Monday, May 11, 2009

Trading Momentum Weakening

After last week trading, many short call traders have already lost a substantial pile of money, and long put traders have also had their capital tided up. In addition, governments, China or USA, have been boosting the economic performance by manipulating the interpretation of their figures and exaggerating the effect of their policies. Banks and zombie corporates, cooperating mutually, have announced turn-around on their Q1 performances. Analysts, while "surprised" by "improving figures", covered up their inaccurate estimation by echoing "recovery is coming". All these efforts together will hinder the short sellers's actions.

Nevertheless, without increasing short call and long put, their opposite parties will also lose fuel to further the recent growth. Besides, technically speaking the rebound has reached around 2/3 of the bottom level, so perhaps it is also time for them to cash out and wait for the next opportunity.

This week we will have announcements about inventory levels, PPI and CPI. Inventory levels and PPI may be "good news" as inventory level is lowering and PPI may been steady or even have picked up, from observation on China's equivalent period of PMI as well as petroleum prices. CPI may reduce and form a source of "bad news" although analysts can claim the risk of inflation will also be eased.

Under such circumstances, stock markets transactions may contract in this week and even next week. The futures and options clearing will take place 2 weeks later. Thus, next week and the week after will be crucial had short traders attempted to win something back, or most likely, will not take such actions but look for a rebuilt on next month. Hence, most likely market will maintain high but upward speed may slow down.

The money diffusion from stock markets to other markets due to the influx of new hot money will take effects. In this month Gold and Treasuries will become rivals on competing for hot money as the "risks" on stock markets have gone virtually smaller. As economic situation may relax in this week, another influx of money may not be necessary. Hence, the risk of inflation may not be as substantial and put a pressure on Gold prices. Treasuries will benefit from it, particularly on short-term ones. Yet, if we buy the ideas that the economy has not really bottomed, and further money-printing measures are still required, and short traders will be back, it will be a good moment to purchase gold whenever the price is lower than 900USD. Of course, 850 will even be greater as it provides more rooms of rising.

Judging from the BDI, the commodity prices should have reached the recent peak and will drop again. As economic activities have not really recovered, and production facilities are over-capacity, commodity prices do not have rigid and firm supports. Once the futures contracts bought a year/half a year ago are all exercised, the drop on volume of transaction will be significant. On the other hand, both the ease of inflation and the drop of commodity prices may give reasons for USD to rally.

1 comment:

Felix Kan said...

it still seems to be there are 2 groups of competing factors on gold price

1) bullish: risk habour when the next round of shit happens

2) bearish: dollar strength, plus commodity price drop (occasionally Gold behaves like a commodity

but I tend to agree ~$850 can start buying.