False starts and the Paul Breitner rule of thumb

Dear All,

Wow, wow and more wow! Market seems deliberately setting up signals and wrong ones this past two days alone I have had a buy signal in EURUSD invalidated by failure to close above, and yesterday three stocks signals:  Short DAX and STOXX50 both failed, while long S&P (72.50 being the entry also managed barely to fail). Lesson? Market is in testing mode and there are yet to be a significant trend and bias.

Commodities seems making early signs of exhaustion but I would be very careful to allow myself to get carried away with anything.

Now the ADP report was clearly "good news" - but maybe good news is the last thing this market needs! Note how when the market was falling 'bad news' was good news, and hence now I feel good news is bad news why?

Good news - and we need to see Friday Non-farm payroll numbers first, but if jobs are being created, if growth momentum is as strong as market think it is, and if GDP growth will be increased then with Crude @ almost 100 US again there is rising wage- and commodity inflation which combined with EXTREMELY LOW ARTIFICIAL LENDING RATES will create a potential inflation monster. Watch the inflation expectations post FOMC tomorrow. 

There is evidence jobs are for real coming back - I guess - this link talks about different metric, the Help Wanted index and the author concludes(maybe high on confirmation from ADP statistical flukes) that 2011 will be year of job creation. A Bizarre Labor Market

IF - the impressive jobs growth survives the Friday data, then it raises odds of:

• Much stronger US Dollar - combined with continued underperformance of European bonds and equities indicates 1.10-1.00 EUR could happen......(Ultimately we will end 2011 with much weaker US Dollar)
• We could be proved right on the 2011 call for MUCH HIGHER interest rates
• Early rotation from fixed income to equities will continue, but the ever higher rates will remove the marginal return on capital for companies and we will quickly see how the EPS numbers did peak last year and not this year. (Inverse cost structure - higher employmen less productivity?)..but ultimately gravity will prevail maybe we need to go to March before the first real set-back for the market.

Meanwhile I stay with my rule from Paul Breitners time:  (Picture enclosed)

Safe trading,