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Darshan's Daily Market Ponderings
Darshan Sanghrajka | Oct 28, 09 | 143 Views | Topics: Business
US Consumer Confidence Drops - A Warning Shot?
Wednesday 28th October, 2009
Hello all!
So yesterday, tried to work right but it seems they are working their time with the setting of this bear trap on the indices. The key event of note yesterday, was that US Consumer Confidence dropped to 47.7 vs the 53.5 expected. (Remember my post about GDP on Friday? Well here we go again). This is a huge problem. If consumers do not feel confident enough to consume, then how can the US economy withstand this? Consumer spending accounts for over 70% of US GDP. Either way, these matters will only be seen as 'irrelevant' by the lagging indicator brigade, who are judging this situation using the wrong economic assumptions. In the meantime, all we have to do is trade using price and not news and see the consumer confidence disappointment as a warning shot.
As I type, this, the SPX is under 1060 - which although not great, means it is close to support at 1050-55 and the Dow is still holding above 9800. Looking around, I would say for sure things look bad but then again I am long term bearish BUT in the short term, I have seen this sort of trap happen too many times. I am not saying go out there and catch a falling knife. What I am saying is, if you are panicking then hedge your longs and if you are short, then trail your stop. If you are stuck long, you will get a chance to rescue yourself out of such a position when this market shoots back up and if you are short, then you will have a chance of shorting this market from higher up. We have the US GDP out tomorrow and that could increase the volatility and not to mention month-end window dressing to consider. So the chances of creating a short-squeeze and killing some bears is pretty easy over the next two days. As I said yesterday, the risk is always to the downside and in the long term I am looking for this entire charade of madness to unravel. For now, all we can do is look at the short-term though.
The USDX is getting lively again today but I feel that could be a trap too. So what the equity bulls need now is for the USDX to turn down again and head towards 74.74 and for the markets to head up to new highs. Then we can go long the dollar and short equities. Until then, if it looks too easy it probably is.
I have nothing more to say today - other than be careful and stay sharp.
Happy trading!
Darshan
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