Wednesday, January 14, 2015

Europe Outperformance

So far this week, Europe has suddenly been a bastion of strength.  Today, despite another big reversal in the S&P after the European close, Europe has managed to get back to the flat line today despite a big gap down.  Europe is trading near levels before the big S&P reversal yesterday.  And that is on top of the strong performance on Tuesday.

I can only attribute this to investors trying to get into European equities now that ECB QE is an inevitability.  It is buying the rumor before the news comes out.  Other than that, there is no reason to buy Europe.  They don't have an overabundance of credit like the US or China.  One of the reasons for this giant China A Shares rally is the overflowing liqudiity there.  There is so much money tied to real estate, if only a tiny fraction of that goes to equities, they can go bananas even though the fundamentals are awful.  I have read of huge influx of recent retail account openings in China as the market goes parabolic.  It will end badly there, no doubt.  If only I could short the stocks those retail investors are buying....

S&P looks saturated with investors is weak, those looking for a V bottom got foiled yesterday.  The V bottoms have been so powerful, and so long lasting over the past 2 years, that it is just a reflex reaction to pile in and ride the V higher when there is a big gap up like yesterday after a couple of down days.

On the crude oil front, I am seeing a bunch of articles, and interviews with the vast majority believing that crude oil will go down to $40, or lower, before rebounding.  Among them Goldman Sachs, known for doing the exact opposite of their recommendations.  These were mostly the same analysts and experts who said crude oil selling was over done when it was trading at $65 a couple of months ago.  

I think crude oil bottomed yesterday overnight at $44.20.  Crude oil is now stabilizing and starting to outperform the S&P.  I doubt we go below $44.00 this month.  I will be looking to buy crude oil very soon.

Due to opex forces this week, I am leaning towards weakness till Friday if we can go below SPX 2000.  Waiting to buy a capitulation later this week.

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