KRUGER INSIGHTS TUESDAY, OCTOBER 15, 2013

By: Joel Kruger

BUY THE RUMOUR; BUY THE FACT? – What to say? Not a whole lot. You all know how I feel about this crazy equity rally, and it is only a matter of time before the monster comes tumbling down. The strategy of creating a crisis and then saving us from it has worked well for the US administration, and up until this point, there are no signs that things will be any different over the coming sessions. At this rate, once an agreement is reached, the government reopens and the debt ceiling is raised, we could see yet another surge in stocks as it appears the new mantra is “buy the rumor, buy the fact.” It doesn’t matter that larger structural problems are being completely ignored and that we have only just pushed off dealing with yet another crisis a few weeks down the road. All the matters is right now and that right now a manufactured crisis has been averted which means stocks and risk assets can go higher on artificial market momentum from ultra accommodative Fed policy that is still in place because things are not good. The whole thing is completely absurd.

KEY LEVELS TO WATCH – For what it’s worth, the S&P has stalled out for now around the 1715 area which represents the 78.6% fib retrace off of the September record high to October low move. Still, I would now like to see a break back below 1680 to encourage topping prospects and open the door for a bearish reversal. I have been focused more on the S&P and less on currencies of late because I believe that US equity markets are at the center of everything. The fate of US equities will dictate the fate of correlated assets. When US equities finally come under pressure, it should put a lot of pressure on risk correlated currencies. I suspect emerging market and commodity bloc FX will be quite exposed, and I will be looking for good downside follow through on my NZD/USD short. I also think the Yen can still find bids in risk off trade, and will be looking for one more sharp drop in USD/JPY so that I can establish a meaningful long position. I am projecting a USD/JPY move through 103.75 and towards 110.00 into early 2014.