Tag Archives: short squeeze

Sympathy for the euro

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Sentiment is still really lousy and downside momentum is waning. This is the same condition that persisted in the dollar from August through November before violently clearing. No telling how long this holds up, but I would not want to get caught short without a stop here — one day you could wake up and find out that it’s spiked 3 cents overnight.

Interactive Brokers

Of course, I am bearish on the commodity currencies CAD, AUD, NZD and ZAR (and actually also JPY as of this evening’s spike), and if these fall the euro is likely to make new lows. Conversely, a euro spike would likely coincide with a general dollar sell-off.

Some kind of news about Greece or other GIPSIs could be a nice catalyst for a rally — it doesn’t quite matter what the news is, just that there is something to get people trading. The crowd’s reaction often makes very little sense and can’t be predicted by news alone.

More thoughts on the Euro

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Another day, another (barely) new low in the Euro:

Prophet.net

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I still think there are good odds for a surprise rally here. We certainly have the set-up: oversold RSI and a positive MACD cross on the daily bar, very low but leveling trader sentiment, and a widely-followed news event to draw in the retail players (the very guys who were so sure of a dollar crash back in the fall).

Take a look and compare the current conditions to September 2008: the patterns are very similar. A break of the line that has contained the decline since mid-January could be the trigger for a short squeeze.

For the really big picture, here’s the whole history of the shaky script. I bet it ends up back to where it started:

Yahoo! Finance

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It just occurred to me that the Euro is the only major currency that has never had any specie backing. It has always been purely the creation of technocrats and bankers. Poor thing never had a chance.

World markets holding up

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Still no signs of a fresh leg down. The markets don’t seem to want to sell off this week, and have been making little lunges higher. Even the Athens stock market has bounced 9% since Monday. Who would have guessed?

Fear is abating in all major markets: the dollar has stalled, oil is up four bucks, treasury bonds have dropped, metals are inching higher, and the grains seem to turning the corner. Despite this repreive, investor sentiment on stocks and the euro remains nearly as low as a week ago.

This could be just the set-up for a short squeeze: if we inch a bit higher, bears could all throw in the towel all at once as their attitude shifts from an expectation of more winnings to concern about losses.

You can see in this 1-month chart of round-the-clock trading that Dow futures and the dollar index have been inching toward the trendlines that have contained their moves since the stock markets peaked three weeks ago:

Source: Interactive Brokers

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A break of those lines could send traders scrambling to reverse positions. A break of the shorter lines could mean that the majority will actually be right and we will make new stock and euro lows within days (and maybe even have a frightening but brief mini-crash, which the put:call ratio, DSI, VIX and summer 2007 analogue allow for).

(EDIT, 6:23 EST) It is interesting also how put equity buyers and call sellers stepped up their enthusiasm yesterday, finally nudging the 5-day average put:call ratio up past the mean, a condition that I have long viewed as a prerequisite for the end of this stock decline:

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This is certainly not the time to hold aggressive shorts (that was a month ago, when the above indicator was super bearish). I think the odds now even favor a rally.

SEC intends to ban short selling. Government boxcars reported in Greenwich.

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Hedge fund managers said to pack dirt under fingernails, roughen hands on bricks to avoid suspicion and possible shipment to North Dakota re-education camps.

These days it seems like we are living in an Onion article (1 , 2). It would be funny if it were not the end of the world as we know it.

I’ve been a bear since spring of 2006, preparing for a depression since early 2007, and have had no illusions about the death of the idea that was America. I saw these events coming a mile away, but the speed with which they have arrived is shocking.

By edict of the Duma…

I figured that the shorting ban (WSJ article) would pop up somewhere near the midpoint of the bear market, maybe Dow 8000, but this train to Animal Farm is an express. When will they ban international money transfers? Unapproved foreign travel? Gold?

The speed with which our leaders are dropping any pretense of respect for markets just makes me that much more bearish. 8000 could be next month, not next year as I had figured. And I have to rethink my bottom target of 3500. Really, that would not be the end of the world — this market started at 800 back in 1982, and you have to remember that equity values go POOF after an economy gets as leveraged as ours is. 75% stock market drops are not black swans. They follow credit bubbles like day follows night.

Markets are so bourgeois, anyway.

The possibility of Dow zero just ticked up a standard deviation or two. What happened to the Moscow stock exchange after 1917 anyway?

The end of the stock market? Impossible, right? Well, if our Bolsheviks enact their desires to use government funds to buy all manner of securities (as the Russians are now doing), they could eventually own everything, not just the mortgage market and a huge insurer.

Buyout mania, with a twist.

If a security’s market price is $10 and the government offers $20, that is not ‘market support’, that is a buyout. Of course, there are limits to this sort of nationalization, namely the difference in scale between the Fed’s $900 billion balance sheet and the many tens of trillions of dollars in US private equity and debt instruments, so at first they will be very selective (ahem), but they do have two tools to help them work around those limits: printing presses and guns. In a few short years, when the former lose their potency, the latter can be brought to the fore.

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PS — Of course, my opinion is that this rally (futures are up 2% on top of today’s dramatic close) is just a short squeeze and dead cat bounce. The air pocket under stocks just got a whole lot bigger. 90-day T-bills last traded at 0.07%. The stall warning light is still on.