Darshan's Blog

Darshan's Daily Market Ponderings

Easter Comes Early For Kraft

Tuesday 19th January, 2010

Morning all!

All is still going to the plan outlined yesterday (check back if you have not read it) and we are starting off the week on a high and then positioning ourselves for a sharp move down over the next week or two. The EUR/USD short is coming along particularly nicely. More on all the boring profit making stuff later on :-)

So it seems Cadburys (filled with US funds as shareholders, who have carefully positioned themselves since the first bid was made months ago) has accepted Kraft's bid for #11.9bn. It's a shame - I hope the chocolate here in the UK, does not start tasting like cardboard (I know you Belgians out there think our chocolate tastes like cardboard already but we like our brand of cardboard - the Kraft cardboard is a whole new level of madness! :-)) Now that is out of the way - it seems GBP/USD should have some respite and start to head back down. Remember, what I said a couple of months back - the American funds will have wanted the bid accepted at a time where GBP/USD is as high as possible. So now that's out of the way, dollar bulls can rejoice andstart to prepare for Cable to slide down to 1.58 before we see another rise.

On another note - if you want a proper belly laugh - I have just been looking at the Citigroup results as they just reported a 33 cent per share fourth quarter loss (what a disaster that institution is) and whilst doing my research, I came across this headline:

"Citigroup posts $7.6 billion quarterly net loss; CEO Pandit lauds 'enormous progress'".

Well done Vikram. How can anyone possibly announce such results and at the same, with a straight face, utter the words "enormous progress"? I mean fair enough a lot of the loss was down to charges linked to repaying TARP funds but give me a break. It's just another US bank being propped up because it's "too big too fail". I am also seeing people comparing and contrasting the Citi results with that of JP Morgan, Goldman Sachs et al. Well like I keep saying - the pack is small, the competition is minimal - in a zero-sum game - there have to be losers for their to be winners. Citigroup will always be the sacrificial lamb, kept alive to make the pride of Wall Street - JPM and GS - look great.

The fact is that we will see results that scare everyone next year. The free money is drying up and we're entering a time where the Wolves of Wall Street will have to turn on themselves to exploit market inefficiencies. The VIX is most definitely at levels of complacency unseen since just before Lehmans collapsed and that coupled with a bear market rally that confused even the best of bulls - we're really at a stage that is going to surprise a lot of people. I mean for example, take the Investor Intelligence bull/bear ratio - which is at a record 10 year high! There are 3.36 bulls for every bear. In other words, how sustainable is this move overall? With the VIX so low, bullish sentiment so high - it would pay you to not only protect against your long exposure but to profit from any downside too.

For today, the FTSE 100 has a juicy dividend, so I fully expect a rise into the close and then for things to turn south after the close. There literally is no incentive for the bulls to hang on here. The markets are struggling to move north at all and so it's time to take profits. Like I said the targets on the Dow are 10400, 10350, 10200 and then 10000. I doubt we will get the final target before another sharp move higher - and then that will be it. After that the fundamentals and the technicals will match price and our negative divergences should have built up enough, for there to be a gut wrenching swing south.
For today - that is all I have to say - just avoid going long.

Happy trading!

Darshan

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