Blowin Off Some Steam

Believe it or not that is a British Steam Jet Car that can do 225KMH on the flat...amazing.

On to the the markets. The S&P 500 did what I predicted this week and blew off some much needed steam and traded down the last four days straight. How far will this go ? Depends on several factors. We are now heading into the beginning of earnings season again in 2 weeks and this will be the biggie. Will they show improvement ? will they be flat or will they suck bigtime ? I think the former is the only one the markets are like. Mediocre will not cut it.


On top of that we have a serious battle going on between the US dollar and the price of gold. Never have we seen such a battle at $1000. Tim Geitner is talking up a strong US dollar with quotes by Feds that any interest rate moves will be swift and hard if needed, and a full point move would not be out of the question and to be expected. You can imagine what that would do to the bond and mortgage market. For the gold bugs,thems fightin words.


Over the last months the US dollar has been transformed into what the Yen was the past decade or two, "The Carry Trade". This is where Yen is borrowed cheap and invested,now the US dollar is replacing it and the implications are very scary on how this effects us in Canada and our loonie. Will the US want a carry trade for much longer and raise rates soon to attract investment ? or do they even have a choice in the dollar dropping due to massive borrowing ? It's a fine line and one has to be on their toes and use the charts and expect the unexpected.


The next several weeks will be the most interesting and unnerving of the year. I do reflect back to early July when all were predicting crap earnings and the charts teetered on a few key levels. We all know what happened then. Upon looking at my SPY chart this week I see the identical set up on RSI and Stochastics, and the market has blown off enough steam to bring these down to bottoming levels as back in July.


Will we have a repeat ? Who knows, but if we don't then things could get very ugly once again and very fast. If we do ? Then be prepared for a major short squeeze as I bet there is way more short money out there in both the markets and it is a known fact on gold and the pop could be huge. Stay tuned !