Tug of war - Bull vs. Bear Part 1

If you’re wondering why most of my posts concentrate mostly in US markets, the obvious answer is that the US is still the largest economy on Earth. And the reserve currency is the US dollar.

When they energise, high yield assets go north. When they fall sick, high yield assets go south. It is simple as that. That does not mean we should ignore China or Japan.

The DOW had been ranging between 12800 and 13000 for the past 2-3 weeks. The bulls will test the 13000 resistance. If they fail, you might see 12400 supports being tested. If they succeed, 13800 will be the next resistance before the ALL time high.

The Greek event is over. Where is the positive news coming from? As I see it, none at the moment.

However, It is evident that carry trades had been the support for this current ongoing bull trend. The VIX is reasonably low, the US dollar is fair below 80-81, Global interest rates are low, the Japanese Yen had been weaker and QE3 hopes are still very much alive from the price of Gold. US Operation Twist and Europe's LTRO are taking effect.

Don’t ignore carry trades. With global interest rates so low, the CB are making you invest otherwise your purchasing power will be eroded by inflation!

On the other hand, global PMI is seen weaker, GDP growth are weaker with some revising downwards, credit rating agencies on going credit watch and downgrades.

My reading is that markets would generally trend sideways until the next event. So don’t get too excited about it.

What’s coming in the near horizon? Check your economic calendar for PMI data and

·         US GDP data,

·         Europe’s LTRO,

·         Chinese PMI,

·         US NFP

·         UK and ECB MPM.

I could be wrong but one of this may trigger the next direction for high yield assets.

However, if you have a LONG term horizon, you could ignore the above because the major trend is still north. I do not foresee markets going lower than Mar 2009.

Updated Feb 24th. Great minds think alike. I am glad the following article took of where i ended. It's nice that they can elaborate on my above article. Strange enough that i chose the title - tug-of-war!!! http://www.cnbc.com/id/46483737