Both the SPX and copper have returned to their trend lines on a combination of Chinese tightening and Barak Obama’s speech yesterday. I was planning to buy both, on a liquidity argument; but with the Chinese seemingly withdrawing liquidity, and, more importantly, the market believing that they are, I am inclined to stand aside.

If you are a techincally-driven trader, there is good reason to ask — why bother doing any research? One answer is risk control. Knowing what is going on in the world keeps you out of trades when there is something else going on. On the other hand, there is often some bad news when a market corrects to a trend line, so perhaps knowing the reasons for a pullback is a bad idea, because it means you are as fearful as everybody else when you should be going in. Anyway, I think that liquidity is the important thing in the world at the moment, and I am very cautious about anything that suggests it is actually being withdrawn (as opposed to all the hot air about the possibility of its being withdrawn).

Update: A long-term chart of the copper price (each bar is a month) gives further reason for caution. Chart from the excellent ProRealTime (also showing 200-month moving average — because I like to see the 200-day moving average and couldn’t remember how to take it off the monthly chart…).

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