Watching the $

If I were in a WWF ring with a free for all between the baddest four wrestlers - The Undertaker in one corner, Stone Cold in the other and the $ in the last corner - I would be watching ...... the $

We are entering a volume light season, a season where I think stop hunting season could be on.

Every FX Trader is heading off for the hols sitting comfortable in there $ shorts - probably spending their trading bonus earned off their $ shorts! $ Bulls are probably working as temp cashiers in some nondescript fruit & veg store after being fired for racking up losses the last year - mind you they might still get their old jobs back.... USDZAR is still basing quite beautifully, as are other $ crosses. Biding its time the $ I believe is reading itself for a show of strength. This will coincide with the sell-off in the stock market.

Good Trading

Posible entry point for the December rally?

TOP40 chart from Bloomberg.

What a sell off! Only at the eleventh hour they decide that Dubai might be in trouble! Amazing.

The last trade I suggested was to short AGL (and hedge with BIL). For those who rode the trade this week had an interesting time with AGL going up 14 bucks before coming back, and those which hedged had made some good money off the bat. I would normally suggest riding the trade longer but even though the TOP40 has not reached its technical level, the FTSE100 in the UK has! I would suggest taking some off the table here as the risk reward is starts to decrease.

For those which have some risk appetite left after this year’s trading might want to bet on a holiday run, this could be a handsome payoff. I would be looking for the TOP40 to test the top resistance line, hence a nice 1000 point December rally. Start collection some resources, especially gold as she comes off. Just a reminder that this is a high octane trade!

Just to clarify the issue, I am still negative on the fundamentals but hate to fight the influx of money into South Africa and the weakening USD. So long as the USD weakens money is coming to SA and the commodities will run! Especially gold!

Gold - the ultimate safe haven....

Gold seems to be on everyone's lips at the moment - got gold?

The fact that gold is outperforming everything out there is starting to make Joe Public sit up and take notice - this is a concern if you are a contrarian. Furthermore gold has pulled away from the safety of its 50 day moving average and significantly from its 200 day moving average. What is the significance of averages?? Well price tends to revert to the mean....... meaning.... this gold guy is getting a bit ahead of himself. The current up wave from Oct 28 has all the characteristics of a short term blow off and I expect a nasty correction around the corner.

I'm a super Bull on gold and expect it to become the safe haven that everyone runs too as the faulty tower paper currencies is built on crumbles. The motivation for gold spiking currently is not quite for this reasoning - not just yet. Some astute investors saw the writing on the wall long ago but most now are either looking for a return on their capital or expecting inflation to launch to the moon (Crazy since prices are most definitely not sky rocketing up at the moment!)

Imagine if you are a US investor - Uncle Sam is paying you 0.25% per YEAR on your savings! Won't you also be looking for a return somewhere, and hey gold stood like a proverbial rock during the crash of 2008. Seems like a safe place to park your cash - no? Careful - Mr Market has a way of ridding itself of late comers to the party.

If you are long gold for the next 10 years - then I would reassure you and say ignore any short term swings - your money is sitting in the right place.

If your focus is shorter term - few months to a year I'd recommend taking a seat on the sideline soon (today) There is a saying : "...gold goes up on an escalator and down in an elevator...." And this escalator is starting to get awfully crowded.

Here is a an interesting read - Faber is someone I truly respect and feel is one of the more astute market observers - read this and plan your future investments accordingly.
Marc Faber interview

Good Trading.

Possible Punt - Short Whitey

Shoprite (SHP) which has been the mainstay of SA portfolio managers is starting to look a tad tenuous. The chart together with Mr Price and other defensive's such as Pick n' Pay  have performed remarkably well. The support line is looming and will Whitey/Wiese pull another fast one?? Christo Wiese their chairman recently covered his ass with options and one wonders what he knows - one always has to keep a close eye on these two boys... read the SENS a bit on SHP and you will see what I mean. Significant exercising of options has also been happening of late.... having the inside scoop is always useful.............

EDIT - Let me just add for those trigger happy cowboys - wait for daily close below the trendline - or even wait for a break and a back test kiss of the line before shorting

Whereto from here?

Let us asses the status quo:

1. The market has run primarily on the back of the weak dollar and despite reports by reputed economist, the euro is struggling at the 1.50 level.

2. The market has had a great run not only in the resent month but it has literally has made a 'V' shaped recovery so far.

3. The large and medium caps have run hard but small caps have lagged.

4. Gold seems to be world's hedge of choice for any given scenario.

Was it the last run of the year? Will there be a holiday run? It easy to get bullish in this type of environment, every time there is pullback the market proceeds to make another high. Remember, every time the market does this, the probability falls of another new high being reached. A major worry has to be the HUGE divergence trade building on the US markets. (RSI is making lower and lower highs whilst the SPX is making new highs) . This will pull the S&P 500 back down to 1050 in the short term and possibly down to the 980 level in the longer term, no doubt that SA will follow. After a pullback to 1050 it is very possible for the markets to enjoy a December rally, we will just have to see.

I still believe that the real threat to our stock market rally will come in April next year when our reporting season starts. The run in the stock market has to backed by some earning, ...but what if they are not there? Just looks at WHL after their results this week!

* My favorite shorts to participate in the down run are AGL and the banks.

* If you be so inclined to hedge, do so with BIL and insurance/apparel retailers.

Sell off about to get going in earnest

Gill Marcus says the world is flat - for interest rates that is.

Interestingly enough Fin24 states here http://www.fin24.com that SA lost 1 million - yes that's right 1 million jobs in 2009. Pretty scare stuff considering we are already 40% unemployed of a population circa 40 million. I think once unemployment picks up steam the pressure will really intensify on Marcus to cut further and I think she will relent. Let's see.... I think there are a few more cuts down the line than most think. This fits nicely with my deflation theory where prices will come down allowing central banks to cut further. Will we get to the good ol' USA's 0.25% - I think it would be safe to say no, although single digits,  definitely.

Back to my Title of the post - nothing to do with Gill Marcus - this sell off. Markets tend to move on their own steam and volition, economic announcements only tend to have a temporary effect. Although don't "pooh pooh" them - those temporary and volatile movements can be very profitable.

USDZAR seems to have formed a nice double bottom from which I expect a nice long trade-able rally - ditto for stocks (inversely) which follow USD closely.

Is this the end of the bear market rally? I don't know - my perspective is that this is bear market really in a larger bear - which means some significant downside still exists. What is throwing my thought process a bit at the moment is the fact that central banks seems hell bent on devaluing their currencies and printing money like there is no tomorrow. The Fed has already cut to 0.25% even though they espouse a strong dollar policy (yeah right) and other developed central banks are following in these foot steps. What this ultimately will mean is that people will pile into hard assets - gold, commodities, property and the like. For SA this could be a boon and our commodity laden stock market could become the happy parking ground for investors unhappy with leaving there hard earned moola in paper currency. This could mean a very strong rand ultimately (can you say R4 to the dollar) and a stock market which outperforms (relatively) the DOW and other developed world indices. I feel this rush to hard assets is starting to show itself in the gold price climbing unabated although maybe it is being pre-empted just a tad - I feel by a few years....This bear needs to run it course, its only had one course thus far and is hungry for more.....

Here is chart to remind you where we are - ALSH is bumping it head against strong weekly resistance - this at a minimum will provide a deep correction if not the start of the next leg down to new lows.

This long overdue correction is around the corner, shorting NOW would be good. Could we bounce more after this - yes, although don't count on it.

Good trading

I'm starting to get that itch...

Things seem to be getting into position for a strong sell-off  - the bull is getting weary! Yes I sound like a Perma-Bear, but hey at some point I will be right ;)

After a strong rally such as yesterday you would have expected some strong follow through today to validate the new leg up, this has not happened with the ALSH ending the day virtually unchanged. WHAT ! indecision after such a strong up day?? Surely that cannot be.......

Doji's are a sign of indecision and after a strong up day, indecision should not be present. Yesterdays strong up day probably was a short squeeze and is Mr Markets way of getting Bears out before staging another drop.

USDZAR seems to be building a nice from which to launch, patience is all that is required. The USD rally could be a fast and furious affair with every man and his dog selling the dollar. As Buffet says "Buy when others are fearful".

Remember USD up equals Stocks down and this includes "risky" emerging markets. The USD seems to have taken over as the currency of choice for the "carry trade" - i.e. borrow in USD and invest in risky assets.

Sentiment wise the Bears are scared currently to pronounce their Bearishness - this is precisely the right time to SELL. Remember with the crash of 2008 and you heard the lone voice saying BUY.... and you thought to yourself - "what a nut case, you want to buy NOW, of all times........!" Well I feel we are approaching the exact 180 deg of that scenario.


Good  Trading

Downside gathering momentum

Well the tide seems to be turning..... finally I'm seeing some profit on a daily basis which is really a pleasant change. Being obstinate and staying short has cost me dearly... I still don't feel I am out of the woods and suspect more upside is to come.

What concerns me being a "contrarian and all" (South Africanism) is that too many people are worried about the rally - the Prechter coined phrase "...climbing a wall of worry..." is apt at this point of time. No-one seems to buy this rally and there is way too many worry warts out there. What this implies potentially is a further climb after this correction runs it course. I could be wrong here, and don't get me wrong I have not turned long term Bullish and feel we are still within the grips of a large Bear market although there might still be some more upside left.

FX markets have played out nicely as predicted - USDZAR has rallied strongly off its base and now I believe is due for a correction before is muster strength for a surge even higher. For now trend is to Rand weakness and all Rand rallies should be sold. Same goes for the ALSH rallies should be sold.

Good trading