Darshan's Blog

Darshan's Daily Market Ponderings

Just Another Manic Monday

Monday 10th January, 2010

Morning all!

I'm back after the holidays and ready to guide you through this freakshow of a market. Luckily, since last week, things have not really moved that much and in fact we're looking at some pretty nice trades here. More on that later...

Anyway, so on Friday - the US labour stats came out and well surprise surprise, contrary to the celebrations caused by November's better than expected figures - this month we reverted to some reality and it was revealed that 85,000 non-farm jobs were lost in December. This is not great news at all but to be honest, the market does not care about the impact of this. The market does not care that over 36million people in the USA are on food stamps. You would think that it would right? Nope. Look at us - we're higher again overnight. It only cares about how data could affect rate hike prospects. After all the moment economic indicators warrant any sort of rate increase thoughts, the free money keeping the markets afloat will come to an end. So as long as the bond markets bet that the Fed will leave rates unchanged, the computers do not care.

For now we're entering the 4th quarter reporting season - with every market near the highs. We have Alcoa reporting after the bell tonight, with the market expecting a profit of 6 cents a share. Gold and oil have both leaped since last week and are also near their upside retracement targets. More importantly, the VIX is in the teens and showing that the market is dangerously complacent. All in all, we have a suspiciously toppy opening to 2010. Anybody would think this is just a short squeeze designed to create buffer for a correction.

We shall see on that too. This week we have Geithner and his merry men auctioning $84 bn of debt. They will want any high yielders to take a hit, so that the auctions go well. You have to ask where is all this money going towards? I mean in 2009, the Government auctioned off $2.1 trillion in debt - despite fixed income offering such low returns - mostly a loss on the year. This year they plan to raise another $2.4 trillion via note auctions. It's definitely a case of the money shuffles. Borrow from here, pump up there, rinse, repeat, reverse. Even worse, when it's the Fed buying a lot of the notes - because nobody else wants them.

Like I said last week, Bernanke has himself a problem - how is he going to solve this mess?

Let's wait and see shall we. For today - there are a few trades to look out for. I think the USDX is being sold to allow it to find a base at support in the mid 76s. This should ensure a dollar rally over the week during the Treasury auctions. So for this week, I'll be looking to check into these trades:

1) Sell the EUR/USD near 1.4590 (if it gets there) with a stop at 1.4630 and aim for 1.42 and then 1.4070. Always trail the stop once in profit. If 1.4630 is tripped then 1.48 is the next level of selling interest but i wouldn't touch it.

2) The FTSE should be top heavy near 5600-5625 - so a short there, with a stop at 5655 and a profit target of 5500 and then 5400 is possible.

3) The Dow - can make a possible short term top near 10720 (Let's see if it can get that high first) and then head to 10350ish before heading back up for one final peak.

4) GBP/USD should max out near 1.6250-6300 for the week and then head towards 1.57. So a pretty nice trend trade, if it all goes to plan.

As a bonus - I also think that Gold could take a serious kicking here - it's now back up to $1158 but it could easily dive to $1090 from here before resuming the final move to $1300.

So there you go - as you can see I see so no value at these high levels - the risk is back on the downside.

Good luck and happy trading. If you have any questions then please do ask :-)

Darshan

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