Monday, July 04, 2011
The plan to sell the rally on Friday looking for "normal service to be resumed" after the Month End Noise and US holiday was going just fine until those ISM figures came out. Our cheapo TMM ISM model that we knocked up using tin foil and sticky-back plastic has been crumpled up and chucked in the bin. We hate to admit it but maybe it is worth paying up for the PhDs' versions.
The problem is that we have been blindsided by the stunning performance of the ISM which we feel really is the figure du jour when it comes to importance. Especially having come on the back of the bounce in various regional PMIs. On the face of it we should really press our thought and positional stop loss buttons and reassess everything. But we are a bit split re timing. If the ISM is a game changer then we should abort and buy for the next run up to 1400, however if there is a chance that this is just an uber-expression of the risk run up we were expecting last week then perhaps we should just wait to see how the next 36 hrs pan out. It is easy to see punters become comfortable with the mid-cycle slowdown coming to an end, but it is also easy to see the A-Team screw up somehow or this week's data disappoint with ISM being the "outlier". TMM have not yet reached a consensus on this.
Apart from the ISM how else has the world changed over the last week? Well the Euro-package is already having its stitching unpicked by S+P suggesting that the French 12yr olds' plan may still involve partial default. TMM are amazed that the Eurostriches feel that they can get away with another summer of head and debt burying combined with STFU policy. But the market so far appears to be worryingly fooled.
China slow down figures continue to grind out which on the face of it fits in with TMM's DM vs EM master plan but, once again, the market appears to be completely off any argument that could halt the last week's risk rebound. But it's a slowdown none the less and will no doubt be resurrected as and issue as soon as markets roll over.
So where are we left for today? On this special day where the US celebrates the independence of its national debt from that of the British national debt, we should be out celebrating, but instead we are debating what to do. The heart says hold but the head says fold. We will try to hang on for 36 hours hoping the markets start to once again go down the U-bend before we follow our heads and do a U turn.