Spun sugar requires heat, something sweet, and high velocities. I think we could get the market equivalent of all three in the short term based on election outcomes in Japan and the FOMC meeting. For the sugar high to last, we would arguably need something more fibrous from the fiscal cliff discussions, but lets not get ahead of ourselves.
Over in Hong Kong, there has been massive fund inflows over the last few days, and the last four days have all seen additions to the HK banking system by the HK Monetary Authority to dilute the currency and maintain the USD/HKD peg. The running tally this Friday will be HK$225 billion, having grown by more than 10% over the last few days, and with Monday being the big mover with around HK$12 billion entering. If you’re wondering, this is my “heat” analogy.
This shows in volume figures, and we are also getting continuous moves upward throughout the trading day with exhaustion near the end. Yes, today we were piggybacking off the Shanghai Composite into the close, but there is a marked difference in both the magnitude and nature of these moves, which is most likely explained by the volume rush into Hong Kong. Today’s turnover was around the HK$64 billion mark, with a spectacular HK$4 billion in the closing auction. Is there any wonder that HKEx had a high-volume rally today? Consider the increasing turnover a good catalyst for the trend to go even faster, especially now when the Hang Seng Index has broken resistances. High velocities? Pen readied for checking. Still, a word of caution is appropriate here, I think. Block-posted for relevance:
The market we are in right now is markedly slower than other examples of high-value-adding runs. There are two alternative reasons why this is the case:
1: Bulls do not carry that much force on the flow of market orders, and at the ping of 23 000, the bears will take over.
2: Overall volume is not strong enough to filter out the stops placed to ensure profit taking. This could be prevalent as the HSI has taken a rally from the previous consolidation around the range of 18 500 – 20 500 for almost 4 months. Right around here is thus were the 20% and 10% appreciation is, and I expect there to be quite a few heavy stops in the vicinity of round numbers like 22 500.
Volume increases would invalidate 1), and overcome any questionable stops in 2), so that is where my eyes will spy, and if we don’t get a push of nearly HK$80 billion coupled with any approach to 23 000, I will be very surprised.
I am expecting the market to move even faster with higher volume under any additional easing tonight by the Federal Reserve, so consider the “sugar” as “added”!