Zak Mir – S&P & Gold & “the taper’s in the price”

4 mins. to read

I do generally make a point of watching Squawk Box Europe between 7am and 9am on weekdays on the off chance that there will be the kind of interview event delivered of the calibre that we saw today courtesy of one Steve Sedgwick. This came in the form of some surprisingly jagged questioning of an unsuspecting guest who had foolishly decided to take the Government’s side in terms of the timing of the Lloyds stake sale. This amounts to HM Treasury bagging around £3bn. Indeed, at the proposed sale price, our great Govt,  after sitting on the position which was for the most part has been massively offside for 5 years, will be just about back to breakeven!

This bailout you will recall was a direct result of the Government foolishly forcing Lloyds to get into bed with HBOS, the whole debacle to me was in many ways even more wretched than the odious, title stripped, Fred “the Shred” Goodwin. But somehow, the man who presided over the meltdown at HSBC – Andy Hornby – managed to escape untainted. He continues to flit from flagship business to flagship business earning millions along the way. If Teflon were ever looking for a someone to be the face of their marketing campaign, Mr Hornby would be it!

But getting back to the Government’s Lloyds trade, it seems rather reminiscent of Gordon Brown’s exit from our Gold reserves at the start of the last decade which flagged the start of a “supercycle” for the metal. To my mind £3 billion has been clutched today, when given the ongoing cartel conditions in the UK banking sector, within say 18 months, one can imagine that £10 billion or more could have been raised. No doubt this booty will be reserved for the hedge funds who have been clamouring to take the stake off our ill-advised government’s hands at current levels near 75p.

Moving on from one cash-strapped Government to another… It seems that President Obama’s choice of new Federal Reserve Chairman, Larry Summers, is now heading for the exit – perhaps he has been given a sneak peek at the US’s “books” and he decided to run for cover!!! Or perhaps he was, like this blog, deemed to be “politically incorrect”. This unexpected news and the run-up to likely news on QE tapering for Wednesday evening has caused stocks to rebound once again to start this week.

From a strategic perspective, with indices near 2013 highs for the Dow and S&P, we appear  to be in a situation where given the sharp rebound seen of late, one would be very tempted to suggest that the only way is down. However, the likely $10 billion tapering from the current $85 billion a month level would simply represent something of a fudge in terms of what effect it may have on the economy and hence the stock market. To my mind anyways.

What looks to have happened already is that the so called “smart” money went short ahead of time, starting in August, anticipating the end of the QE cycle, but has found that it is simply being squeezed to death. A look at the daily chart of the S&P shows the way that the two unfilled gaps to the downside last month did not mark a major top for this index. Instead, they morphed into an island bottom charting buy configuration delivered as a bear trap below the 50 day moving average currently at 1675.

Indeed, the way things stand, we will likely be treated to a triple golden cross buy signal in coming days between the 10, 20, 50 day moving averages to add to the 10 and 50 day moving average golden cross buy signal to start this week. While of course a fundamental surprise may change everything, there is only one charting message from the S&P and that is it will head towards the top of a July rising trend channel at 1760 within a matter of days. At this stage only an end of day close back below the aforementioned 50 day line would even begin to delay the upside scenario which could be seen as soon as the end of this month. Right, that’s my head on the block then!

As far as Gold is concerned,  and what it is likely to do in the aftermath of the Fed announcement, I would venture to suggest that this is a market where we should be assuming that a flush out of the bulls has been going on not just over the course of September in the form of a slide from above $1400, but also since the start of the year.  This is because the tumble for the metal can be interpreted as the market having successfully guessed that the Fed’s “Forward Guidance” last autumn on QE and interest rates was simply a promise it could not keep indefinitely. What can be said on a strategic basis here though is that in the wake of the August bull trap failure through June resistance, that we have the risk of a partial or even full test of 2013 support under $1200. But the trade I would like to look out for here would be an end of day close back above the 50 day moving average still rising at $1,339 even after price weakness in recent days. This is on the basis that the recent weakness for the metal has overcompensated for whatever might be delivered on September 18 – in effect, “the tapers in the price”.


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