Monday, April 15, 2013

No More Laughs

Sadly, only two days after I said that we can't stay completely serious about this market, tragic event wipes out any hope of laughter from traders. It is impossible to prepare for something like what happened today. I was in the market on 9/11. I remember the shock and disbelief that went through my mind. Trading (or lack of such for many days, because the market was closed) was not the main thing I thought of. At times like these we think about the well-being of our loved ones, and those who perished or were injured in the attacks. Volumes dry up, as traders square off their positions and are reluctant to establish the new ones. Illiquid conditions make for exaggerated moves, as those who have to trade are met by few on the other side. At times like these I usually reduce the size and/or stay out altogether. There are no technical and fundamental approaches to conditions like these, at least none I know or even want to take advantage of.

Today the market was under pressure way before the attack in Boston occurred. The tragic news (around 3 pm) exacerbated what was already a very ugly day. I have to say that I expected gold to take a dive, but it achieving my 1340 target on the first trading day after I mentioned it, was a total shock for me. More importantly, in times like these gold gets bought. It is not so now... This reaffirms the new times for precious, and once again puts all those who are messing with buying it in terms of weak currencies on notice. Just don't do it! As for equities I have my own view on why the sell-off happened (even prior to 3 pm Boston news). If you are long gold and getting a margin call, you are probably not going to sell an asset at a loss in the middle of a free fall. You are going to sell what you can and have a profit in. Stocks would fit the criteria. So equities got pounded on triple whammy of forced liquidation, broad commodity sector sell-off (in sympathy with gold and all metals) due to slower growth concerns in China and the rest of the world, and of course, the attack (at the end of the day). If I was overweighted in equities, I would look to reduce my exposure on all rallies. I expect the risk-off environment to continue for a while. The waves of selling may come out of nowhere, as traders look for more bad news as an excuse. There will be time to buy the equities, just not now...

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