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Thursday, September 18, 2008

technical update on turkey - xu100

The XU100 reached our downside target area at 32000/500 and even exceeded it. Had been looking for 31000 by the last big downleg, since that matches an exact 50% retracement of the overall upmove. TDCombo setup count at 8 and hence mostly the 9 tomorrow makes the deal. Heading for the weekend with this kind of panic is challenging if we do not see a more decisive action from central banks to convince markets they are in control.

Ideally, by a 50BP concerted cut – the same is true for the Turkish central bank which tries to create an artificially strong currency (YTL) on high cost for the economy. They need to do cuts in 75BP steps, since GDP has dropped to 1.9 (officially - I guess it's even worse, since inflation is substantially understated). The 31000 level could serve as a low temporarily and a bounce to 35000/6000 is likely if the US markets stabilize and the SPX can basically bounce back from 1165. Right now, I am quoting that probability with 60%, since if we do not get a solution until Monday for MS and a systematic gain for faith in central banks, the selling pressure can drop the XU100 to 28000. In any case, the YTL is poised to lose its 'magical' strength going forward and lose another 10% within 4-5 months from here on average. Due to the high carry cost, it's not a very lucrative trade, unfortunately.

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