KRUGER INSIGHTS WEDNESDAY, OCTOBER 30, 2013

By: Joel Kruger 

Unhealthy Momentum - Wow! This rally in US equities has just been amazing. As I write this piece, ahead of the European open, we are still pressing fresh record highs. Simply unreal that despite the major event risk due later in the form of the Fed, the market is completely content on retaining its unwavering bid tone. This has been a notable theme in recent weeks, with the stock market easily dismissing any event risk in favor of fresh buy opportunities. And all of this now culminating with today's Fed decision. Though it seems as though as much dovishness that could be priced into the market has already been priced in, apparently this is not the case and we are still seeing demand on the expectation that the Fed will somehow come out even more dovish than forecast. There have been those on the Fed expressing serious concern with the asset bubble that has been created, but the combination of the debt ceiling uncertainty and latest employment data have forced even these hawks to loosen up. Still, at the end of the day, the story is the same. The stock market is rallying because things are NOT GOOD. The stock market is trading at fresh record highs because the central bank needs to still maintain aggressive emergency monetary policy measures over 5 years after the crisis began.





Wait For The Break - To me, there is nothing sensible about buying at current levels, and while I commend those that have profited from the moves, as a contrarian, this type of trade simply isn't in my bones. I took my shot on the short side of the market earlier this year and paid the price, but this will not discourage me from taking another shot when I feel the opportunity presents. Technically, hourly, daily, weekly and monthly studies are all overbought, and this type of confluence is highly unusual and extremely bearish. Still, the only responsible strategy right now is to wait for confirmation and sell on a downside break. I have revised my short recommendation, raising the entry level from 1740 to 1755. I have an S&P sell order in place at 1755 and will happily take another shot on a break to this level. Should this trade trigger, my stop-loss will be only to exit the trade on a daily close above whatever Wednesday's high ends up being. I will leave my objective open. Currency markets remain far less interesting at the moment, though I suspect once volatility picks up in equities, this will change. I have however been delighted with the retreat in the New Zealand Dollar and at least risk correlated currencies have started to fall back into line. Good luck out there today.