Quickly donning the bear suit … Please don’t buy my currency … But the fundamentals are saying …

A few impressions and snippets from reading through the news and blogs today, ahead of the cash open.

1. Impression: the flicking of the switch to bearish has been very quick indeed. Now, there has been a reluctance to embrace the rally, especially above say 1200, with much chatter indeed devoted to the the sentiment measures and how they were signalling a reversal/’correction’ was due.

Keeping it all in perspective, the reversal/’correction’ took a loooooong time coming and, so far at least, has been shallow. Also keeping it in perspective, there has been a change in the price behavior that, as a tape reader, it would be churlish of me not to recognise and give due respect to. I am just surprised at the willingness to embrace the bear case so quickly that seems evident in the blogs/news (though ‘surprised’ is not the right adjective).

BTW, impressions of market feel are interesting and useful, but, as always, I am watching how the price responds, as Wyckoff said: “The study of responses … is an almost unerring guide to the technical position of the market.”

2. Some critics of QE and QE2 express concerns about the potential for high inflation resulting from the policies. Originally the concerns were for US inflation, but since this has not been forthcoming the goalposts have been quickly shifted to concerns about inflation in the rest of the world (especially in developing markets) as US dollars found their way into these economies. I am pretty impatient with these concerns and, with a due acknowledgment to the potential for some confirmation bias on my behalf, point out an excellent short piece from Tim Duy, in which:

If inflation abroad is a problem, it is not because the Federal Reserve has set rates too low, but because emerging markets been unwilling to allow their currencies to appreciate sufficiently against the Dollar. See, for example, recent Dollar buying on the part of Brazil.

(I should note that maybe the USD buying from the Banco Central do Brasil is merely some ‘smoothing and testing’ (to use a phrase from the RBA) not a real (sorry) attempt to support the USD/BRL).


3. Finally (though there is plenty more of interest out there in the blogs/news today) … I recently raved briefly, but wholeheartedly, about the excellent Global Macro Monitor blog. Just a tiny snippet from it today that highlights an important facet of my trading approach and that should of help to anyone sharing my approach … the whole quote is important, but the bolding is mine and represents the most important for me:

Day traders should not base their decisions on long-term fundamentals. The same is mostly true for traders in general, in our opinion, though having a “fundamental story” helps navigate market noise and prevents from being shaking out during periods of increased volatility.


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