Darshan's Blog

Darshan's Daily Market Ponderings

The Market Is Hoping Santa Exists...

Tuesday 22nd December, 2009

Afternoon all!

Dropping in for a much needed Christmas week update, as promised. As you can see, the markets are still doing nothing but trading a very boring range; so much fun if you are called Johnny-Five and are your heart is a circuit board - therefore allowing you to play ping-pong on these moves - however, most of us are definitely humans and not robots.

At the end of the day, Santa seems to have left it too late for a properly rally as the SPX is still contained by the 1121 level and the Dow by the 10600 level. Similarly the FTSE 100 is being held tight by 5400. What's going to give here? Is Santa going to get here just in time, jump down the chimney into the pits, start waving his palms around and buy up the entire US market himself? Stranger things have happened on Wall Street in 2009. However, I am not sure anymore. Let's face it we're just over a week away from 2009 waving us goodbye and 2010 praying that the beginning of 2009 does not repeat. In the next week, volume will be even lower than the last month - in effect, anything could happen...but whatever does happen shoud not be trusted! Any spikes wil be short-lived and any drops will be bought back up. I am also in the camp that thinks there are just too many bulls out there, waving their two fingers at the bears. I mean the CPC is at 0.6. There are just too many players hoping for a last minute super rally. Will they get it?

That is something we cannot predict, however, the market likes to hurt the majority. My argument is that this year has been the biggest bear market rally since the after the 1929 crash. My argument is also that they have a whole new year arriving - which allows them to relieve much needed pressure from having to hold the entire complex up using the Fed's slush fund. My argument is also that they will not want to start the new year, with too high of a base to beat by the end of 2010. So why not, take some more money off the table - as long as they finish a decent percentage above where 2009 began, the funds are going to look good. It's a well known fact in behavioural economics that investors only remember the last thing that happened and tend to make decisions on that. So they will remember that the market finished up on the year, and forget that we came so close to collapse. The cause does not matter - the sheep will believe the hype.

Talking about the sheep - everywhere I look, there is talk of the US dollar/equities relationship decoupling. Perhaps on the surface yes; The USDX has risen from 74 to 78 and yet the SPX is still abo 1100 - when it should be just above 1000. The reality is that the dollar shorts needed to take profits because the 74 level was proving to be a dangerous level to keep holding shorts. The equities guys know this. All that is happening, is the USDX is being walked back up - to create a better level to short back to 74 or at worst 71, whilst the Yen is being used to keep the markets held up. I therefore, think the market is being held up just until after Xmas and then it too will come down to create a base and a trap for the equity bears. I envisage this to be around 10000 on the Dow, 5050 on the FTSE and 1050 on the SPX (as long as the Dow stays above 9700, the bulls are ok). That should provide the final ramp up into Janurary 22nd - where the US Non-Farm Payrolls number should appear to create new panic - but of course, it will be the USDX which will have been cycled back down and bottomed properly - which will actually do the trick. In other words the dollar/equity relationship has not decoupled - it won't decouple as long as the FED is the power behind this fake rally.

As I type, this both the Final GDP annualised figures for the UK and US have been released. Both have come in worse than expected - with the UK contracing by 0.2% instead of the anticipated 0.1% and the US only expanding by 2.2% instead of the anticipated 2.8%. However, look at the market - it just does not care. All the big traders have switched of long ago and the game now is just to make sure that the market finished a decent percentage above where it started the year. This does not mean it cannot fall within those parameters. So be cautious - do not be a cocky bull waiting for Santa to bring you presents. As every adult knows Santa doesn't actually exist and the fake Santa in charge this year - has his own game plan to worry about. (Plus it's the year of industrial action - most of the reindeer are on strike!). No matter what happens, just remember that for almost three months - the market has moved sideways - it is easy to get carried away with the spin but price is all that matters.

Go spend time with your loved ones and ignore the markets for now - if you have snow outside, go throw some snow :-). I'll put out another update on Tuesday 29th December.

Merry Christmas to you and your loved ones!

Darshan

ps...Perhaps the US Existing Home Sales out in an hour will help give the low volume jokers some lift. Economists expect a number of 6.29m. Stranger things have happened.

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