Will Market Turnarounds Stick?

Gold has in recent days defied gravity (and the general strength of the dollar) to post fresh all time highs. It's up more than $60 in the last six trading sessions, spurred partially by yesterday's news of India taking down a 200-ton print from the IMF, but more clearly by real buying flow.

As is always the case with the yellow metal, there are a dozen stories and theories offered for its performance, and per the usual it is difficult to distinguish fact from fantasy. However, an Occam's Razor analysis might well suggest that someone is taking an (informed?) punt on either financial stability, the maintenance of globally easy liquidity conditions, or both. If the latter, in particular, one would have to posit that the dollar would come under renewed pressure after the Fed (unless punters wish to wait for payrolls).

The last 13 hours or so have also seen a fairly sharp turnaround in risk sentiment. Spoos are up a percent and half or so from the levels prevailing when Macro Man left the office yesterday. Earlier this week Macro Man observed that VIX around 30 was likely to be a critical juncture; for the time being, at least, it has helped staunch the equity market's losses. Similarly, Macro Man's proprietary risk index has recently gone back below zero after six months of risk-seeking readings. The next few trading sessions will likely determine whether this index bounces into year end or sustains a "proper" bout of sustaind risk aversion.

On Friday, September 11, the SPX closed at 1042.73. The following Monday, Macro Man created a reader poll on where the SPX would close at year end. The response was overwhelmingly bearish.

He'd like to repeat the exercise today. This space sometimes gets labeled as a "bearish blog", an appellation which Macro Man dislikes. His paramount interest is in getting things right (the signal, that is, rather than the noise), even if he doesn't always do so. In any event, he has detected a distinctly pro-risk attitude towards some of the punters with whom he speaks on occasion. So he'd like to take the market's temperature on a slightly more statisitically significant scale.

Where will the S&P 500 close the year?

Between 925 and 1000Between 1000 and 1075Between 1075 and 1150> 1150

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<br /><a href="http://answers.polldaddy.com/poll/1990847/">Where will the S&amp;P 500 close the year?</a><span style="font-size:9px;">(<a href="http://www.polldaddy.com">survey software</a>)</span><br />

It's 10 am London time, and Macro Man's still feeling a touch groggy from his quick turnaround this morning. He can only hope, by the time he goes to bed, that his trading fortunes manage to execute a similarly impressive 180.

Comments

[Roger Knights:]

Gold's rise, I think, is primarily due to a perception of its having less downside risk, make it safer to be long. IOW, it is now believed that Asian central banks will be buying on dips. so the worst that can happen is a sideways trend.

More importantly, there's a growing realization that a fundamental change of psychology has occurred at the highest levels of fiat-holders, namely, a historic re-appreciation of the need for a greater portion of their reserves to be held in hard assets. This is a reversal by the market-movers, in comparison to whom other considerations are trivial.

Nov 04 08:53 AM