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Not to read too much in today's market close

|Includes: GLD, SLV, SPDR S&P 500 Trust ETF (SPY)

Markets made another big swing today. After being down by almost 2.5%, both Dow30 and S&P500 came back to pretty much unchanged levels by the close of markets. Dow closed down 23 points while S&P500 was up fractionally. For some this really might look very impressive, but I would caution retail investors to not read too much into this rally. Such 1-day rally can be due to multiple factors including some short covering, some sort of expectation of action from policy makers or for some other reason. Of course, from a technical perspective market may look oversold in the short term but that's a very relative term. Market is oversold if we compare it from its recent highs on 26th April of this year. But market is still overbought if you combine the low on July 2009 with the fundamental growth in global economy. From a technical perspective I think Dow is headed towards 9000 or may be even its support at 8200 level seen in July 2009. Most important factor to consider here is the lack of fundamental demand in global economy. Government stimulus around the world created a false impression of pent-up demand in the economy which really does not exist. And even bigger concern now is that the true health of sovereigns that helped in creating bailout funds is being revealed to investors. So any government that at this point tries to support its own or world's economy by borrowing more or by printing more money will be shooting itself in the foot as bond vigilantes turn to such countries.
Euro is not out of woods yet and Germany's interventions in markets point to a continuing concern about Euro. With impractical approach to handle debt crisis in Europe, Euro future does not seem bright. The only approach to solve a debt problem in Greece and any other enterprise for that matter is to reduce the debt, work more efficiently or if nothing else works then final option is default. Any other approach just creates more losses for newer investors in a failing enterprise. More investment from ECB in failing nations will result in more losses for ECB and Euro region. Problem is that after US bailout of banks policy makers around the world got a false notion that this approach works and works quickly. However, we still don't have enough data to see the real results of US bailout of banks and unprecedented interventions in the economy. Real results and effects will be known only in the years ahead as we have more data available in terms of productivity of people and companies. Good thing about 1930s approach of less intervention by Fed was that people became more productive and companies more innovative.
I don't think that at this point any rally in market will last long. As investors get real picture of economic strength outside of stimulus, stocks are bound to go down. I see the support for Dow Jones 30 at 8200 level and for S&P500 at 880 level. We might not get there in next week or next month but by end of the year those levels can be reached. I would suggest taking a look at SPY and VIX. These two are contrarian plays and a right combination will help in hedging the risks of stock portfolio. SPY puts and VIX calls can help you protect your portfolio. Ofcourse, precious metals (GLD and SLV) can provide somewhat limited hedge too but I think these metals are too pricy at current levels.

Disclosure: Disclosure: No position at the time of writing in SPY, VIX, GLD and SLV.