Feast your eyes on these two charts. On the left hand side, we have the S&P - tiptoeing up to July's high of 1356.48. On the right, the FTSE 100, already in a strong resistance show from 2007-2010 downtrend as indicated by the sloping TL.
Both of these represent an obvious market turning-point. One that, in most situations, would be grounds for a bet on reversal and risk-off catalyst. However, we have a well bid market, with inflationary support from the LTRO and early year technicals (real money accounts sitting on piles of cash and lagging behind the index) that are set to continue at least until the 28th of Feb (by now this date should be etched in every trader's head as the date of the 2nd LTRO).
We believe the market is ahead of itself. The path of least resistance from 01/01/2012 was a light rally into late Feb followed by a sell off as the hangover begins.
But pushing past 2011 highs will require more than a drifting market. One large shock in either direction and we will see a rebalancing and re-normalisation of price action as finally the low-volatility zombie market is forced to make real decisions.
For JF, however, the current trend suits (over 1% MTM up on the month already), a quite pleasant position to be in, but one that will need to be adjusted at some point in the next few weeks.
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