Warm greetings to all. : ) Thanks to all the regulars on the (XJO) thread. The perspectives from the fundamentalists, numerologists & technical guys that contribute are always appreciated, there is much respect for the collective efforts. Because of the 'juncture' our market is presently facing, I thought that I'd throw a few of my thoughts in to help discussion. Please feel free to dismantle any wrong assumptions, my ego's only a secondary consideration so you won't offend me. : )
I sent an e-mail to a friend Friday afternoon & have pasted below what was then my view relating to the XJO. Since then, we now know Friday's metals movements & the reactive values on the FTSE for BHP & RIO. No matter what occurrs to our index in the short term, I believe fundamentally the macro-trend should remain intact for the medium-term because of the obvious strength of our resources sector & the snowball benefits to our economy derived via that strength.
What I can simplify as four risks to the health of that macro trend would be; 1) Oil at US$74-$82. 2) US$ M3 complexities. 3) Geo-politics, (primary immediate risk being the Iranian oil bourse). 4) Biological, (H5N1).
Macroeconomically I see risks 2 & 3 in play but the China factor remains valid & dominant. 2005 growth at 9.9%, projected 2006 growth at 8.7%. Even if growth was benign, that appetite is still substantially more advanced than what any mainstream macro-analyst was indicating at the turn of the decade. Barring geo-political developments leading to overt conflict or increasing producer cost pressures (oil) inevitably hitting the consumer harder than what can be absorbed, demand for raw materials in the medium term is only going to (relatively) increase.
Most commodities, despite the headlines everyday, are in real dollar terms, actually nowhere near historical highs. The compressed industrialisation of the world's largest population is still pretty hard to over-state. China has an umbilical cord still attached to the western consumer dollar, all things are related so no demand fundamental is risk free however, it is, (for the time being), in their interests to ensure that the US economy doesnt go down triggering global recession yet. Her energy needs & protecting that vulnerability is a rung higher on the ladder of priorities & this is where Iran muddies the waters which requires awareness I believe for any investor.
To emphasize simplistic demand pressures; The world is growing, we are now nudging six & a half billion people, all of which require energising, feeding, servicing & indulging with finite resources. Sophisticated consumer marketing saturation changes conventional pressures to a degree that has to be acknowledged, that is, ignorance is bliss but educate only 30% of China & India's lower & middle class to chasing/supporting unsustainable capitalist ideals, consumption(s) & lifestyles can only compound consumer demand.
There is of course much more that probably should be included but as I see it, primarily due to the above, I am relatively confident that the sky wont fall in over the next couple weeks nor a change of the macro-trend is likely to occurr. I would also be quite confident in stating that the week-end was spent by some writing & preparing automated buying programmes for unemotional absorbtion. Anyone that was watching intra-day buying support on the XJO that 'assisted' the reversal of macro-support for the October low will not dismiss that statement. : )
For those that saw this coming & prepared, well done, for those that are relatively new to the markets & didn't, unfortunately that's how we get experience.
For the record, in case one assumes from below that I like CTW instruments, I dont. I prefer MQB hands down for accurate time decay quotes & maintaining market spreads all the time. Also, as a point of definition. A defensive index put position is a sum invested in an instrument that is approximated to increase in value upon the index falling that is to neutralise the values that have decreased via open or illiquid positions. A high impact index strategy is designed purely as a profiteering opportunity. If one doesn't really understand what I am saying, then please spend a long time educating yourself before even remotely considering exposure into this avenue of the market.
Just a few thoughts, warm regards to all & good luck in any & all positions. It will certainly be an interesting two weeks ... : )
**** From e-mail; 'Relating to the market in summary; The XJO today was very ugly, the indicator was there yesterday & am mildly regretful that I did not heed the confirmation signals at 4904 this morning & follow through with the defensive positions via XJOWOT, (defensive trade to short-term movement) & XJOWOX (defensive position {time + intrinsic} in case macro-trend reversal). I still closed vulnerable positions & increased cash weighting via illiquid positions with cost. Personal interpretation of XJO is with overseas catalyst, (whether commodities, dow, geo-politics), a high probability exists of Monday testing (micro) 4840 (+/-5) & if breach occurs, big day down testing (macro) 4772 (+/-7). Tuesday may see very large oscilation with opposing market forces disallowing a temporary continuance of a corrective micro-trend (visible daily candle) ahead of BHP's report Wednesday. If report highlights increasing costs & unsure outlook, it will seal corrective retrace to macro 4583 (+/-4), (re daily & weekly candle factoring repeat 8% correction) before continuance or reversal of macro-trend. If report solid & becomes new ASX corporate record with upbeat medium-term sustainability, expect confirmation of nearest micro-support before resumption of positive macro-trend towards 5140. The primary reason I only battenned down the hatches instead of following through with a (pre) prepared defensive strategy is that with BHP reporting so soon, the risk for volatile unexpected oscilations I think is moderate to high, so I remained prudent & neutral. : )'
(20min delay)