The Dow closed 269 points off its lows yesterday ending down only 23 points for the day. Global markets followed the US lead rebounding last night with nearly every European market up 2-3%. It looks like yesterday could have been a successful retest of the flash crash lows and higher prices are ahead, at least in the short-term. The euro held the lows of the year on a retest yesterday but the struggling currency has yet to mount a sustained bounce off the $1.21 level. US futures are trading up 0.8% at last check pre-market.Gold appears to have successfully retested the $1,175 previous breakout level. The precious metal is now trading up to $1,213 an ounce still a ways off the all-time highs made 2 weeks ago at $1,249.80. I'm still holding my position in GLD having added a couple days ago and selling some into this small pop. I smartly sold a good portion of my original position on the flash crash day but the high-level consolidation in the following several days gave me some false sense of security and I took some pain on this breakdown and retest. I continue holding a core and trading around the base, sometimes effectively, sometimes not so much.
While there have been plenty of fears swirling in the market the last few weeks, nothing has happened yet. Jack McHugh has a great post up at The Big Picture creating a hypothetical conversation between a head trader and a junior trader. The junior trader highlights all the reasons he's bearish on global equities:
jt - Well, ever since the EU rescue package announced two weeks ago started to unravel, it looks like a number of governments might default and the euro currency could soon be history. Asia is also a mess, since North Korea might just start a shooting war with South Korea, and the U.S. might get into a trade war with China if the yuan doesn’t appreciate. Here at home, a slowdown in Europe could cause us to experience a double-dip recession, the appreciating dollar is going to hurt profit margins for our large, export-driven companies, and the Senate’s bank reform legislation looks like it might just crush our financial sector. Furthermore, the tape trades like death and all the momentum indicators are pointing south. Day after day, it seems like stocks are down 2% or more, and every rally keeps failing. Credit spreads are widening and the VIX is above the danger zone between 30 & 40. Being short isn’t just smart — it’s easy!Yet, the head trader questions him individually on each of these fears. In essence, have any of the fears been realized? The answer is no but the stock market discounts possible future scenarios. As more time passes and the world doesn't unravel, traders need to be cautious on the short side as the head trader says "the momentum that is now your friend could turn on you in a New York minute".
Excuse my digression but my taste in music has drastically deteriorated in recent years. I used to be a Bob Dylan fanatic obsessively learning his songs by heart, pouring over his lyrics to understand the meaning. I owned every single record and dozens of bootlegs; I spread his music to any of my friends that would give him a chance. Now, I'm a complete sell out. I'm a top 40, billboard hits sell out. I find myself singing "everybody in the club evacuate the dance floor!" throwin' my hand in the air and wavin' like all the sweet rappers do to at their concerts. How far I've fallen, I'm a disgrace.
Disclosure: Long GLD.