The market opened with a gap-up on Thursday most likely from the Fed buy programs, designed to trigger a short-covering rally, and it did exactly that in the morning.
Severe global credit contraction effect showed it hands at the end of the day as selling came back with a vengeance, an indication, an indication that credit contraction is getting serious, the market looks set to sell-off on Friday, if key support is broken.
Key support for Friday are 3495 for NQ, 1782 for ES
-- Above key support is bullish and likely rally.
-- Clear break below key support can ignite new round of selling.
The Federal Reserve has created a truly global problem. A big chunk of the trillions of dollars that it pumped into the financial system over the past several years has flowed into emerging markets. But now that the Fed has decided to begin “the taper”, investors see it as a sign to pull the “hot money” out of emerging markets as rapidly as possible. This is causing currencies to collapse and interest rates to soar all over the planet. Argentina, Turkey, South Africa, Ukraine, Chile, Indonesia, Venezuela, India, Brazil, Taiwan and Malaysia are just some of the emerging markets that have been hit hard so far.
In fact, last week, emerging market currencies experienced the biggest decline that we have seen since the financial crisis of 2008. And all of this chaos in emerging markets is seriously spooking Wall Street as well. The Dow has fallen nearly 500 points over the last two trading sessions alone. If the Federal Reserve opts to taper even more in the coming days, this currency crisis could rapidly turn into a complete and total currency collapse.
