DJIM #19, 2010
Sunday, May 9, 2010 at 09:09PM
The breaking news tonight is that EU/IMF approved a 3 part/ one trillion bailout after Austin Powers held the Europe/ world ransom. Is this the sort of response we've been waiting for? Well, the market participants certainly aren't expecting anything less audacious because the fear from Greece fallout had become genuine and devastating to the investors' confidence worldwide as of Thursday. Another Bazooka was called for, the pressure was at a crescendo!. The ECB had really dropped the ball last week leading to a complete about face tonight. Amazing movie stuff!
By now, all of us have read enough and are presumably familiar with the terms HFT (high frequency trading) and ISO (intermarket sweep order). So, we are not going to bother explain what transpired on that crazy Thursday. All we have to point out is that, once the technical level of SPX 1150 was breached/ long term Bull trendline from March 2009 and no immediate bounce thereafter, it basically opened a floodgate where everyone wanted to protect their profit by selling their holdings. The Greece was a catalyst that warranted such a spectacular display of frantic and panicky action in those minutes. We at DJIM, have sat there and watched it in absolute amazement of those minutes in trading. To sum it up, now we have seen it all these past few years.!
Judging by the futures reaction tonight, market's definitely "relieved" to see the outcome from Europe. We aren't sure if we have seen the absolute low for this correction. Oh yes, this is still just a correction and as much as some people may hate to admit, this is extremely healthy for a long term bull market. Right now, because due to the increased volatility, we can't help but to think that this market's capable of rebound back to the 1150 area. However, given the fact that earning season is near the end and summer is about to begin, we highly doubt that this market is capable of challenging any higher ground beyond that. This correction, in most likelihood, needs a big portion of this summer to digest. This is fine with us as we are more than comfortable to start trade some plays at the current levels as oppose to the levels a couple of weeks back. As for tomorrow, expect a round of profit taking on any big gap at some point for those wanting to get out still with some gains back after this flight to safe havens last week.
As far as plays go, we are noticing somewhat better behaviour from the commods on Friday so that may be the area we'd step our toes into first. This would conicide with expectations for a USD/ FXE trend change. As far as other plays go, we basically have to go by one day at a time and one play at a time to assess if any are worth trading yet.
Bottom line, market wanted a correction and they get what they asked for quickly. The correction may have arrived in an unconventional fashion, but it's still just a bump along the current bull market. All of a sudden, market is going to be full of opportunities again very soon.