I really do not understand how this market is rallying this much on no significant fundamental information. Does this really make sense? But many times, markets trade irrationally and can be that way for longer than you can remain solvent. So in times like this, I remain cautious.
Going into this previous weekend, I was pretty neutral/bearish on the markets: The Nasdaq looked like it was forming a triple top/head & shoulders pattern, Dow was hitting a major downward trendline and its 50% retracement from the 07' highs to 09' lows, S&P500 appeared like it was also forming a triple top/head & shoulders pattern, hitting a downward trendline, and nearing its 50% retracement of 1122. TSX appears to be looking weak as well trending in a downward channel since the beginning of September. It has just hit the upper line of the channel and forming falling tops. Of course, this is all from a technical point of view and charts never lie!!
The markets have bounced back 60% since the March lows and that is extraordinary and lots of easy money has been made. Markets are truly unpredictable right now - some are calling for the continuation of this extended rally and others think we are headed back for another big dip and recession. Yes we have had some decent earnings from some sectors, but many have also disappointed. The weakness of the US$ has helped a lot in the commodities stocks as a cheaper dollar makes it cheaper for foreign countries to buy gold and oil, for example, which are priced in US$. The dollar carry trade is also inflating assets, investors borrowing in US$ to invest in other assets, such as gold or non-US assets. This may be forming another asset bubble because once the US$ eventually gains some strength, you will see incredible unwinding and selling of these other assets.
Stocks are all hitting new highs and everybody is trying to participate in this rally. Normally when you have everyone chasing markets one way, the party ends in a hurry. Its a hard tape to read right now, markets are volatile and its almost the end of Q3 earnings. Stocks seem to be priced fairly expensive and there are no fundamentals to be supporting this rally. I remain neutral with a slightly bearish view, however I will still trade some high probability long setups if they are there. Trade only the highest quality trades and be very selective!!
Going into this previous weekend, I was pretty neutral/bearish on the markets: The Nasdaq looked like it was forming a triple top/head & shoulders pattern, Dow was hitting a major downward trendline and its 50% retracement from the 07' highs to 09' lows, S&P500 appeared like it was also forming a triple top/head & shoulders pattern, hitting a downward trendline, and nearing its 50% retracement of 1122. TSX appears to be looking weak as well trending in a downward channel since the beginning of September. It has just hit the upper line of the channel and forming falling tops. Of course, this is all from a technical point of view and charts never lie!!
The markets have bounced back 60% since the March lows and that is extraordinary and lots of easy money has been made. Markets are truly unpredictable right now - some are calling for the continuation of this extended rally and others think we are headed back for another big dip and recession. Yes we have had some decent earnings from some sectors, but many have also disappointed. The weakness of the US$ has helped a lot in the commodities stocks as a cheaper dollar makes it cheaper for foreign countries to buy gold and oil, for example, which are priced in US$. The dollar carry trade is also inflating assets, investors borrowing in US$ to invest in other assets, such as gold or non-US assets. This may be forming another asset bubble because once the US$ eventually gains some strength, you will see incredible unwinding and selling of these other assets.
Stocks are all hitting new highs and everybody is trying to participate in this rally. Normally when you have everyone chasing markets one way, the party ends in a hurry. Its a hard tape to read right now, markets are volatile and its almost the end of Q3 earnings. Stocks seem to be priced fairly expensive and there are no fundamentals to be supporting this rally. I remain neutral with a slightly bearish view, however I will still trade some high probability long setups if they are there. Trade only the highest quality trades and be very selective!!
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