Tuesday, August 10, 2010

High Indecisiveness may dissolve itself in a substantial move

Global Equity markets are now hovering around resistance while analysis shows that indecisiveness of equity investors, as measured per our proprietary indicators, has just started coming down from a 2.5 year high despite a multi-week really.

But what does it mean?

Usually, this means that there is still huge "pent up" potential for a big move. Once investors and traders recognize the "true" direction, they will jump on it and create a trending move.

See FT: "Hot money investors hold on to their cash...
FT.com / Emerging Markets - Hot money investors hold on to their cash

And this Reuters article as well:
Reuters (at http://ow.ly/2md30): Uncertainty dominates!
The economic blogosphere has spoken -- and it is not too happy with what it sees. The Kauffman Foundation has just published a survey of 68 economic bloggers on the U.S. economic outlook.

Are we therefore on the verge of a breakout to the upside which then could last into end August or even longer?

A high degree of scepticism, coupled with a bottoming equity market in China, encouring signals from Copper and AUD, very loose monetary policy and not-so-bad corporate earnings and good corporate balance sheet health around the world could provide for another upleg in "risk assets".

How could a risk-averse Investor Profit from this constellation?

One possible way to play this would be with an asymmetric risk exposure through 2/3 call options and 1/3 put options: If the markets break out to the upside, you will gain well, but if thre is a false breakout and subsequent collapse, your loss on the call premiums should be more than compensated for with the put returns.

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