May 21, 2010 – Why There is No Place to Hide in This Sell Off

(SPECIAL ‘MARGIN CALL’ ISSUE)

Featured Trades: (SLV), (PALL), (SPX)


2) Why There is No Place to Hide in This Sell Off. After watching silver (SLV) and palladium (PALL) get absolutely creamed today, I just want to reiterate my warning (click here ) the market now has vastly higher levels of risk, that there will be no place to hide in the following sell off, it is only those who believe in the Easter Bunny who think diversification will protect them, and that cash is best hedge of all. Stop losses and tight risk controls are the order of the day (click here for that advice) when ‘de-risking’ is the dominant investment strategy, and bitter margin clerks are in the driver’s seat. For proof this is happening, you need look no further than the euro/yen cross, that great indicator of global risk taking, which has been in an absolute free fall for the last four weeks, to a gut churning ¥112. (For an explanation of why this is important click here ). It hasn’t helped that credit markets have once again ground to a halt. The cheerleaders at CNBC have gone back to looking like they have just been kicked in the balls. You only need one ticker on your screen right now, and that is for the S&P 500 (SPX). There is now more open interest in the SPX puts than there was during the Lehman aftermath. Talk about closing the barn door after the horses have bolted. The chart below shows you that the first line in the sand will equate to 1050, which I think offers all the support of a wet taco. If that doesn’t hold, then you can look at 950, which would give us a neat 22% pull back from the top. To get below that and retest the 2009 low at 667, we need a second leg down in the real estate market, which would trigger a secondary banking crisis. I don’t think this is going to happen, since we still have zero interest rates, and because most of the big players who could go under are already gone. Greece and the Euro crisis don’t have the juice to do this alone. But, I could be wrong.

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