Today's market action was nice to see for a change. As always, down days have massive volume versus up days. Anything is possible, and this market may set new highs in a few days again but the risk / reward is getting far more skewed to the risk side of the equation.
The bond market caught somewhat of a bid today but still is not showing any real bullish tendencies. The 2 year auction today saw a bid to cover around 3.03 versus the 3.40 trend of late so that does not bode well for treasury demand, especially with the recent run up in yields. The implications to risk sensitive assets (swaps, housing, CRE, etc) are huge and the Fed has to be careful how much they push future QE.
The USD is done, put a fork in it. Precious metals are the new reserve currency, flight to safety. I won't call them a flight to safety trade, because they really are not a trade. They are another form of currency. When you go all cash in your trading account, that is not considered a trade, nor should owning precious metals. Ever hear anyone talk about how their cash balance takes a hit when the USD is weak or rejoices when the USD is strong? For some precious metals is a trading vehicle but for most it is a hedge against a dying fiat currency system.
Copper has really begun to roll over as are emerging markets, DOW Transports, Utilities. The VIX was up huge today and the AD line was heavily in the declining category. The only thing catching a bid is oil and the headwinds from rising prices will hurt the cash strapped consumer.
Libya is only going to grow in violence with Gaddafi now preparing to be a martyr. Bahrain is continuing to boil over and I read reports that Iran may see protests as early as Tuesday or Wednesday of this week. The global revolution is even happening in the US. First Wisconsin now Ohio and Indiana. Expect many other states to protest just how the budget gaps will be filled.
Ireland elections are on Friday and no one seems to be talking about it. Angela Merkel was handed quite the set back in this weekend's elections as well. Neither bode well for senior bondholders staying whole. Italy had to close its stock market today, Japan has been put on credit watch negative, Spain is acknowledging how bad their banks are finally, The UK is contracting (oh yeah, Japan too), Korea is a seeing a bank run (oh yeah Ireland too). I am sure I missed something but you get the point.
If this market is going to turn, don't think the dip buyers will give up without a fight. A majority of traders and investors have made money for two years by literally doing nothing but holding stocks. It was an easy way to make money and they won't give up without a fight. They will pour money into any weakness as they have been conditioned. They will focus on the Bernanke put which in reality expires soon unless QE3 is hinted at in the next few weeks. Today had the sign of a buy the dip trade working yet again but failed. It may still work but one thing is for sure, one day it won't work. Stay focused on the issues that the media is not covering. The issues are real and the opportunities to profit from them are very large indeed.