Wednesday, 29 February 2012

Wednesday market outlook

Interesting times we`re trading in. The markets are screaming for an impeding correction, but as the global printing press pumps liquidity into the markets the game of musical chairs has no choice but to continue. What will happen when the music stops and all these injections will prove they have diminishing returns? Until then, let`s take a look on what the markets did this week: gold has managed to hold the bullish channel it entered on the 22nd of February, the S&P looks like a rabid bull and the effects of Bank of Japan`s massive intervention on the yen seems to be wearing off.

Precious metals outlook

Gold, the "barbaric relic", as Keynes liked to call it (although he mostly referred to the gold standard), has managed to eke out some gains and trade inside a bullish channel. I am going to initiate a position at $1787 with a relatively wide stop loss at $1688. For a more long term focused trader, an even wider stop loss could be just beneath the 200 day moving average, a long term resistance level. 

Even though the obvious star is silver, with nearly 30% appreciation in price since the beginning of 2012, the high volatility in prices turns on a warning sign for me. I guess my stomach would not be able to digest the massive sell-offs experienced by silver traders last year in May and September, so I might as well stick to gold.

The S&P 500

A bull run cannot last forever. Global ZIRP (zero interest rate policy) is starting to be priced in, European LTRO II (Long term refinancing operations) is not so much of a positive surprise anymore, QE 3 is nowhere to be seen, so I guess that, in the upcoming months positive news have to be of economic nature: the recovery of the US economy, the miraculous bounce of European economies and the incredibly soft landing of the Chinese economy. I don`t believe in this scenario and thus, I shorting again the S&P at 1372, close to its all time highs.

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