Sunday, August 21, 2011

Market Thoughts Week of Aug 22

I think I say this every weekend, but we are going to have a very interesting week coming up.

On economic docket we have very important news from Europe and US. I will be watching Eurozone PMIs (Mfg and Svc) on Tue. for more possible weakness out of largest economy of the world. In US we will have more manufacturing data in the form of Richmond Fed (same day), and Durable Goods Orders on Wed.
On Fri. we most likely will get US GDP downward revision.

Fedspeak will dominate the end of the week. On Fri. Bernanke and Trichet on Sat. will tell us how they will save the world, or NOT. Those two gentlemen would rather be hiding now, as they are almost being asked to put on their superman suits, and quickly fly to the rescue of every economically failing part of the world, primarily their own. I suggest traders calm their excitement down, and be prepared for major disappointment. When I saw PPI and CPI this past week, I already knew QE3 is a far shot. At best we will get a hike reversal by ECB.
I think we get a better chance of the two of them cooking something up (starting in WY) for banks' support in Europe. I say that it would mean more to the markets at this particular time. I am looking for establishment of TARP, or TALF, or something of that sort from ECB with help of FED. This will take time and approval from govts. They can not do this without the help of US Treasury. So I am looking for some serious confusion and later a necessary collaboration between Bernanke, Trichet, and Geithner. After all, we are talking about saving the world. All of this could involve China later, as they are the ultimate buyer of last resort. We are a little over our heads here in the Western world :)  Many of you, who think all of what I just said is a fantasy, will rethink after another 10% decline in world markets in the next month or two, after European banking crisis takes the front stage, and Italy's and Spain's debt starts trading north of 6% yield. So my prediction is EFSF/ESM evolves into a European TARP/TALF. If we hear this in WY we rally like nuts! I am skeptical they have it ready.

Technical picture on US and European markets is ugly. Many markets closed at their respective year-to-date lows. SPX closed below 1130 on weekly basis. This, in my opinion, portends more downward pressure and eventual bear territory close for many developed world markets. By the way, many of the developed and emerging markets are already there, we are merely catching up. There will be vicious rally or two to stop out complacent shorts, but overall trend will continue down :(
I want you to watch two of the best cyclical indicators on planet: Dow Transports and Philly Semiconductor Index. They both closed at new lows, below last week's lows!

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