CONFUSED? HERE’S SOME CLARITY
The market action today was downright confusing. Not because of the fact that the Dow was down 200 plus points. I won't claim to have been looking for this pullback, as it was the last thing on my mind. But we've had a big up month (nearly 10%) and some profit taking in the final days of such a month isn't anything too out of the ordinary. Especially when you consider how jaded fund managers are about giving up profits or generating more losses.
What confused me today was the manner in which relationships between asset classes dissolved. Gold and silver moving inverse to the market was not on my radar screen for this week. Copper and emerging markets held up remarkably well in the face of the all selling. And most importantly, if today was really about the fear of an agreement not being hatched in Europe, why was the Euro barely changed and still sitting right below 1.40?
The move today in gold and silver was more important than what occurred in the equity markets by far. It could mean one of two things:
1. Either gold and silver are telling us that we are about to enter economic Armageddon phase part deux. Remember that both gold and silver were soaring when all of this kicked off in early August.
OR
2. They are factoring in a prolonged resumption of the downtrend in the US Dollar. And the massive injection of liquidity that is about to unleashed in Europe.
For reasons that I have explained on this website since September, I can't see us going down the path of scenario #1. Therefore, I have to assume that it is going to be scenario #2.
The selloff today had more to do with beating each other to a sell on the news reaction out of Europe than a legitimate chance of a deal not being announced sometime in the next couple of days. If the Euro had fallen back significantly, I'd be singing another tune entirely. However, the Euro is the king of the indicators for the Europe disinformation trade. I trust what it is saying more than any reporter or website or analyst.
I remain 120% long in FAS and QQQ. I'll update if any changes are made.
