30 January Month End

The market going forward is largely crafted by Bernanke signal of deflation, the onset of Protectionism, and the Stimulus Package.
The odds are for further market weakness, albeit with weak rebound. USD is on the verge of a breakdown.
The crisis has past the Credit crisis, then economic recession and now to Trade war, and finally Depression is sealed.

From Elliot Wave perspective, SPX has completed its wave 4 retracement, and now going into Wave 5. If it pokes 740, then Wave 5 has fulfilled its criteria of completion, i.e. the most bullish view is a shortened aka truncated wave 5, the bearish view is a drop towards 640.

If market closes the month on 640 to 700, then going into Feb/March/April, we would be trading at a lower range at 700 to 800 (similar to current 800 to 900).

If market closes above 850, this gives the rally a bit more time to complete the C of a A-B-C retracement. The C may bring SPX back towards 940 to 950.

As for Euro, a completion of wave 5 is in sight with a rapid drop towards 1.2425 (1.618 projection of wave 4).

The fundamentals supporting the Euro is more of a American story: "buy America" slogan, anti-China protectionism, China cutting back on its Treasury holdings, Asia government redeeming treasuries for cash. All these points to a reverse flow of USD, i.e. selling USD into Asian currencies, Euro, GBP, Gold, etc.

Be prudent on shorting GBP, as any hint if ressurrection of GBP as a world prime reserve currencies at the coming April G20 meeting in London, would fan a massive short covering rally in GBP. SWF has been snapping up UK bank assets for example.

As for GOLD, it has resumed its bull trend, thanx to either Deflationary or Inflationary talk.
Remembered that after 1332 depression, we have the WWII in 1940. Holding physical Gold when you are fleeing your country would save your life and that of your family. Stay away from Gold futures or mining companies.

Today GDP would be key to trigger the completion of the massive A down move since OCT 2007, or the bulls may want to sustain the rally a bit longer.

The risk is a massaged GDP figure that spring a surprise, with the Market Makers pushing up to trigger a massive short covering. Most long positions are long term buying positions. While shorts are more vulverable.

Then we would need to argue if it is a A-B-C bear market rally to complete a wave 4, or wave 5 has been completed at Nov low and a new 5 waves has begun with wave 3 in progress.

Judging from the record high unemployment claims, a >-5% GDP is more likely.

Let us see if Euro can drop 400 points towards 1.2425 within 9 hours, now at 1.2888.
Or the GDP would be the trigger.

Good luck.

26 Jan Lunar New Year

Today is the first day of the Chinese New Year of the OX. And it happens with a partial lunar eclipse visible over most part of Asia. It is a bad omen for the Chinese.

The gruesome decapitating of a Chinese student in Virginia Polytechnic University US, and a van reversing on its own and run over a few Chinese kids in NY Chinatown are all happenings revolving around the Chinese.

China bashing is going to escalate with Geithner comments on Obama susepcts China of manipulating currencies. Trade wars are just about to erupt.

Governments in trouble are withdrawing their deposit with the US treasuries to bring home and save their economy. Hence a top in US Treasuries has come. With the selling of US Treasuries, we would see a sharp drop in demand of USD.

The selling of Treasuries may lead to diversification into Equities and Commodities.

A plunge of sort has come, this time in terms of USD. Most unexpectedly, US Equities may rally for no reason at all, bços of this reverse capital flows.

how would China fare ? With its 400 Billion USD stimulus plan ? Would China market/HK market fare better than US ?

2 Jan MiddleEast

I have quite a lot of subscribers who are from the middle-east. Possibly of my contrarian views. I got a question from a middle-easterners on the prospect of middle-east market. Here is my answer:

Middle-East thrives on Oil, no doubt about it. It has tried to diversify, e.g. with its massive infrastructure projects. Most commendable is the establishment of the King Abdullah University with which I have the opportunity to deliver some lectures on financial engineering as well.

However these project takes time to fruitation, much like trying to plant lavender in the desert. Incidentally, there was a plan to curve out a canal through the desert.

However danger is lurking around the corner. With US pulling out of Iraq, Iraq oil reserve (the second largest in OPEC) would be keenly contested by the Shiites and Sunis. And with the current Israel bombing of Palestine, we just have a new episode in the Middle-East turmoil.

In other words, the Middle-East equities are capped by geopolitical events. Oil having plunged from 147 to 34 would not rebound in a whiff. With the coming reorg of the CFTC (US Commodities and Futures Commission), we would see speculation in Oil or Commodities a tougher task.

We would see a change of leadership from US market to Asia market, primarily China/HK market in 2009. Not bços China has the largest capilitalisation or the most instruments. As US and Europe market would languish in market negative growth, monies would flow into Asia one more time.

Middlest East monies would flow out as well. Hence middle-east equities are not the best deal even how low it is now.

However I would not pile into China equities now, bços come February, March, April, we are going to see a deepening of the China crisis before the government monies take effect.

Shanghai Composite has so far been holding around 2000, even since it flirted with 1500. If it ever goes to 1200 to 1500 once more, it is a buy.

However the China market is only for trading, not long term investment. Bços come 2011-2012, we have the burst of a bigger bubble again.