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Tuesday, October 27, 2009

Market Thought... carry trade

After reading a few articles the other day, and watching Roubini on CNBC yesterday, I realized my thesis for the dollar rally is basically describing the 'dollar carry' trade, but not so elegantly. (But I was posting to prepare for it before everyone else :)

Anyway, I digress... saw this article on CNBC today, and it got me thinking. What would be the most severe impact if this unwind really swings in the other direction. A worst case scenario of sorts. After all, we have to keep ourselves a few steps of these so called 'experts', so we can beat them to the trade and ride their wave.

From what I can see, from a longer macro perspective of technicals, the possibility for the SP500 to reach around 950 is not out of the question.

I state this because 950 is a major support from this current market rally dynamic.

A look at closer more micro perspective indicates to me that there are multiple supports on the way to 950. One of which is very strong, the 320SMA. Still its around 950.

The red line, around July, is when the dollar started to collapse, and the market rallied due to it. So a bear can really argue that the true low from the carry trade to unwind is the low 900s on the SP500. But the strength and stability in earnings profits will prevent that.

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