Confused Bulls & Bears – A Perfect Marke

Darshan's Daily Market Ponderings

Confused Bulls & Bears – A Perfect Market

Friday 6th November, 2009

Morning all!

First of all, massive apologies for not getting an update out to you yesterday – I got stuck in a meeting, I didn't realise was going to last so long and trust me, it lasted for ages! Anyway, let me make it up for you today...by recapping what I would have said yesterday, if I'd said it!

Before I get on with that – let's just say yesterday was a perfect retest of broken supports, along with a 50% fib retrace of the recent drop from the top. However, today in the futures, the markets seem to have crossed over them. Although, I don't pay much attention to what happens overnight any more – as it really is just all the big money pushing prices around while there is no volume. Talking about no volume, the retest of broken support yesterday – came on next to no volume. Fumes in fact. This combined with negative divergence, makes it suspect to me. I think it could be a pump before the Non-Farm payrolls numbers that are out at 8.30am (EST) (more on that in a minute).

Essentially you know that I've been saying for the past two weeks, that the drop is a bear trap and it's proven to be just that so far. As long as that weekly trendline on the Dow remains in tact, we should be heading higher before the big drop. However, the thing that worries me is that we have not tested last month's lows and those are now below that trendline, so we have two options here.

1. We have either already begun the journey above October's highs – so that the funds can sell all the garbage to retail investors who are worried about missing out on a new bull market....or....

2. We will break lower starting today and actually hit support near 9600 on the Dow. Of course, at this point, all the bears will be back on the short train and that will be derailed quickly with a short-covering rally.

Both are cunning plans but at the moment, both have a chance of working. The probability lies with the latter but we just never know.

Now I know the seasoned traders amongst you will be asking, why I am using the Dow as a measure? Yes, the real indices to monitor are the NDX and the SPX but remember, the Dow is the joke index which is easily manipulated up and down. So it works well in finding traps...as that is the index most retail traders will think matters, when it is talked about on the financial news.

Anyway, back on to today. We have the Labour market data to look forward to. Will they allow the unemployment rate to print into double figures or will it always mysteriously stay at 9.9%? To be honest, I'll be shocked if we get better than expected NFP numbers (-173k expected) or lower unemployment (9.9% expected). We shall see if this is a pump the futures, dump the cash scenario that leads to Option 2 above.

Remember, this market is very nervous. If I'd published my blog yesterday, this is what I would have said... The FOMC statement remained the dovish language and the federal funds rate will remain low for an extended period until the labour market improves in a sustainable manner. However, there was an important change in the statement that definitely should worry all the bulls. The Fed will reduce the amount of agency debt to purchased by $25bn from the $200bn previously stated. Now this is not much but it shows a gradual step towards QE slowing down and the note about reductions by March 2010, is a clear warning sign.

So with this in mind, it would make complete sense for the banks to ramp up equities in November, so they can sell into the rise. In other words, we are getting ever closer to that big reversal in the US dollar and a swift sell-off in equities, once the ramp to new highs is over. I will make an additional more detailed note about all of this, over the weekend. I hope it helps you all.

Until then enjoy your weekend and 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.

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Contributing

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  Cory Thiarello

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  Ajit Utagikar

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  Anil Bhat