Darshan's Blog

Darshan's Daily Ma rket Ponderings

The OPEX grind, FOMC and US inflation?

Thurday February 18th, 2010

Well well well. Seems not only did our numbers hold yesterday but OPEX week manipulation is more than evident.

First let's just re-examine what I said yesterday.

Gold is my clue at the moment and it seems to be holding resistance at 1130 so far. If it breaks that, then 1150 is the next level and it will drag the markets up with it.

Well resistance held and it fell to $1100 almost $26 down on the day. Lovely. Now will it base at $1100 and head to $1150 before collapsing to 1020? Well the way I see it, it will collapse to $1020 but what route it takes to get there is a different matter. All I know is that $1150 will be a great shorting opportunity if we get it.

Similarly, resistance for most of the indices held any breaks were on light volume and therefore not to be trusted. However, remember what I said Max Pain for OPEX is 1110 on the SPX what's the bet they drag the indices higher (there are many large bids hitting key stocks of course, these serve to trip buy stops and up we go easy hey!) towards that target? Pretty high. So I am expecting resistance of 10300, 1105 and 5300 to be broken with conviction today and then we head towards 10400-500 on the Dow, 1110-1120 on the SPX and 5400 on the FTSE ultimately, with downside risk always on. We should then drop hard towards those lows from last week.

At the moment we just need to get the next two days out of the way. Technically the markets have no reason to be jolly at all. The FOMC minutes yesterday certainly surprised . They explained in great detail how they would withdraw liquidity and reduce the FED's balance sheet. However, they made it clear that a program of asset sales to reduce the balance sheet faster, would probably be announced in early spring or late May. In other words at the moment they are playing for time as I said, they need to tread carefully and offload the risk to the sheep. That will mean playing this market like a fiddle and each move will be calculated. We just have to stay one step ahead. It is clear from the minutes that the asset sales would be spread over a few years which to the market says 'Hey don't panic, we're not going to pull the rug too quickly .

Interesting times to come for sure. The FED are in a real tight spot here as Hoenig says, tighten policy quickly or else, things could get out of hand. Personally, I think the inflationary scare is being ramped up so that the FED have recourse to hike rates. Just now we've had January PPI coming in at 1.4% with core PPI coming in at 0.3%. Of course, the market was looking for 0.9% and 0.1% respectively. In other words it shows there is inflation. However, is the PPI being passed on to the consumer or are producers taking the hit? That should be the real tell rather than taking PPI as a reading in isolation. (I don't think consumers is in a position to consume if it is being passed on to them and so, I don't think the producers are generally in a position to do so. Make up your mind, which side of the inflation/deflation debate I'm on). Just to back up my point, jobless claims came in higher at 473,000 vs 450,000 expected. Right I suppose all these unemployed people are out consuming hey? As if.

Anyway, let's see if the market ignores the data today and soldiers on to those higher numbers in preparation for options expiry tomorrow.

Stay safe today and happy trading,

Darshan

Darshan

*The information contained on this website and from any communication related to the author s blog is for information purposes only. The analysis and the market recap do not hold out as providing any financial, legal, investment, or other advice. In addition, no suggestion or advice is offered regarding the nature, profitability, suitability, sustainability of any particular trading practice or investment strategy. The materials on this website do not constitute offer or advice and you should not rely on the information here to make or refrain from making any decision or take or refrain from taking any action. It is up to the visitors to make their own decisions, or to consult with a registered professional financial advisor.