As we said, fooled once, fooled twice... and you become hesitant to enter into a market because of expectation number 3 that the bailout plan will happen sooner than later. To us the 'bailout' trades have already happened.. up and down. No matter, if this rivival is passed....who cares!. Well, of course we care for the longer term prospects, but as traders, the reactionary trade we `ve been seeing may no longer be there by the time the bill gets the vote. The 5% reflex rebound erased the post vote losses and all it did was probably allow shorts to think if the markets extend higher, they`ll get another opportunity. We`d feel better if this move didn`t take a day, we just allowed for a pullback.
As we've pointed out the last few months, biggest losses in the commodity sector happened in the first few days of a new month. We are here again and with the probability hedge funds are faced with huge redemptions after a horrible September, we think we may see heavy selling again this week. We`ve been saying the steel trade is over for awhile and now we think the Coal trade maybe the next victim as things are deteriorating (including the critical China demand). After today`s rebound, commodity stocks may have put themselves into a position to be sold off hard. It could be argued that Monday`s 20% declines in commodity stocks was the sell -off, but we think there may be more in store.
There is unprecedented strain, besides the obvious problems in the credit markets, equity markets, we have signs from it spreading all over....resource companies bailing out on deals (eg Xstrata- Lonmin) , huge construction plans stopped in Moscow by a company. Simply, day by day, we are seeing a slowing down worldwide, the noise is widening across every aspect of daily life.