Twist again..Like we did last Summer?

Last Change % Chg
Stock Indexes Last Change % Chg

DJIA* 11043.86 272.38 2.53
S&P 500* 1162.95 26.52 2.33
Japan: Nikkei Average* 8374.13 -186.13 -2.17
Stoxx Europe 600* 220.28 4.09 1.89
UK: FTSE 100* 5089.37 22.56 0.45
EUR/USD 13543
GBP/USD 15564
Crude 8145
Gold 1627
Silver 3070
US 10 Yr 1.9%
US 2 Yr 0.23%
US 30 yr 2.99%

Following last weeks announcement by the FOMC, the so-called "TWIST Operation", whereby the FED will purchase longer term treasuries and sell the shorter end (400 billion of each), combined with continuing fears over Greece defaulting, and slowing Chinese GDP estimates, markets were left feeling underwhelmed. The Dow touching 10600 on Friday, and opening lower on Monday breaking into the 10500's.

Major declines were seen in Gold and Silver also, noteabley similar to September 2008, where large de-risking was seen. With alot of "cheap money" borrowed on the short end, having been parked in profitable gold trades, some say this may be one of the causes of money being pulled out of gold and silver (along with potentialy higher margins).

Having reached a low of 1530 and 26 dollars respectively, both have moved higher following news of a European "TARP" fund, as a final decisive action to stem any doubts about whether GREECE will be fully backstopped or not..

Also important to note is that the DOLLAR has, recently, AT LAST been catching a safe haven bid. With the Dollar index having broken through 78 level. Earlier in the year, the events in the middle east, and even the Eurozone situation failed to trigger significant dollar buying, with the American economy beginning to lag, as also the deficit ceiling raised fears over the US's ability to meet its obligations (or as was portrayed in order to get the bill passed in congress).


Ok, so whats key here? From a technical perspective trend line bullish support has clearly been breached for the Dow, and many commodities, and the Dollar looks potentially strong.

A KEY DRIVER of Commodities was the opinion that QE3, would follow QE2, and then QE4 and so on, as BERNANKE was deemed certain to get backing for continuing easing. The twist operationk, and no NET buying/easing, came as a surprise for the Dollar bears, with the Long Dow short Dollar trade being the PRIMARY DYNAMIC for the market the past 2 years (and also prior to the crisis), this may make things tricky now to anticipate market behaviour.

In terms of Currency, with fears growing of a global slowdown, and slowing inflation pressures, many of the Asian and Commodity based countries which had raised rates strongly and boldly now looking under pressure to cut, to ease, and allow their countries to maintain growth.

From a fundamental point of view, whether the corporates will continue to beat earnings estimates, I am unsure of. They have been beating estimates consistently now since March 2009, whether an anomalous or inflexionary under performance is due now, becomes something to keep in mind.


Sentiment/Risk Reward
With the Dow breaking through 11,000 again now,the momentum is definitely upward with strong support found at the 10500 level. Gold also, looks likely to challenge the higher 1600 range, potentially 1690's tomorrow. However given the uncertainty over potential news relating to the Greece situation, markets can swing back sharply.

From a risk/reward point I see no compelling trades to be made right now.

However if there is a greater perceived certainty with more information relating to Europe, a potential medium term bottom may be put in place in the coming days, and if that were to happen, I would be looking towards Dow 11500, FTSE 5300, and there are numerous mining stocks such as Xstrata at £8, which could provide good opportunities.