The collision of global markets and social mood

Thursday, May 16, 2013

The Market Is All About Potential Now

Yesterday made me think of July 2007. That was when I took a deep breath and bought the largest number of puts I'd ever owned. My cue was the yen: as the S&P rallied to a new high, the yen went the other way: it broke from its near perfect S&P correlation and mysteriously began to get stronger. That, on top of a clear wave count, gave me the conviction to do something that seemed crazy at the time.

Yesterday as the S&P broke out (during the hour of the European close when I usually take a break) it did so as the yen went the other way. Just as it did in July of 2007, it started to get stronger.

I went into the morning with a lot more long delta than short delta. I cut back the long delta and increased my short positions against a tight stop at 1651.10. It was wrong, and I got out immediately after I was proved wrong. The interesting thing was that the market came all the way back below 1651.10 after it ripped higher for two hours. That hasn't happened lately.

Incredibly, I missed the turn at the high too. I went outside to lay in the sun for a few minutes and missed it.

The point is that this suddenly odd market behavior should be taken seriously.

I have gone from being openly bullish on short yen to doubting the success of Abenomics and the BOJ. In the face of the overt shock and awe that Abe and Kuroda are inflicting on their country, to doubt them seems foolish.

However, the success of their grand plan requires millions of Japanese to play along by buying JGBs. JGBs are sending a message that they ain't.

Central banks are not omnipotent, yet most people and pundits think they are. This false belief leads to exceedingly dangerous assumptions in behavior and markets.

When central banks want you to do something, do the opposite. They want you to sell yen, buy JGBs, sell dollars, buy stocks, and keep consuming with borrowed money? Great. Buy yen, sell JGBs, buy dollars, sell stocks, stop consuming, raise cash, save your money, and get out of debt.

Timing is obviously important. But the last four are smart anytime.

Timing the market? Know exactly where you're wrong and act on it. Live to play another day.

Overnight, the S&P futures look like they too have lived to play another day. Another triangle looks probable. I do see a fat volume shelf at 1647 on the cash, but the futures are suggesting something different. As always, though, its the cash market that drives the charts.

I see the potential for the S&P to wedge or triangulate higher into 1665-1672. A correction could occur there. Then, depending on the structure of the correction, perhaps even higher targets can be projected. Or much lower ones.

The market is all about potential now. Because, from a technical standpoint, it's not about much else.

No comments:

Post a Comment