Tiho Brkan | Nov 23, 2012 05:49AM ET
If you haven't heard the news already, the bulls have declared victory. Various bloggers around the internet have posted articles titled The bottom is in, Waiting for Santa Claus rally and Major buying opportunity (plus many others). The first note in Saturday's post warned that all in all, one could make an argument that a bounce or relief rally might be in store soon and that is what we have gotten so far. However, I'm personally not expecting anything remotely close to "a major buying opportunity... just yet. While there are many reasons for this, the chart above which tracks short term market breadth internals, shows that the market didn't really experience a proper oversold condition. We only became slightly oversold with Net New Highs, while the AD Line & Volume as well as the Stocks Above 50 MA never really washed out properly. Many will ask, why is it import to get oversold? Extreme oversold conditions create panic selling and re-build the wall of worry by removing weak hands from the market. These occurrences are necessary to forge longer term lasting supports as anything less usually fails.
Within the foreign exchange world, the Australian Dollar Japanese Yen cross pair is commonly known as the risk barometer or a perfect example of the carry trade concept. In recent years, this trade has been a great signal of market sentiment as it ebbs and flows from pessimism to optimism and back to pessimism again. As of last Friday, the CFTC commitment of traders report showed that hedge funds are currently extremely long the Aussie and extremely short the Yen. Furthermore, since that report was complied two Tuesdays ago, on the 13th of November, the recent price action has been very negative on the Japanese Yen. Therefore, one could assume that hedge funds have increased their bearish Yen bets and pushed the Carry Trade COT towards further extremes. Similar events occurred in April 2010, May 2011 and March 2012 with a result of a sharp and swift sell off (in all risk assets). I eagerly await the new CFTC report today to see further hedge fund positioning developments in both the Aussie and the Yen.
Total equity offerings in the US hit an all-time record Trading Diary (Last update 16 of November 12)
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