Darshan's Blog

Darshan's Daily Market Ponderings

Financial markets prepare an end to groundhog day?

Monday 22nd March, 2010

Morning all!

Did you miss me? I am back after a break from the markets - lucky because the FTSE (the main market that I trade) has not moved out of a 100 point range in about three weeks. Anyway, those of you that remember my posts from the Greece induced correction to the downside, will remember that I quite clearly said we would see new highs by March or April - and that would be created via a vicious bear trap. Well while I was taking a break, that is exactly what happened - so if you'd been paying attention - you hopefully capitalised on this sharp run up and didn't get caught short.

Here is the post that I first warned about the bear trap - back on 28th January 2010:

http://www.efactor.com/p/blogs/id=1315

Obviously we had to play it by ear between then and now but the generally gist of something being used (In this case Greece) to create profit taking and then a bear trap being used to create a final rally - has indeed come about. More importantly, the USDX is fighting strong as ever. Another move you could have capitalised on if you'd read the posts on E.Factor.

So where are we now?

Well I think the market probably still needs 1200 on the SPX, 11250 on the Dow and 5800 on the FTSE 100. So essentially, the market has just been held up through to the triple witching options expiry last Friday and now we can correct a bit. What does that mean? Well, that means the SPX could come down to about 1130 and then head up to 1200 (similar moves on the other markets). OR we just simply have now seen the top - since all the markets have seen their new highs that we needed. One thing is for sure - with the General Election coming up in the UK, the Fed unwinding liquidity in May, we do have room for one more pump. However, at the same time - the sell stops are gathering on the downside. This rise has been very predictable but basically built on a slow grind up - killing bears slowly and painfully, and as more long positions build up - they are leaving stops on the downside; The danger here is a cascading sell off as these become targets for the big guys. It will create the sort of domino effect, you do not want to see if you are long.

It's very clear that complacency is high at the moment. Looking around - all the talking heads are now suddenly bullish. Why now? We knew this squeeze based long play was coming but anyone who has been trading long enough knows, that those long positions will be unwound hard at some point. Why be long now and expose yourself to what could be a vicious slide? I don't see the risk reward. That sort of heroic play was there to be had when they started flogging the Greece card.

I keep telling you that the financial media is the best contrary indicator ever - the moment they jump on a bandwagon - you better jump off. We said that Greece would be a tit for tat game played for time, with the conclusion being spelt 'I M F' - and look what we have here - almost a month later? Yes that's right - a series of back and forth statements, with the latest being that everything is okay but if it comes down to it - the IMF would be best placed to help Greece, rather than the ECB. Simply magical, the way the media and the Central Banks play the game hey.

So for today, I'm just going to say - we're in the end zone now - protect your longs and prepare for battle; we should have a clearer idea of things to come once we get today out of the way. Things are finally getting interesting again. (Thank goodness!)

If you have any questions - let me know.

Happy trading

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.