders and drop towards 1070? Pull up a gold chart and check how the price patterns move - so we are yet again at a price area where we should see a $90-100 correction, before we take off again. Ultimately once we have that correction, gold could get to $1250 under the current play of hot money chasing momentum. Nevertheless, in the grand scheme of things - I still stand by my take that the dollar will bottom somewhere in the $74s and Gold will head down towards $500 and below over the next year. Shorting a momentum play is always dangerous (as I said, look at oil last year) - but hey I like a bit of danger (Don't follow me on this one though, unless you know how to hedge this position).

On the note of the dollar. Today Bloomberg is reporting that "top" analysts are convinced that there is no bottom in sight for the US dollar. Who are these 'top' analysts exactly and where did they disappear to last summer, when they said the same thing and then their call proved to be wrong? In actuality, it's such negative sentiment for the dollar, that makes me more confident. Sure we could see some short term pain in the dollar but as long as it does not surpass the lows of last year at $71, we're all good. No need to panic!

So the key question for today, is whether the markets have enough steam to break last week's highs or not? I don't think they have just yet. I see two scenarios:

1) We drop from here towards 10050 (Yes I am still looking for this) and then rise from there, towards 10500-600 on the Dow (Support comes in at 1074 on the SPX and highs should be above 1130) before we crater.

or

2) We continue the rise from here and complete the moves to the higher targets mentioned above - before we crater.

The reason I am more in favour of option 1, is because it is a light volume week and I expect the traders to whipsaw the markets around. In addition to this, crude oil needs about $2 lower, before it bases and that bull flag kicks in towards $88. Of course, there is also the fact that we have resistance at 10495 on the DOW, which will be tough to crack first time around and that we have a 90 point gap up from Friday's close - so every chance that could close too.

So the better play would be to trap some bulls, then trap some bears and then whoosh upwards we go, before down we come. So all in all, this week should be a messy week and we can't really tell for sure what the short-term direction will be until we see if support hold on the Dow at 10200 and 1084 on the SPX. If US Existing Home Sales surprise to the upside at 10am (US EST), then option 2 could come into play for sure.

So, the best advice I can give today, is to stay flat and only trade when the signals become clearer. Shorting anything is madness, because even if we do head lower, it will be quick and sharp. You do not want to be trapped for over 500 points. That could be more painful than having to watch Glenn Beck for an hour. This week, has every chance to be a week where the longs will be giving thanks or every chance they will be getting stuffed. It is just too short a week, to do any meaningful analysis on - not until today is out of the way anyway.

Good luck today!

Darshan

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