Stock

The bounce was significantly big last week because it was working out the extreme bearish sentiment over the market.  The reason is that, if there are no more sellers which mean a market is left with pure buyers and that will push it back up.  However this kind of a quick rally without any fundamentals for support is fragile and it is at high risk on the long side.  (This is different from March 2009 because no QE backing it up).  And our model shows S&P is still in trouble.

Bond

Even though there is no confirmation of a downward trend for the intermediate term, the bonds market acts like people are holding bunch of bad apples which are selling for $10 each.  So people who are holding these bad apples are looking at each other’s face…is it worth 10 bucks?  Should I sell it now or wait, may go up?  The stereotype stories: once they wake up and get back to reality, they will sell it at fire sale prices.  There is no question about it.  What I believe is China and Japan want to reduce their holdings and they might already do so without affecting the price much and selling gradually.

Gold

In Elliot Wave theory, the correction will have three waves names A, B and C respectively.  What we saw the correction started in Sep 2011 was wave A, now we entered wave B (counter correction, not a real  rally) and we should see wave C begin soon to finish the whole correction.  So there is no hurry to buy it aggressively now, maybe setups a limit order of 5-10% lower than market price for accumulation purpose?  As of this moment, our model still shows intermediate term down trend.

Commodity

This asset class is under correction since the rally of USD, it is similar to gold.

USD

The only major asset class that shows a start of a long term upward trend and if this trend continues, then that means we are at a very good bargain price to enter long term positions.  Please refer to some popular vehicles for longing US Dollar such as UUP and EUO.  Most of the other asset classes are negative correlated to US Dollar which means if USD continues to appreciate, the value of other asset classes will shrink.  Fundamentally, if there are no more QEs, there is a big chance that we will enter deflation period which means people will be forced to chase cash.  One of the possibilities is the collapse of bonds.

Raymond Tsang aka Nameless Hero

Oct 16, 2011