Tonight: Nikkei down circa 1.9 pct MSCI Asia Pacific Index down circa 1.3 pct “The Baltic Dry Index, a measure of shipping costs of commodities, also fell for an 18th day, the longest losing streak in more than a year.” (I personally see this trend as strong bearish indicator, similar to copper price as a leading indicator)
The absence of strong volume in the recent rally lent hints of a “dead-cat bounce”-type market. I am not a fervent subscriber to technical analysis, but the “hammer” formation of several sessions ago (Dow, S&P 500, etc.), followed by the strong sell signal of a “bearish engulfing” candle two sessions ago (all major indexes, ESPECIALLY Nasdaq) may have foreshadowed a strongly negative environment. The real question is: how long will the lows of two weeks ago hold, or will the market break immediately through in full capitulation?
Upon conferring with several buy-side technical analysts, I exited my recent long healthcare call early Friday for a minimal gain. I still hold my several commodity (oil), emerging market (Asia), and tech (small cap single stock) put option positions. I added a leveraged short European etf position at yesterday’s open, notching a decent profit by the close. While I often avoid widely-played, “cliche” trade strategies like the recent trend to short European equities, but given the austerity moves in many EU governments, while developed nations stand perched by a deflationary cliff, the likelihood of fiscal conservatism snowballing fear in the marketplace left a European short too good an opportunity to pass up. Whatever your long-term views on stimulus, short-to-intermediate term the effects of austerity (perhaps even if austerity is only implied by gov’ts) on stalled economies will almost certainly be strongly negative.