Wednesday, October 5, 2011

Price Pay on Dicey Days

- Valuations are Pointless when Price follows Macro Headlines/Fears on the bearish impulse
Yes there are now plenty of stocks near the valuation p/e's that we saw in 2008. Many pundits will claim this is not 2008 by any means - however there is one thing about the current situation that is affecting price sentiments negatively - uncertainty. Uncertainty about how the euro will manage their situation, how to value the haircuts on collateral damage, and the consequential moves that we will see from supporting cast of the ECB, the IMF, the Fed.
The markets will hang at every work of the Fed and last night proved no different, as the market saw a bid during Ben's speech to congress regarding their 'tools' regarding the euro situation - which seems to be limited to lending of USD to the ECB, in which they can utilise to provide a stable curency to their banking system.

- Watch the trend lines on the downswing - Trade with tighter targets and stops
Technical analysis has a lot of subjective interpretations to trading strategy - but one fairly basic and very well applicable strategy is the simple trend line break. We have seen a very strong downtrend line on most majors - sp500, euro, AUD. As we see prices in the sp500 taking leads from the eur/usd pairs last night we saw the bid in the eur/usd breakout of both its trading range and downtrend line at about 1.32 - a move that anticipates the possible positive moves by the Fed - however 1 hour before the US trading session's end, we saw all the gains returned to the market as we saw a revisit of the lows. The trade to be long on the break was there, but only trailing stops or exiting on intra-day price targets would've been profitable.

- The market is extremently Bearish on Rhetoric, it can Meltup on the same Rhetoric
Finally, after seeing a retest of the day's low, we saw a huge meltup in the last hour of the US trading session as the rumours of an actual plan for the euro banks hit the wires. Once again, even a small positive sentiment after a huge sell-off, we see many trigger happy traders just ready to pile on their risk bets.

- Equity trades on the ASX lag the Macro prices
Today I saw the gap open on the majors - I kept an eye on the CBA and the WPL as the prices fell to session's lows - CBA for the possible dividend play that we might see in the upcoming earnings seasion, and WPL as it threatens to break from the downtrend line.