Financial markets around the globe are struggling to figure out how to price in the European political response to the European debt/financial crisis. One minute it looks like there is a serious risk of contagion, bank runs and a death spiral that will set off a true global depression...the next minute it seems that there is hope that the authorities will finally "come together" and "fix" the problem
It reminds me of an observation made by Robert Prechter (www.elliottwave.com) many years ago, "Markets reflect the social mood, not the other way round...when the social mood changes the markets change.
On Friday June 1 stock markets ended hard on their lows (and gold rallied $60) as the European mood was grim and the American employment data added to the picture of a very weak global economy. On Monday June 4 there was additional downside pressure in the stock markets early in the day...but then markets felt "sold out"...and went sideways to better through Tuesday.Wednesday through Friday saw a huge change in mood with the DJI rallying over 500 points from Monday's lows to Friday's close...with some violent intraday price swings across asset classes (stocks, currencies, interest rates and commodities.)
I'm wondering if we may have seen another KEY TURN date on June 1/June 4...or just a s/t change in psychology. Market sentiment was extremely negative June 1/June 4, yet prices reversed sharply across asset classes this past week...see charts below.
Short Term Trading: I bought gold May 25 (after holding a short position from early Feb to early May) and I liked the $60 surge on June 1...but I liquidated my position Tuesday June 5 when I sensed a change in psychology across markets (less reason to "want" to hold gold?) and noticed on the charts that gold had rallied into serious resistance levels around $1625. I felt some seller's remorse Wednesday when prices went higher but I was happy to be out of the position when gold fell on Thursday and Friday. This week I also liquidated the S+P contracts I bought May 24 at around breakeven. I probably should have liquidated the trade for a loss when the market broke to new lows on June 1...but "trader's instinct" told me the market was s/t oversold and might bounce off the support levels around 1275 created last October, November and December. In truth, I didn't manage the S+P trade very well...I justified hanging onto a losing trade by changing the time frame of my analysis...usually a really dumb idea...and I was lucky to get out around breakeven. I ended the week with no positions and felt fortunate to have made some money in very choppy markets. Now I can start next week with a clear mind and look for trading opportunities without the emotional baggage of holding a position!
Charts: To say that we have had very choppy markets with manic depressive mood swings would be an understatement. Last week I pointed out Weekly Key Reversals Up in gold, silver and platinum and Weekly Key reversals Down in the S+P…this week we have a Weekly Key Reversal Up in the S+P and
In terms of “did we just see a Key Turn Date June 1/June4?” here are some charts from the commodity, currency, and interest rate markets that show reversals around those dates:
Here’s a very interesting Weekly Island Reversal Up for Banco Santander...one of
Politics and the Social Mood: The Republican win in
My Big Picture View: Deflationary pressures remain unrelenting across global financial markets...with the potential for a "deflationary shock" if the European crisis ramps up. The first interest rate cut in
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