Darshan's Blog

Darshan's Daily Market Ponderings

The Markets Hit My Targets - Yet Obama Blamed? Hmmm...

Friday 22nd January, 2010

Hello all!

Well I certainly hope you lot took advantage of my swing trade recommendations (http://www.efactor.com/p/blogs/id=1269) - first given last week and then repeated on Monday. You would be have a significant profit right now if you did. Let me just recap what I had said and I'll leave you to work the profits taken from each trade (All trades are now mainly closed and profit taken):

"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.

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 where can I see this week heading? Well I think all of the above trades still have merit. I can see the Dow and the FTSE rising a bit more - the FTSE even as high as 5550 if it wants tomorrow (Kraft just upped their bid for Cadburys) and then everything flying back down at some point this week. The FTSE 100 can actually hit 5357 (the 50 Day EMA) and the Dow can easily pull back to 10400 and then 10250 if it wants. Gold can drop to $1080 once it heads up slightly at the beginning of the week. I actually think both Cable and the Euro are near their peeks and even if they get a short term lift this week - selling on the rallies is the way to go. Euro is headed to 1..4070 and then 1.38 if the pattern on the daily works out."

So all in all there is some room for everything to move marginally higher overnight and then everything to come down over the week. Especially since Options Expiry is now out of the way, the market can work off all the negative divergences that are piling up all over the place. "

Of course, I warned you about this first two weeks ago, then a few days ago and yet today - when it happens, the market talking heads blame it on the Obama 's banking reforms announcement. Do you really think the banks had no idea about his reform ideas? Come of it - he first talked about it in September 2009 and I wrote a whole post on how it was a PR game. So the too big too fail banks are going to split up and prop desks are looking to be banned. Brilliant. In principle. Then you look at the detail and you realise that this is a very clever way to split the large banks that are in trouble (but not saying that they are) into a bad bank and a good bank. Let the bad bank fail and let the old names survive. Wall Street playing the game as always.

As if they did not know about all this today. Seriously - they needed to clear the decks as too many people were bullish and everyone who had bought - didn't want to buy anymore until someone else did - there was a stalemate. It has absolutely nothing to do with the reforms announcement. It has everything to do with an artificially pumped up market being kicked in it's teeth - as made evident by the unwinding of the Yen pairs. Already the reality and difficulty of this policy change making any real difference is becoming apparent. Foreign banks are just going to switch prop desk operations from Wall Street to London and while it makes up 10% of Goldman Sachs' income - they will just switch back to being an investment bank rather than a bank holding company. The whole policy is doomed with all the loop holes.

In reality what you actually need to now be aware of is a bear trap being formed. I still think the USDX will continue to strengthen but the 1.38 level on the EUR/USD might get hit in February rather than now. So that could be a hint that this sell-off is not yet the real deal. Back in December, I did say that we would get a sharp move down around the 22nd January - spookily it happened two days before that but nevertheless, this has been a long time coming.

If we can stay above 1085 on the SPX, 10150 on the Dow and 5150 on the FTSE 100 - then this is going to kick off another short-squeeze and we will marginal new highs. Something about this sell-off just does not seem genuine. It is true that the long term trendlines have been broken but there is nothing stopping price from zooming back up to test the underside of the broken trendlines. That would leave enough room for the Dow to even hit 11000 before the big sell-off.

The price action overnight says it all. Asia got hammered but Western futures remained up and even positive until Europe opened. If this was real, futures would sold off overnight...in other words this is a pullback (unfortunately for us bears) . Also the USD/CAD is very close to 1.06 - where I see it dropping to a new low from - ie this sell-off is probably another day or two away from being done.

By taking all this into account, I am just playing devil's advocate and keeping in mind that what happened in August 2008, could happen again now. Just be careful - do not short the holes and do not catch a falling knife. Wait for this crazy week to settle down. For today, I see the Dow heading up to around 10400-450 and then dropping to 10250 - where it should find support. Similarly, I see the FTSE going to 5300-5350 before dropping to 5200 where it shall find support.

So stay safe and protect your capital. There are plenty of opportunities to capitalise on next week, once the big guys have finished their games. Most of all do not read or watch any mainstream financial media....they are all nuts. Especially the BBC - some of their reporting over the last few days has been comical. They seem to be acting like this profit taking is a surprise. Someone needs to lend them some resources so they can do some research. (I am only harsh on the BBC because I expect them not to behave like CNBC).

Anyway, I hope you are all profiting from these moves and if you have any questions - please do ask!

Happy trading,

Darshan

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