Thursday, September 13, 2007

Bearish Fatique? Yes, absolutely, time to change? No way!

Yes, I am, like most people, hit by bearish fatigue. It is tough continuously having to look for the negative things in life and in trading, but this is such times. The mood reminds me so much of 1992 ERM crisis, lots of waiting, lots of denial, and loads of people buying the "official" explanation.

In 1992 the fundamentals got the better of the political game, and the UK should replace the recent Mandela sculpture with one of George Soros, as his run on the Bank of England did more to the UK economy than anything else since WW II!

Staying on that note, the analogy for the stock market is the same. IF... you really want this stock market to continue its long-term magical rise, then what we need is to replace "the ignorant trading style" with good old traditional value. In other words we need SERIOUS DEVALUATION of the stock market.

I am, despite, being casted as the opposite, extremely optimistic for technology, evolution, stock market and mankind in general. There are at least 50 different stocks I would love to own in the next down-cycle, but the fact remains that right now, as of this moment, the market is defending GBPDEM on the bid in the brokers, or....or in todays terms.. the stock market is slowly edging towards the final 5Th wave correction which should take equities to FAIR VALUE, from there we need to move to CHEAP VALUATION, and then the future is bright.

Do not EVER forget that there are several factors which makes the stock market "drift positively":

- Innovations
- Economy of scale
- Demographics
- Human nature (stock market is game, where we only win whens it goes up...)
- Yield
- Relative risk
- Utility
- Sovereign Wealth Funds

All of the above will make for power full cocktail, but right now.....the market tells me 2008 Earnings growth will be 11.75% after 7.7% in Q2-2007. Let me understand this;

1. Margin cycle has clearly topped. Input costs through the roof, growth velocity has peaked globally.
2. Funding costs of doing the business has risen considerably, as seen in credit spreads and even LIBOR lending rates.
3. Consumer sentiment - collapsing
4. Housing market, everything being equal will need to fall another 2-3 quarters

Does 1 through 4 add up to rise in earnings growth? Apparently!, according to the people in Positive-land.

I have ZERO predictability power but looking at pure chart based trading I note two recent developments:

1. My momentum based models are VERY CLOSE to selling the market. DAX Futures should be sold below 7.375-00 for a 5th final wave according to my medium term model.
2. There is TRIANGLE formation in about all major indices.

1+2 should be resolved shortly, either we get false or no break, and the people of Positive-land will be enjoying their cocktail again on unsinkable Titanic or.....if I am right, they will be running for life-boats.......

A resolution in technical terms will have to happen in the Sep. 13th-28 Sep. window, so this fatigue can soon be followed by some fast paced action.....


Fixed Income: Waiting for Santa Bennie, but long Euribor calls
Foreign Exchange: Building LONG US dollar position, yes long... vs GBP, and EUR..
Equity: Short Dax, adding as per above if broken, and long gamma. Took profit in mining.
Next 7 trading days decides the year in my opinion.


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