When the Dust Settles…….Updated after report
When one looks at the sectors that led to yesterdays long capitulation the road leads to Hedge Fund liquidation.Â We say this because these Funds have been heavily into longÂ commodiities and emerging markets (look at the similarity of the Charts of just two ETF’s, DJP, Â a commodity ETF and EEM, an emerging market ETF). These ETF’sÂ both had a downside blowout starting three days ago.Â The action in these sectors put a lot of pressure on the other markets and no doubt were a factor in the roundturn action in the regular stock market on Tuesday. Fear of todays employment numbers then compounded the situation.
This leads to today.Â Will it be more of the same on the downside and a plunge through the 1200 S&P low or will we see a dramatic rally to new weekly highs?Â Both are possible so stay tuned.
7:19 AM CDT
Â UPDATE at 7:47 AM CDT
It was a bad report, the 6.1 % unemplyment number is big and means we may have to position for the drop to the 1100 next leg objective in the S&P.Â But we hesitate in spite of terrible fundamentals and technicals. Why?Â Basically because of the election cycle, and the absolute desire of the Republicans to hold on to power for four more years.Â What can they do that would be dramatic enough with the economy collapsing around them?Â It seems to us it would have to be a rescue of some type in the financal sector/credit/housing Â area.Â The overall economy is in too much trouble to start a rescue in other places.Â So watch financials, housing, bank indexes for clues today..ie their relative performance compared to the overall market.