Friday, August 27, 2010


Say it with me!



This is the current market structure and dynamic.

If you ever ever wanted to know why liquidity is the most powerful dynamic to lead markets, you need to only watch what is happening in the markets today.

OK, This blind squirrel found a nut this morning when the GDP print was benign for the markets. The print came in at 1.6% revision from 2.4%. Better than what the estimates (1.4%) that people were looking for. There were rumors that this print would be below 1%. This is was not going to happen. The final revision will be closer to 1%, but for the time being the market escaped. Futures rallied some 7-8 handles after the announcement.

Then the fireworks began. Nasdaq futures started to tumble when Intel pre-announced a weaker quarter around 9:45am or so. I found this to be very unusual. Why couldn't they announce this before the mkt open? Anyway, this was not a surprise if you have followed INTC the past few months. Ever since INTC blew out earnings in July, the stock has down ticked? Why? Intel's blowout 2nd quarter was as good as it gets. You simply had to sell this stock based on gross margins surging to all time highs. Typically you sell INTC when their GM's reach 68% as they will not be able to expand anymore after that. Stock index futures dropped all the way to the Wednesday lows of 1037 and some loose change. I have stated before that the market needed to hold 1040, and it did do that. This was a victory for the bulls.

I am left to believe that the market simply got way oversold and negativity was building up. There have been rumors that INTC would cut guidance ever since Cisco cooled off investors with their report a week ago. This was purely buy the news and sell the rumor.

How can I forget?  Premier Bernanke's opening statements at J-Hole? He basically told the market. Hey! I am there for you! He clearly stated that deflation was not a problem and that the Fed was standing its ground of assisting the economy if the economy gets weak or weaker. The market which had the belief that the Fed can do more acknowledged such by rallying the futures way off the lows. Bernanke continued by saying that the Fed is prepared for more accommodation if needed but he finally publicly acknowledges that "central bankers alone cannot solve the world’s economic problems." Really? This means that if we need to print  trillions to save Wall Street - I can help, otherwise the real economy is screwed! He gave some additional color on what the Fed can do as well as the drawbacks.

To bottom line this. It was an expected speech. It was a lot like what Chopper Ben said on FOMC day a few weeks ago. The only difference is the market sentiment. It was bullish then and bearish now. The only bullet left for the Fed is the printing press, and they expect to use it big time. In my earlier post, I stated that this would be the official start of QE2. There was nothing said to make me believe that that was put on the back burner. In fact Bernanke is paving the way for QE2 later on this year. The market trades off of liquidity and sentiment. The sentiment was very negative coming into today and most probably will get extreme bullish some time next week.

Its really incredible the market still has faith in this Bernanke. Consider this:

-Bernanke sees no double dip...But he also saw no housing bubble.
-Bernanke sees no deflation...Has he seen long term bond yields?
-States that QE2 will be effective in further easing....Why? QE1 didn't work.
-Fed easing has done nothing for real economy while it continues to subsidize financial economy.
-Only the Printing Press remains in his arsenal.

I also stated that we had to watch the Aussie Dollar Crosses. SURPRISE! SURPRISE! They all rallied feverishly after Bernanke's statements. AUDJPY, AUD, AUDEUR all gapped higher which enables the carry trade. These crosses were all weighing in on risk assets.

It looks like to me that risk assets have temporarily caught a bid and are all moving up in the same direction. This is not good for anybody accept the bulls. We will have to figure out how this plays out going into next week. I expect a rally back to 1090-1100 on the SP Futures primarily because the sentiment is so negative and the rash of horrible macro data has already printed. Next week we have fresh industrial production data and NFM.

Long term we are still dead but short term its Zombie time.

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