Darshan's Blog

Darshan's Daily Market Ponderings

The ECB, Wall Street and Easy Trading.

Friday 26th March, 2010

Afternoon all!

Right - so we're still treading water on the global markets. Yesterday was a beautiful example of how the big money is trading these moves. They are trying to unwind their long inventory by grinding up the price slowly and then distributing to the weak longs. How do we know? Well yesterday we got to 10960 on the Dow and suddenly CNBC erupted with calls of 11000. What happened there? Yes, weak longs got on board the gravy train to a 'guaranteed 11000' - with tight stops. Of course, this is classic big boy play - suddenly the guys in the pits attacked those sell stops between 10900 and 10950 and tripped it all the way down to 10840! If you foolishly got long in the 10900s - you just got served.

Simply predictable and beautiful. Meanwhile on the forex side of things - as wagered on my ECB/Green game plan posts last month - the Eurozone countries agreed on a bailout plan for Greece at exactly the right point; That's right as the EUR/USD pair reached support near 1.32. Like I said, it's hard to intervene in such a large market but it's easy to shoot messages to scare the shorts, by doing so at various key points. This uses up less ammo.

So what's the agreement? Quite simply, Greece would be bailed out as a last resort. Yes a last resort - two-thirds would be funded by government loans and one-third by the IMF. So in total the amount could be anywhere near 20B. Nice. More money out of thin air. Of course, the funny thing is that Trichet is happy to be disgusted by the IMF involvement but in private no doubt welcomes it. After all, any IMF involvement makes it seem like the Eurozone idea doesn't quite work when things go wrong. Too right it doesn't work - when you admit countries - knowing full well that they will not keep to their debt promises, then how do you expect things to work Mr Trichet? (Interestingly more breaking news as I type this - now talks of Greece having to leave the Eurozone if Germany has to pay out)

Of course, the ECB were happy to do this because via swaps - these countries could effectively hide their actual level of debt. What's that? Major investment banks would help sovereign nations disguise their real debt? Never! Well, when they're not doing that - they're too busy being called up in court. At the moment - over twelve Wall Street giants - including UBS, JP Morgan and even Lehmans - are involved in an antitrust case with the Justice Department. What's the crime? Well they have been accused of being involved in a plan to pay below market interest rates to US state and local governments. Things just keep getting increasingly interesting.

As we look at the markets today - all we are able to see is a market that is being slowly bought up by the masters of Wall Street, who now have more power than they had two years ago. When they switch sides and go short - they will show similar relentless one way control. Get ready for it.

For today - don't get too long - in fact just do not do anything. It's not worth it with it being a Friday. Reassess on Monday. We really need for this quarter end window dressing to end, then the real motives will be seen. Please next Thursday just hurry up and come around. The currency markets are where all the real action is at the moment. Remember what I said on Wednesday, if Cable (#/$) closes the week below 1.50 - then it's in real trouble and if the EUR/USD pair - cannot break 1.3450 then 1.32 is almost a dead cert.

Have a great weekend and the best thing you can do is go away from your screen, enjoy the fresh air and life.

Darshan

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