Friday, January 13, 2012

Week Ending on 1/13/2012

I'm a firm believer in cycles.  Everything that's not popular now will be popular some time down the line.  It's just the timing that's so damn tricky.  Are we in the next phase of the cycle now when the dollar finally makes a roaring comeback?  How is that going to mesh with the all-time record in short interest in the euro?  Somebody has to be right and somebody has to be holding the bag.

Analysis is rarely just flat out "wrong."  Before the fact, analysis pointing to different directions all have merit.  The world just chooses to be one way instead of the other way and the chosen path is deemed to be correct.  The bull case in 2007 had merit, just like both bears and bulls have made their cases now.  Only time will tell which side will be remembered as "getting it right."

The bulls say the teflon market and the breakdown of correlation from the other asset classes point to an extremely strong and resilient bull market.  The bears point to this breakdown of correlation as a dangerous and temporary condition that will have to correct itself, most likely through a violent meltdown in equities.

With all that, let's move on to the charts.

Dollar aka the dixie


I have decided to use the index instead of the ETF so I skip out on the whole contango/backwardation business.  After breaking out last week on euro weakness, the dollar is now threatening a false breakout.  Again, time will tell if this will result in a fast move the other way (down) or is just benign back and fill consolidation before rocketing higher. 

Stocks aka the spoo


Was there an apocalypse and nobody told me?  It seems nobody trades anymore except these weird guys with blogs and robots, like a slowly dying circlejerk.  638 million shares of SPY were traded last week and 623 million shares were traded this week.  Except last week was only 4 trading days...  Sometimes I get the feeling if scientists come out and say the world's ending in a year, stocks will trade near the same volume as all real human beings have one last orgy.  Shit we might even rally and break new highs.

If you can't tell, I have no real analysis.  We are still in the danger zone.  Technically, we did break through resistance, but with volume like a wet noodle, let's not jump to conclusions.  Remember, the dollar has moved inversely with stocks for the past decade.  Is that correlation breaking down for good?

Something bothers me though: the huge amount of overhead supply until we reach new highs.  We either will need a boatload of uplifting catalysts or we slowly slog, back and fill to sop up all the supply.  This also might be a stockpicker's year as indices will move like molasses, but plenty of fast runners under the hood.

Trading Ideas

Euro


Have we finally seen at least a short term bottom for the euro?  Wouldn't be a bad idea to put in a long euro trade for a bounce back up to 128.6.

Oil


Shot USO to 36.05, but always remember oil trades like stocks circa 1920, as in it's manipulated as shit.

Jam of the week: