Zero Hedge’s prediction for our 4:15 pm headline:
The market traded in absolutely synchronicity with the EUR-JPY carry trade. Volume breadth was non-existant. Bad news were spun as good news. HFTs gunned whatever was greenest on the heatmap. Consumers purchased nothing as Obama was contemplating Stimulus 2 and Bernanke did the same with QE 2. The SEC did absolutely nothing to restore any confidence in the market.
Nic Lanoir of ICAP’s prediction for the market:
We will save the discussion concerning a global currency and how ludicrous this poject is for a slow afternoon, probably today, and for now focus on what the market has in store for us.
Trading keeps being dominated by a completely binary dynamic pro-risk/anti-risk, which is nothing more than a giant carry trade enforced to all asset classes by the correlation matrix used by every quant fund out there. And it can be summarized by how the USD is trading.
A quick look at the USD index makes me think we are forming an ending diagonal. I was wondering about that looking at EURUSD yesterday, and it seems other Elliott Wavers out there are making the same observation about the Dollar index. The attached chart shows the ending wedge we are forming, and would indicate that the DXY is going to chop lower, a process that apparently could last another month and a half if we are out of luck… And then we would have a brutal reversal and USD strength. To get a good idea of what an ending triangle looks like take a look at AUDUSD last year, it’s as textbook as it gets. And don’t forget that there is often times an excess on the last leg past the support before it reverses!
The other possibility is to have a sharp reversal here. The chart for gold makes me think this is a possibility, after we rejected a close above 1,004.8 yesterday, and we could possibly be drawing an evening star. Look on the chart where I highlighted a perfect example of evening star which occured last March when we first failed to close above 1,004.8. However we would need to see a rapid drop over the next couple sessions to confirm this scenario.
So there you have it: slow painful grind before the storm or a quick reversal. Given that I expect a very sizeable move the other way, I think it is much more likely that with the use of propaganda, revised data, and 10th derivative arguments on the business cycle, the eternal utopists or evil carry-traders will try to hold this status quo and push the market a little further into risk appetite territory before all the retail accounts can get properly wiped out.
Good luck trading,
Nic
