Expansion And Contraction

Finally the market has shown some semblance of reasonable behavior by pulling back just a little. It's healthier, just like breathing is healthier when you inhale and exhale. Markets expand and contract just like nature. When they don't, watch out.

The 1690 area still has my interest, although 1676.03 does too. For me, the correction is fine unless 1676.03 fails. A quick test of 1685-1688 should not be ruled out before a reversal. But a close on the lows would raise concern.

However, there is a Fibonacci 38% level just below 76.03 that the market may want to test, so a different pattern may evolve than what I was thinking. As always the market has the final say, and it loves to keep it a secret as long as possible.

The market still looks awful to me internally. And macro events are not going away. The latest eyebrow raiser is the UK under their new central banker, Canadian Mark Carney. Carney is aligning the BofE more closely to the Fed's policies by promising lower rates for several years, only the rates aren't cooperating and the pound is taking a pounding.

Taper fears are creeping back in as they should if the Fed is doing a good job of using its "communications" tools. Chicago Fed president Evans, a dove, made hawkish comments regarding the timing of tapering. The Nikkei shed 4%.

Elsewhere, Barclays has a note that is making waves regarding bank deleveraging. Zero Hedge reported that the proposed simple capital rule will likely cause upwards of $600 billion of bank deleveraging or, if not, would require $30 billion in fresh capital. Either way, this is another salvo in the fractional reserve wars. Banks have forgotten their fiduciary roles and have embraced speculation to the point of addiction. Help ease them off the stuff by withholding the crack pipe of excess deposits. Here too, expansion and contraction is ultimately much healthier.