Quarterly Stock and Commodity Markets Brief

By: Christopher_Quigley

Short term traders love volatility and I reckon they are going to get it over the next few months. The catalysts will be oil price instability, rising interest rates worldwide, dollar gyrations and higher inflation. Accordingly note that the VXX is intimating a significant breakout.

The current market correction, which was nicely anticipated, is providing smart traders with ample opportunities. Sectors to watch are oil (ETF: USO), Silver (Ultra ETF: AGQ) Financials (Direxion Bear ETF: FAZ)  Mid Caps (Direxion Bear: TZA) and Technology (Ultra Bull ETF: QLD).

Silver’s AGQ has already gone parabolic and is up nearly 100% since January alone thus it would be wise to wait for pullbacks to enter any new positions on this wonderful instrument.

If USO solidly breaks 42.50 chances are that over the course of a year it could double in price particularly should the dollar breakdown continue.

The April earnings season is going to be particularly interesting. Will gas price instability coupled with upward trending cost of credit dampen consumer sentiment and future sales projections? If earnings estimates start regressing will this herald the end of the March 2009 bull run?  Will the game changing political tsunami sweeping the Middle East penetrate China and finally destabilise the most totalitarian communist regime in the world after North Korea?

The political and economic landscape in Europe is no more stable than elsewhere. The Euro crisis has been parked for the moment but has not gone away. For example the new administration in Ireland is in no mood to carry the full cost of implementing the austere economic directives emanating from Brussels. Ireland can very feasibly “burn” up to 20 billion Euro of senior unsecured bondholder debt in its banks. The European commission does not want this to happen as it fears such a move, by a full Euro member, could cause bond contagion across the zone thus adversely affecting confidence and raising future Euro bond rates. A senior Irish politician Mr, John Bruton (European Ambassador to the USA) has stated on the record that the European Central Bank shared some of the blame for the Irish banking crisis because it failed to implement its supervisory responsibilities under the Maastricht treaty. He wants all Euro members to shares the Irish pain through lower bailout rates and longer loan repayment timelines. Many see his point. Thus clearly something has got to give. The situation is not helped by the fact that the German chancellor Angela Merkel‘s party is facing no less that 8 regional elections and is under serious political pressure from conservative opposition.

The situation in England grows more alarming every passing month. The austerity measures being implemented by the conservative /liberal coalition are savage and deep due to its one trillion sterling national debt. It is now dawning that the negative GDP figures reported for the end of December may not be totally weather related and there is real fear that a double dip recession is in the offing.

All in all, given the above, I reiterate that the next two to three months should bring lots of volatility to hungry traders. A point every investor should note is that this environment is pay-dirt for quant players who love to fake short term direction. Experienced market watchers would have noted that old technical indicators no longer work and must develop counter-active strategies. Failure to do so will bring failure as high frequency traders now make up over 50% of all trades. Ignore this market fact at your peril.

VXX: 1 Day Chart:

USO: OIL ETF 9 Day Chart

AGQ: Silver Ultra ETF 1 Day Chart

FAZ: Financial Direxion ETF 1 Day Chart

TZA: Small Cap Direxion ETF 1 Day Chart

QLD: Technology Ultra ETF 1 Day Chart

By Christopher M. Quigley
B.Sc., M.M.I.I. Grad., M.A.
http://www.wealthbuilder.ie

Mr. Quigley was born in 1958 in Dublin and holds a Batchelor Degree in Accounting and Management from Trinity College/College of Commerce, Dublin and is a graduate of the Marketing Institute of Ireland. He commenced investing in the Stock Market in 1989. in Belmont, California where he lived for 6 years. He developed the Wealthbuilder investment and trading course over the last decade as a result of research, study, experience and successful application. This course marries Fundamental Analysis with Technical Analysis and focuses on 3 specific approaches. Namely: Momentum, Value and Pension Strategies.

Mr. Quigley is now based in Dublin, Ireland and Tampa Bay, Florida.

© 2011 Copyright Christopher M. Quigley - All Rights Reserved

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