Darshan's Blog

Darshan's Daily Market Ponderings

Friday 5th February, 2010

US employment data keep the markets waiting....

Morning all!

What a ride down on the markets yesterday! Took some by surprise. Alright things definitely went towards option 2, rather than option 1 yesterday. Which makes things really interesting. As a result of this, we should stick to our targets as mentioned, however, with a twist.

A quick reminder of option 2 yesterday - once those levels broke, you should have gone in heavily short.

"We break 10200, 1090 and 5190 on the FTSE 100 today and we head lower to complete this down move immediately. In other words we head towards 9700, 1030 and 4950 before taking off. "

In addition to which - did you see how Gold managed to drop over $60 since yesterday and hit my $1050 target. So that was a plus but also a clue (I hope you took that short trade!). It essentially means that Gold is nearing some sort of support level. From here it can rise to $1150. However, if it drops below $1050, then $1030 and $1000 are both levels that are in play. In other words, all the gains from the last few months would be wiped out. (Hey you know me, I've been saying to short Gold on every bounce - it's nothing but leveraged money looking for the last pump and dump vehicle).

So yes, if it bounces here -then that should mean that equities should also bounce. How far though? The damage done yesterday, clearly bring lower levels into play - namely 4950 on the FTSE 100, 1030 (and possibly even 990) on the SPX and 9700 on the Dow.

We really ought to ask - can the market get there in one go from here? Just look at any instrument and you'll see how oversold it is. The big players are just taking out stops all over the place and removing their profits before the Central Banks start withdrawing liquidity. Even the Bank of England has now decided to end QE measures. Interesting times are upon us.
In the short term though - there might be some respite for the bulls. This move down into support levels might have been done to price in any surprises from the Non Farm Payroll numbers out at 8.30am (EST) today. Remember economists are expecting an increase of 10,000 jobs and for the Unemployment rate to stay at 10%. It should be interesting here because if we do get an increase in the number of jobs, the USD will strengthen and of course, equities will get smashed - mainly because it threatens the prospects of low rates and easy money for the markets. Even if there are job losses, as long as they limited to the lower 5 figure range, the the dollar will rally. It's that simple.

So let's see what surprise there is in store for us. If it's great news - then it's bad news for the markets. If it's bad news, then it's okay news but could scare the market. However, all in all the move yesterday should absorb most of the shock in the short-term.

Tricky markets are the moment for sure. As always, the risk is to the downside for the long term but in the short term, a bear trap could be sprung at any point.

Stay safe and happy trading!

Darshan

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