Market action is suggesting a sell risk approach (sell US S&P 500, Aussie 200, oil, copper, AUD/USD, EUR/USD) – or is it just me?
One of the factors traders must overcome on the road to profits is personal biases. When it comes to share markets, most of the traders I know are “natural” bears. That’s not me – I’m a natural bull. However, I love an argument – a characteristic I share with a lot of traders. This translates into a natural bias to go against current market thinking – I’m a contrarian. This is why I have a big problem in trading in the near term.
At the moment I can see both technical and fundamental reasons to sell risk assets and currencies. Bullish on risk for all of Q4 2011, now that the market consensus is turning bullish, I want to sell. The question must be asked – is this fair analysis, or simply a natural bias?
Here’s a chart of the US SP 500 Index from the Tracker platform:
As illustrated, the index is approaching multiple resistance at previous highs at 1350, 1358 and 1367, and the Stochastic oscillator is in overbought territory. Looks like a sell to me.
While I remain fundamentally positive on risk over 2012, there is a real possibility that markets have run ahead of themselves. The US data clearly shows recovery. However, it was Europe that triggered a great deal of the 2011 sell off.
After Greek political leaders again deferred any announcements on debt reduction and commitment to bail-out requirements, the potential for disappointment is rising – yet the muted reaction in markets suggest there is comfort both these announcements will come. The US Federal Reserves chairman Bernanke re-iterated last night that the Fed stands ready to increase liquidity (QE3) if required – does he know something we don’t?
Anything less than comprehensive commitments could start a short term sell-off – and the track record of European politicians generally, and Greek politicians in particular, is not good. I’m going short ahead of a potential sell trigger on Euro disappointment.