The collision of global markets and social mood

Thursday, April 4, 2013

Double Trouble

Bank of Japan Governor Haruhiko Kuroda "came through" with a bold new plan to beat 20 years of deflation. He seeks to double the monetary base.

Declaring that the central bank "will enter a new phase of monetary easing both in terms of quantity and quality," the BOJ will double the monetary base as well as the amounts outstanding of Japanese government bonds and exchange-traded funds in two years.

This is crazy.

The yen went parabolic against FX crosses across the globe, moving over 2% in most cases. The Nikkei soared another 2% to 12,635. I dumped the last of my EWJ position in the pre-market.

Big currency moves are not good for markets. These are disruptive moves, even if the yen has not yet broken out of its prior range. Funds and other TBTF institutions can blow up over moves like these.

Speaking of funds, John Paulson's fund could be in the news any day. He is much too concentrated in gold, his positions are well known, and they have gone against him. If he is forced to liquidate for any reason, the dislocation in the gold market could become severe if 1527 gets breached.

Speaking of positions that have gone bad, yesterday the market proved me wrong by failing to reach another high before breaking through 1558.47. I had nailed the high on Tuesday then the low on Tuesday, only to misread the morning action on Wednesday. So I was without puts and was holding both 156 and 157 calls.

The good thing is that the market has spoken clearly (to me at least). The better thing is that it may be entering a new phase of volatility. Even better is the possibility that a top has been made, or is close by. If the market begins showing conviction instead of lackluster internals maybe I'll show some conviction. I feel like I've been playing peekaboo for months.

Where are we? 1540 is the first Fibonacci level of note, the 38% buy retracement. So technically, nothing has broken yet. A bounce could take us up to 1560 or 1565 no problem. The subdivisions of the decline are not clear enough to give me a to-the-penny fail-safe target yet. But I can only say that after such a long run of near monotony since last November, a few days of play out could be expected.

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