End game

The end game is approaching and because a lot may happen over the weekend, the Aussie market has to account for a range of possibilities. The Asx 200 is down by 4 and has touched 4454 but is unlikely to fail today, in fact, a squeeze up seems more likely as a good outcome also needs to be built into the analysis.

At least fear wasn't gripping markets last night, with the indices generally lower but calm. My feeling is that a collapse might be a one or two day wonder but I don't want to see it given that I'm still holding longs.

OK, it's 11.21 am and even as I write, the market has just wobbled again to hit 4452. Not sure if there's any news.

AGO reported yesterday and the key point that the market is focussing on is cost control. AGO did well and the stock looks to have held above the recent breakout in the 390s. I've bought some at 407 for a move to 440 with a stop at about 390.

Anyway, here's the Asx 200 chart. Right on the button. Looks ominous but if it bounces, the picture changes to a bullish looking reverse head and shoulders.

The DJIA held above the breakout level but only just.

12.29 There goes the neighbourhood...the index cracked the 4445 low and has fallen another 10 points in the blink of an eye.

12.41 The US House of Reps won't vote on Boehner's plan tonight and US S&P futures have dropped 9 or 10 points, precipitating our failure, I suppose. It's an indication that the Republicans are divided although the Democrats were going to kill the bill in the Senate anyway. Since the Republicans are split, it has to be a bipartisan agreement and I guess, it always had to be. Ultimately, an agreement has to be reached even if the deadline is passed but with every passing day, the prospect of a US downgrade to AA comes closer to reality. Rome is burning and Congress fiddling?

The prospect of a reversal rally is also an outside possibility as there's no serious selling after the chart break. Also, how does this affect us? We're trading under the assumption that the US market falls apart and takes us with it and that's a reasonable guess but, as FnArena pointed out this morning, US 10 year yields are falling so there's no exit and if there was, does the money flow to the stock market as it did after QE2 ended or does it just flee to cash because of the fear of the US economy seizing up? What about emerging markets and by extension, Australia. Do they become safe havens?

The best bet seems to be to get out and wait for the dust to clear but I also feel as if the horse has bolted and I may as well sit with what I've got. So many clichés, so little idea.

1.56 US futures have recovered a few points and the market has settled at a loss of 35-40 points. The Asx 200 is down about 4% this week compared to 3.5% for the DJIA with a day to go and futures lower so roughly in line. I think we should be discounting their fall – it's not us and we could be a beneficiary of unintended consequences – but the CPI print doesn't help.

Veteran economist Bill Evans was just on TV making some really strong points about how the local economy is slowing and the CPI is going to fall. I hope he's right, it's almost beyond belief that 0.3% of the CPI number is explained by increases in retail prices when shops are empty despite permanent discounts and the only thing that's growing is internet shopping at even greater discounts and overseas travel.

Evans said that 2% of the workforce is in mining and 15% in retail which puts into perspective the argument about all the mining projects in the pipeline. The market knows that the broader economy is weak but fears that the RBA is blinded by its modelling. If we can escape a rate rise next week we might be able to avoid the RBA plunging a knife into the barely beating heart of the non mining economy.

3.24 Opening calls for Europe are for falls of 1% or more so the incipient rally is nipped in the bud. I sold out half of the AGO at 406, the stock had been as low as 400 and I figure I might get a better entry on Monday if the world hasn't ended.

3.52 Last Friday, the US indices had a mixed day with the Nasdaq up, Dow down and S&P 500 flat but we fell 70 odd points on Monday because we responded to political news from Sunday in the US. The reverse can easily happen this weekend and the weak leads we are seeing may be meaningless even if they translate into losses overnight. I can't help feeling that sentiment is extreme.... but then, I've been long and wrong over the last few days. I also know that I do my worst when I capitulate after missing the best sell signals, so it's grit my teeth and wait.

4.12 No relief on the match out and a loss of 39 points on the index with the lowest weekly close since last August at 4425. It'll be a nice weekend for the survivalists, tend those vegies and clean those bunkers.

The loss in my account was moderate but the last 3 trading days have taken me from a better than average month to a small gain which doesn't hit budget. Oh well, the last few months have had very little to do with stock specific moves and everything to do with global macro issues so it hasn't been the easiest trading conditions.