Darshan's Blog

Darshan's Daily Market Ponderings

Global markets await FOMC tonight

Wednesday 27th January, 2010

The markets are all waiting for their next move and they will use the FOMC statement later today, as the excuse for the move. So watch for 2.15pm (US Eastern) - things could get volatile. Mainly remember that that last FOMC statement stated that the Federal Reserve would begin unwinding it's $1.2 trillion mortgage-debt purchase program by the end of February. The key points that will decide this will be the mood that is created from the economic news over the last quarter. Specifically, a few regional Fed presidents have clearly warned that the housing market will struggle without the liquidity pumps and yet some have said that it is time to start thinking about increasing rates. Either way, the word on when the liquidity ends for sure - will be what spooks or rallies the market.

In the meantime, the world seems to be totally relying on China to make up for all the lost liquidity elsewhere. Greece has been wooing China (with the help of Goldman Sachs) to buy 25bn Euros of bonds. (China seems to deny this approach but nevertheless, since Trichet is unwilling to lend Greece a hand, China is the go to saviour). It's not just Greece, that is relying on China - the IMF is also relying on the BRIC nations to fulfill their hopes of a newly raised global growth forecast. Am not sure why so much emphasis is put on a country that is overheating with unsustainable credit expansion. If anything, it should be a major worry. Especially since there is definitely a commercial property bubble about to burst in China and you know it's serious when the Government orders the nation's banks to work out a solution in the event of a commercial property bust.

Back in the USA - the effects of bubbles bursting carries on. Existing home sales fell significantly yesterday and today, seasonally adjusted sales of new homes fell 7.6%. The lowest number since March 2009! This is the sort of info that will have the FOMC in a mess tonight. There is pressure on the Fed to stop the liquidity pumping madness and yet without carrying on feeding the patient with the drug it needs, the economy is dead again. Actually, forget the economy - the banks do not care about that - more importantly for them, the stock market casino is dead. What should it do?

This is why I think they are building up a bear trap - that could be set into motion any day soon. I am thinking possibly as early as next Monday. The SPX just needs to stay above 1075 and the Dow above 10000 (9750) max, where we can get a short covering rally to new highs (up to possibly 1200 on the SPX and 11250 max). We could get that possible move up to 10400 tonight and tomorrow, because Obama speaks tonight and the FOMC statement should provide some sort of spike. From there we can drop down to the lower targets into Monday of next week and then the bear trap is set, launched and put into motion. Whoosh up we go to new highs before the crash sometime after March 2010.

Simple plan hey? We shall see - but I hope it's going to work like that - at least it will be easy to keep on top of things.
So happy trading today and if in doubt, keep your powder dry. Always a tonne of opportunities.

Darshan

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