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Is a Black Friday coming?

 I still believe that we are close to the turning point, because:

-       investors are more bullish then ever and reinforced by shrugging off Japan and Lybia so easily. Downside protection through puts is low. Margin debt is at peak levels again, last seen in June 2007.

-       Copper wants to crash, but can’t as long as stocks don’t follow. The Russell 2000 is already at peak level again, while copper is some 5% off the peak already, trending down and only held up by the rising stock market.

-       The DAX, normally also an early indicator, is also well off its peak.

-       Treasuries are gaining today, despite the rising stock market and looming end of QE2.

So what is likely to happen?

Tomorrow is the last day in the Quarter and therefore it is unlikely that much selling is going to happen, hence it could be another up or flat day for stocks, as fund managers will do window dressing into Quarter end. But then, what happens next? Everybody who wanted to buy, bought, maybe even on margin. An ok Non-farm payroll report could reinforce the opinion that QE2 will end in June or even earlier. June is only 3 months away anyway, and one doesn’t want to be the last trying to get out. With the stock market at a major resistance, it might just be the time now to get out.

So we could get a black Friday or black Monday.

If we get a sell-off, what is going to happen?

-       stocks will go down, especially the Jim Cramer bubble stocks (NFLX, BIDU, LULU, CRM, VMW, RHAT,..)

-       commodities will go down (especially copper)

-       the USD will go up, especially against the AUD. It is not clear what the JPY and CHF would do, but given that the end of QE2 is the trigger, they could also weaken against the USD.

-       Treasuries will go up