Transcript of Interview between Alessio Rastani and Elaine Stenson of Dukascopy Swiss Forex TV
Markets still remain very strong and bullish – so short sellers need to exercise great care. In fact – most of the best market timers are also bullish on this market.
With the exception of the dow which is the weakest index at the moment, most other stock indexes like S&Ps and Nasdaq are above the 50 MA and a key technical support – the November 2012 to August 2013 Up-Trendline.
However, it seems sentiment towards stocks are changing – so there may be a potential shorting opportunity here for traders:
According to the CFTC, commercial hedgers (these are the “smart money”) are betting heavily against the Nasdaq – with $17.2 billion bets against the Nasdaq.
Historically whenever commercial hedgers have been this negative on stocks, we have seen multi-week (sometime multi-month corrections) follow. For example, smart money was heavily betting against Nasdaq back in may/June of this year, in September 2012, and also in March of 2012 – and each time we saw a significant sell-off in stock prices.
Will it happen again this year?
I don’t think the major factor or worry on the market’s mind is the Shutdown. It is the debt ceiling which is going to cause the most headaches.
We have only 12 days till the debt ceiling decision on October 17th. A standoff on this matter could result in a significant drop in stock prices – similar to what we saw in September 2011 where the market almost 20% (although I am sceptical it will be as bad as the one we had in 2011).
We need to keep an eye on key levels in the markets.
On the futures, If the Dow breaks 15,000 and the S&Ps break 1660 – we could see some significant selling pressure coming through. This may push the Dow to 14,670 and the S&Ps to 1620.
Gold is interesting to watch – because if the situation about the debt ceiling gets out of hand, and an extended delay takes place on a decision, it could benefit gold prices. I don’t think the party will last long for gold, as I suspect that Gold will continue its downward trend once the dust settles and eventually take out the June lows near 1200.
I should add this: if stocks see a major sell-off, let’s say 8 to 10% correction, this will be a buy opportunity, as I expect stocks to continue their upward trend from November onwards. Historically November to March has been a bullish period for stocks consistently.
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