Risk aversion has kicked in, with some US dollar recovery and Treasury buying. With stocks slumping. We could be looking at the well overdue stock market correction, but depending on more 'bad' news. A substantial sell could be on the cards. Stocks could have peaked out for 2009 on both the Dow and S&P 500. Whether we reach 2008 and 2009 lows is disputable. But the system is cracking up both private and goverment, more so banks should be coming under stress as they point (obviously) to a bell whether picture on the state of the ecomomy via credit write downs. In other words goverment unemployment statistics are good for quick option and FX trading, but at the end of the day the long term direction on equity markets, via stock prices on banks, indicates that unemployment growing. Hence credit write downs and debt provision. Also watch electronic companies post losses in coming quarters, note recent NEC (chips) loss.
Sitting on the side is the H1N1 (Swine flu) spreading throughout the northern hemisphere and the National emergency issued by President Obama. This should also be factored into the markets.
The other aspect is the massive deficits that have been created, that are straining goverment budgets as we have a huge global tax receipt shortfall; so at some point taxes/prices and costs on everything are all going to rise. With the Federal Reserve not willing to containing inflation and the money printing to Wall Street and the possibility for a second stimulus from the US goverment (extension and revision of existing stimulus plans). The whole thing is looking perilous, sure goverment bonds have been bought near term, but over supply and quality will become an issue once Americans release they are amidst a Tsunami of inflation (at some-point).
So, shorting could come into vogue, with shorting indexes; but watch supports and trading levels to see where a breakthrough on the downside has occurred. Remember these are tight trading ranges, so a rebound in oversold signal's could be significant. Should be factored by acknowledging that the Fed will rev up money printing on any economical/stock downside.
Again my long position is pharmaceuticals as they are holding well, but in risk averse environment everything is sold. Still, H1N1 is still lurking and biotechs and their bigger pharmaceuticals will profit from Goverment stuff ups on vaccination programs, meaning reordering and under ordering could have occurred. Keep in mind the two anti viral's (recognized by the markets) Tamiflu and Relenza have had their supplies hammered. So a restock should go into hyper drive, look for end year profits on companies connected to both flu drugs (refer to this article).
Shorting banks could also be in vogue again, but a watch tight ranges and monetary bailout support by the Fed and Treasury/goverment or otherwise.
US dollar buying is risky, even though it was very over sold. A downside may persist into 2010 on the back of fiscal/monetary support into 2010. Watch for Fed and GDP numbers. Option traders may be indicating that the USD is still doomed near/mid term.
*morbius glass doesn't give investment advice, trade at your own risk
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