Sage Weekly Letter – Part II 7/1/2012

• Posted by Robert Sinn
• on July 1st, 2012

Perhaps the most crucial lessons I have learned in my decade of being an active financial market participant are the importance of being fully aware of various time frames, and separating one’s opinions & longer term views from short term market psychology and price action. Last week’s EU Summit announcements combined with the strong potential for fresh global central bank easing announcements over the coming days may have set the stage for a powerful market risk rally which could last for another couple of weeks. The fact that most marginal market participants (trend followers, CTAs, market timing hedge funds, etc.) were either caught leaning the wrong way or flat-footed, adds weight to the argument for additional gains over the coming days on top of Friday’s big risk orgy:

Click to enlarge (notes on charts)

Russell 2000 ($IWM $RUT)

On May 23rd I published the following $SPY chart highlighting what I viewed to be the most likely price action over the next 4-6 weeks:

 

As it turned out, the whipsaw action we have witnessed during the last six weeks has been virtually identical to the action that I speculated we were likely to experience:

 

Don’t forget about earnings season which begins in one week, $AAPL is coiling up nicely and looks to be primed for a big move soon:

 

While equities ($IWM $SPX) appear poised for further upside during the next 1-3 weeks, commodities ($CRB $CL_F $GC_F $GLD $SLV) are even more of a coiled spring due to their recent drastic underperformance and constructive technical outlook:

 

 

 

Far more important than flat-footed equity market participants or “coiled spring” commodity charts is the potential for a short squeeze in the euro ($EURUSD) similar to last October’s 1000+ pip rally which caught the vast majority completely by suprise:

 

While the $ECB and other global central banks are set to ease next week, Friday’s US non-farm payrolls report is probably the most important market moving event during the week ahead. Equities may have entered another “heads you win, tails you still win” environment given that a weak employment report is virtually certain to assure additional Federal Reserve  policy easing regardless of equity market levels; therefore, as pointed out yesterday in the first part of this week’s Letter - while last week’s EU announcement’s are almost assuredly more of the same “high sounding nonsense”, markets are likely to enjoy additional euphoria regardless of the quantity of nonsense emanating from Europe…….at least for now.

God bless America, enjoy your Fourth!

 

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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