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Pastimes : The Philosophical Porch
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From: Rarebird5/20/2010 9:17:27 AM
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Transcendental Market Truths:

EUR/USD:

It's clear that the European central bankers are quite willing to allow the euro to sink to parity against the dollar, but they want it to stretch out over an "appropriate" period of time to avoid a panic (or, a political backlash from the people of Europe who are having their standard of living "downsized"). It's the principle of boiling a frog slowly.

Yesterday, the euro did bounce back up to regain it's losses from the day before. This bounce caused some shorts to take profits and look to re-sell the euro from a higher level, adding to the temporary bout of buying support. I'm looking for a stabilization period here as the euro treads water sideways, allowing the big money to sell short in preparation for the next move lower to parity and below.

The Market:

While the stock market had been tracking the euro in prior sessions, it was not able to actually show an advance yesterday. However, the comeback from the lows suggests that stocks are possibly building a base for a short term rally into the Thursday-Friday timeframe. But it should be followed by more decline next week.

The bottom line here is that a bounce for the next couple of days into options expiration for May will be no surprise, but the dominant trend to the downside should return very soon. Failure to rally over the next couple of days will have extreme bearish consequences over the short term and long term.

I would not be positioning myself long for any possible short term rally or bounce in regard to these markets outside of adding to short positions; for if a rally fails to materialize here, it will likely create a panic sell off.
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