The collision of global markets and social mood

Thursday, October 15, 2015

Thursday -- ECB Doves, Higher, Lower, Not Here

S&P E-mini Futures:
Surging but off their best. Above 2001.75 on the e-mini could be near-term bullish.

Dovish ECB comments have sparked a rally. Or was it the weak decline yesterday that failed to ignite further selling. Whatever the reason, markets are green. Asia was bright green with China and Hong Kong closing up over 2%. Europe has understandably followed suit. DAX currently up 1.5%.

In my opinion, when ECB officials note that "additional policy tools are needed" and that Euro-area core inflation is "clearly" below goal, it is nothing to get too bullish about long term.

What they are noting but fail to see is the growing pull of deflation. Disregard comsumer goods prices which are thrown out of whack by QE. The problem is money velocity. It's near zero. And all the QE in the world won't increase its use when deflation is pulling it lower.

Why? Because deflation is a symptom of psychology: borrowers are disinclined to borrow.

Until that changes, expect more and more QE until the market realizes that QE is the problem. Then watch out below.

Markets, like drug addicts, need to cleanse from within.

In the markets, it's called debt liquidation. Until it happens, we're dealing with central bankers in over their heads.

EUR notably weaker. USD & JPY stronger.

Price is closing in on near-term swing highs yet volume is fading.

WTI crude down another 1% currently. Needs to hold 43.97 or risk new lows. NG up 1%.

One would think gold and silver would be a lot higher on the ECB comments. One would be wrong.

S&P Outlook:
Debt liquidation is probably a long way off as long as the waves look the way they did during the last two days of decline.

Volume expanded versus the New Moon swing point, but not enough. A/Ds weren't weak enough. The S&P seemed to resist lower price, and never even reached the 23.6% retracement. Bad for those who want to hedge from lower levels.

As often happens, I want it higher or lower, but not here. Patience required.

The levels of interest remain the same -- the gap below at 1951.36. The 2131.28 -- 2035.73 zone above, and the 2050 area.

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