Sunday, October 16, 2011

Trading Week Ahead: Oct 17 - Oct 21

My thesis for next week is to fish for pullback.

On Monday I am expecting (for the umpteenth time) the last exhaustion move by all risk assets:

SPX will try to pin 1230
NDX will try to take out 2400
EUR/USD will try to assault 1.3950
Gold will try a run at 1700

Due to the above, DXY will fight to stay above 76.

You are correct if you are reading between the lines and sensing my skepticism about this last push. I expect all levels, mentioned above, to hold. I am growing more inpatient, (LOL) not to buy, but to short the heck out of this thin-air rally. I want to buy SPX and NDX pullbacks, in support of my view that year lows are in for 2011. But if this rally continues for another day on Monday, I will short and ride the rollercoaster (I hate those things) down to my pullback levels. Once a trader, always a trader. The bad thing about doing this is I really do not have a credible setup just yet, so small initiation with tight stop is a must (since I am pissing against the wind). Adding to this trade on the way down will be essential. This is very short-term on stock index futures, but my forex view is different (read below).

And now a few thoughts about monopoly money-induced Eurozone rescue package. First of all, there is none yet. G20 fin mins released an angry (to say the least) communique, urging Eurozone to clean up its mess in 8 days. Great job! They (G20 fin mins) took more time posing for photo op than thinking what the consequences of such directed threat are. I am appalled at their inability to respect  Eurozone's right to deal with its crisis the way it wants. I am afraid that G20 has become more hostile towards very important European members. This will undoubtedly backfire. I am looking for some fireworks to be produced out of EU in the next few days. Statements like "do not tell us what to do" will dominate next week. Unfortunately, defensive statements are the least of my worries. My main concerns are that EU will rush the wrong solution to debt crisis, will produce a bailout plan which will bankrupt ECB,  will not address the underlying problem - inability of EU sovereigns to reduce and control their debt, and will eventually put Eurozone into a deep recession due to extreme austerity.

All of this is going to lead to very weak Euro. I am looking for EUR/USD to reach 1.2150 in the next 30 - 45 days. Euro weakness against the dollar will give the king a boost to 85 level. This will be a very confusing development, since I expect dollar and US stocks (following brief correction) to rally in that period of time.

Good luck with your trading next week!


  1. thx for great analysis and insight, i share your view on the near-term outlook of risky assets and started scaling into short positions myself already on Fri. IMHO, the current rally is driven by weakening dollar because the market internals are actually weak and volume has been declining all along. However feels like still many bears are looking for new shorting opportunities - a bullish indication. How likely in your opinion is SPX's thrust to 1250 zone that's the '11 March low and also coincides with 61,8% Fibonacci retracement of the down move from July high ?
    Keep up the good work, really enjoy following you and good luck

  2. Thank you for kind words. My view is that 1230 resistance will hold this move from Oct 4. SPX needs to retrace and reload below 1200. I think that eventually 1250 comes later in Q4, around mid-December.