10/22 Weekly Commentary

The market was very quiet today, no doubt waiting for nectar from the gods who break bread in Korea this weekend.  A very nice diamond formed over the past 2 days and at the close it broke to the upside.  Futures followed through into the 4:15 close.  I entered shorts at the top of the trendline but reversed them on the breakout.

So far the stock indices have traced out 5 up going into today, so if there is weekend buying it should be another 5 up to complete an abc. The last rally into the close was a 5 up, a reaction and the beginning of the 3rd up.

Which comes first, chicken or egg?  What drives what,  currencies drive stocks, commodities drive bonds, bonds drive stocks?  To my mind, it's the same impulse driving markets.  Markets can either run on their own or be "assisted" by fiat money.  Commodities have had a good run since March, 2009 due primarily to the Fed.  At what point do the markets assert their own authority.  Economic activity, even in China, does not support these commodity price levels.  The markets are being driven by cheap money, with hedge funds and carry trade borrowing cheap and leveraging up to buy commodities, stocks, and whatever.  I am tired on not being able to increase my short levels beyond entry level, but I can't until the risk acceptance turns.   The weekly S&P GSCI gives the picture.

Commodities have already turned.  Analysis of silver and crude have revealed they have already made their tops. I'm sitting on a large amount of buying power and am getting frustrated, along with you guys.
The dollar had a washout after the stock market closed, collapsing to 74.60 before recovering to 77.26.  I levelled my stock shorts today to yesterday's 6% SDS, buying 2% QID at 13.16 and selling at 13.14 and buying SDS 77.42 and selling 77.36.  I covered the silver and crude futures shorts.  Sunday I want to get short crude again.  There should be some announcement from Korea and futures reaction.  Meanwhile I have to assume that the breakout upward at the close indicates the outcome will be reflationary.  If SP futures decline below 1176 then I'll short futures.
The April top in the DJI is 11,258.  This is 45 points above Thursday's high.