Darshan's Blog

Darshan's Daily Market Ponderings

Abu Dhabi Throws $10bn to Dubai World

Monday 14th December, 2009

Morning all

Well at the 11th hour (and predictably) Abu Dhabi have pledged $10bn to Dubai World - which will mean Nakheel (a subsidiary of Dubai World) will not default on it's $4bn bond - for which payment was due today. Marvelous - so this non-news has managed to spike the futures up, whereas a massive reduction in unemployment numbers didn't do jack. Essentially 10bn has made the world okay again and the indices are back to where they were before this 'crisis' was manufactured as the end of the world (You were warned about the media hyperbole right on this blog the day the Dubai news broke at the end of November). Of course, if only it was that simple. You see, while the Dow futures have made a new yearly high, the SPX and the major European markets are trailing behind. Low volume bull trap anyone? Me thinks so. Remember what I said on Friday - they either move up and out of the range or they move down and collapse - either way something had to give asap; Well it gave overnight and now we have logged into Options Expiry week with the Dow futures above key resistance. Once again, clever boys!

The real question is whether the SPX will break 1121 and whether the FTSE will break 5400 AND stay above it or not? I am not sure - I really am not. There are not only many gaps to fill below but the Dow needs to make this new high during the cash session too. We will see if it can manage it. If it can, the next resistance is at 10600 and then 10712. At this point in time, any ramp up will be caused by buy stops being triggered (as mentioned last week) - so be careful, as this is not real buying pressure. If anything, volume is declining on these drops.

Either way, do not trust anything that happens this week. We have the US PPI, US CPI, US Industrial Production and the FOMC meeting all coming up this week - there is plenty of data available for game playing by the options writers. I am going with the fact that the FTSE 100 has about a 100 points of upside left before we correct hard again. So I think any news highs in the US indices will be traps and ought to be sold with tight stops (if you prefer day trading) or wider stops (if you are willing to sit through some short term pain for a great risk/reward trade). I am fairly confident, they will not want to take the markets too high up, otherwise it will only create a higher base for the start of 2010. Most hedgies have already shut up shop for the year and so again, this is just silly season now for low volume volatility. Only the brave need trade this junk and chop.

Even if Abu Dhabi is drip feeding Dubai World money - there is still another $100bn left to restructure - so the market might just take this as a negative; Looking at the UK banking sector - RBS in particular is trading down again today. You would think the RBS investors would be jumping for joy at white knight potentially standing by to bail them out of yet another bad investment by the world's most useless bank? Yes you would but of course, RBS investors (I count the UK government) are not the most rational of people.

Not sure what else to say really - other than keep an eye on the dollar again. Is it just retracing last week's rise or will it drop below 75.5 and cause the markets to rocket further? December options expiry week normally has a bullish bias but hey we could get a surprise this time around. I am definitely not a buyer of much around these giddy levels. That's for sure. Protect yourself by buying puts if you are long and if you are in cash - stay in cash. We will get a new high on all the indices but it won't be before a proper retrace to test the futures levels hit at the end of November. So wait until then.

Hope that helps - stay safe and happy trading!

Darshan

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