Money Flow Trading Method along with Risk Management

I first want to talk about having an EDGE. Fundamentals by themselves is not an EDGE. However using Money Flow between Asset Classes from here on I will include in my basket of 100% of what a winning Forex Trader needs. I will not refer to it as a fundamental anymore since new people coming to this thread put my method as including Money Flow as a fundamental which it actually is however not in the same way as most people understand Fundamentals.

This week we will get to see Non Farm Payroll (N F P) and as any experienced Fundamental Forex Trader knows it usually is a fantasy number created by the BLS however next to a FED rate announcement it is the one number that can move markets hundreds of PIPS in seconds and minutes.

Whatever the number Trillions of Fiat Currencies and other Asset Classes will start to change values as we "SEE" the Money Flow. That is why I call it my EDGE and once you know it and understand it well then it becomes your EDGE as well.

Here are the 5 important things that any Forex Trader that belongs to the minority of constant profitable Forex Traders , which I have named , The 5% Club needs to have. Of course in my opinion, I would think that very few Professional Forex Traders use the EDGE. Of course when you know about it then anyone can use it.

Each of the following five important things which I have given a weighting of 20% to each makes up what a profitable Forex Trader needs to have in order of IMPORTANCE.

(1) The ability of the Forex Trader to control their FEAR and their GREED and their EGO. Perhaps the last one is the most important of the three since the MARKET is always right. Using Money Flow puts you with the Market instead of against it as your Forex Account keeps losing the value in it.

The reason that I teach Forex Traders whether experienced or new to Forex trading with a $50,000 US Dollars Demo Account is because that is how I learned my trade starting during 2003. By learning to trade with $50,000 US Dollars in Demo Funds, then I had no FEAR or GREED. However after 3 years of Forex Demo Trading I surely had EGO since month in and month out my Return On Investment (ROI) was constantly over 10% a month or 120% a year.

(2) Money Flow. I have now explained why.

(3) Risk Management. That is next to Money Flow the KEY element of my Forex Trading since when you blow your account whether you are trading with too little capital as the majority of Retail Traders are or because of a Black Swan event such as Brexit or Europe banking issue such as we have in Italy at the moment or the Swiss Central Bank as they did a few years ago say one thing and then next moment announce a major change in their policy and 500 PIP movements happen in seconds. The absolute MINIMUM Forex Account that I would and could trade with would be $10,000 US Dollars. I would be glad to answer questions as to why although most will understand. What if you do not have $10,000 US Dollars trade with ? Prove to yourself that you have the skills and the knowledge to trade with profits then you will have no problems finding funds to trade Forex with. After my 3 years of Forex Demo Trading, I went out and found 6 clients that first deposited initially $50,000 US Dollars and within 3 months along with the profits that I was generating in my first three months of Forex trading from March 2006 to June 2006, I was managing well over $100,000 US Dollars.

(4) Technical Indicators which includes all parts of it whether Support and Resistance or Supply and Demand or Pivot Points. I use when I do daily trades the 5 Minute Charts along with the 15 Minute Charts and 30 Minute Charts to go along with the 4 Hour Charts. When you toss a rock in the river the first ripple is the 5 Minute Chart and then on to the 30 Minute and the two others. I use other indicators aside from the standard ones which are SAR and Fractal and Awesome Oscillator. The most important one that I look at when I enter into a Forex Trade is Support and Resistance so if I am going long or short I enter either at the TOP or BOTTOM of the Chart that I am using. Of course my Risk Management protects me from Human Errors or EGO.

(5) Fundamentals. I am fairly sure most of those reading my words today or whenever they read it might be surprised how a Forex Trader such as myself who posts a tremendous amount of research can list fundamentals as number (5) in order of importance. It is the research that allows me to clearly understand the difference between PERCEPTION (Markets) and REALITY (Research) Then I know what will most likely happen in the future and I am better prepared to deal with it.

I hope that this post of my daily Morning Thoughts answers some of your questions both for the 12 Forex Traders using the $50,000 US Funds Demo account with FXCMUK or anyone else. There is no reason that an experienced trader reading this thread or anyone else to not open a $50,000 US Dollars FXCM UK account so they can use the knowledge that we share here to learn new things and try them without having any FEAR of LOSS !!!

As always , I look forward to feedback and thoughts and anything that you care to share with us on our Thread.

Benjaminis

WWW.FINVIZ.COM

Excellent FREE Resource Site

https://www.finviz.com/futures.ashx


https://www.finviz.com/forex.ashx


https://www.finviz.com/news.ashx




Benjaminis

https://www.zerohedge.com/news/2018-...ops+to+zero%29

Authored by Lance Roberts via RealInvestmentAdvice.com,


Market Takes A Tumble
Last week, I discussed the continuation of the “market melt-up.” To wit:
“Since the beginning of the year, the acceleration in the markets has continued unabated. As I showed yesterday, the acceleration in the S&P 500 has now gone parabolic.”
http://realinvestmentadvice.com/wp-c...ent-012518.png
“Never before in recent history has the market been this overbought and extended from longer-term averages which suggests that a correction that reduces such conditions is highly likely in the near-term.”
http://realinvestmentadvice.com/wp-c...ors-012618.png





Well, this past week, the market tripped “over its own feet” after prices had created a massive extension above the 50-dma as shown below. As I have previously warned, since that extension was so large, a correction just back to the moving average at this point will require nearly a -6% decline.
http://realinvestmentadvice.com/wp-c...m-020218-2.png
I have also repeatedly written over the last year:
“The problem is that it has been so long since investors have even seen a 2-3% correction, a correction of 5%, or more, will ‘feel’ much worse than it actually is which will lead to ’emotionally driven’ mistakes.”


The question now, of course, is do you “buy the dip” or “run for the hills?”

Don’t do either one, yet.
Yes, corrections do not “feel” good. But they are part of a “healthy” market cycle. In more normal, healthy, bullish trends corrections should be used as buying opportunities to increase exposure to equity risk in portfolios.
However, the recent parabolic acceleration in the markets heading into the New Year was neither normal or healthy. Much of it had to do with the massive liquidity injection by the Federal Reserve at the end of 2017 as shown below.
http://realinvestmentadvice.com/wp-c...500-020318.png
But, after the stumble this past week, it will be interesting to watch the next the Fed’s balance sheet over the next month to see if they continue with their planned $30 billion / month reduction.


At the moment, this is the expected correction we have been discussing over the last several weeks. It is also something we had planned for by reducing overweight positions and adding a short-hedge to portfolios.
With the markets on a short-term sell signal (noted by gold vertical dashed lines in the chart above,) the current correctional process is underway and still has room to go at this juncture. But, with the market now oversold on a VERY short-term basis a rally over the next week, or so, would not be surprising.
It is the outcome of that rally that is most important to the current bull market advance.
This is what we are looking for to drive our next set of portfolio actions:

1. If the market rallies back and sets a new closing high, the bullish trend will be confirmed and equity allocations will remain at target levels and hedges removed.
2. If the market rallies back BUT FAILS to set a new high, a series of actions will take place.
   1. At the point of rally failure, portfolio hedges will be modestly increased.
   2. If the subsequent decline breaks the previous low, the hedges will be further increased and tactical trading long positions will be reduced.

Why is this important?


A Hint Of 1987
A recent article on Zerohedge discussing a view of Albert Edwards is salient to this discussion.
“Certainly, as we explained at our Conference, the current conjuncture feels similar to just before the 1987 equity crash. All that was missing was the slanging match over the weak dollar between the US and Europe.”
He’s right. There are many similarities between today and 1987. Recently passed tax legislation reform, exuberance in the markets, and a strong market rally.
And then the crash.


But no one could have seen that coming? Right?
(We have an in-depth report, titled 1987, coming out next week ONLY for our newsletter subscribers and those who have expressed an interest in our soon to be released RIA Pro.

If you are not currently on our email list and want a copy of the report click here.)
Actually, there were five technical signals, that when considered along with fundamental factors should have been enough to warrant caution at a minimum…that is if you were paying attention.
http://realinvestmentadvice.com/wp-c...2/2-st-spx.png
The graph above, from our 1987 article, highlights the technical indicators which are explained in the report along with a summary of the myriad of fundamental factors that preceded Black Monday. There are certainly many differences between today and 1987, but as we highlight in the report there are many similarities as well worth considering.


Along with plummeting stock prices in October of 1987, interest rates also declined sharply as money sought the relative safety of bonds.
It is here that I also agree with Albert Edwards:
“Every man, woman, and child seems to have decided that the US 10y bond yield has broken out of its long-term downtrend and we are in a bond bear market. Our own excellent Technical Analyst, Stephanie Aymes, shows that 3% (not 2.6%) is the key long-term breakout yield we should be watching. But she thinks that 2.64% was also significant as this means the RSI downtrend has now been broken and a run to 3% is now perfectly plausible. That though does not mean the bond bull market is over.”

With yields now closing on 2¾% and the 30y closing on 3.0%, many see this as a great time to dump bonds and switch into equities. Really?
http://realinvestmentadvice.com/wp-c...AE-feb-2_0.jpg
“Well, I expect that the true extent of how close the US is to actual outright deflation, and hence how high real yields currently are, will soon be revealed. But before US 10y yields turn negative, expect them to visit 3% first.“
http://realinvestmentadvice.com/wp-c...2/ae-feb-4.jpg
He is absolutely right. Despite a rampant rise in the markets, the recent spate of economic growth has been due to massive natural disasters across the lower third of the U.S. The impetus from those rebuilding efforts are now running their course and we are already seeing a weakness in the numbers.
But wages are crushing it, and employment is booming?


Yes, wages are rising but only for the top 20% of workers.
http://realinvestmentadvice.com/wp-c...8/02/Wages.png
And employment in the key demographic is not.
http://realinvestmentadvice.com/wp-c...rce-020218.png
The Next Bull Market
Edwards is correct. There are several important points to understand about bonds.

1. All interest rates are relative. With more than $10-Trillion in debt globally sporting negative interest rates, the assumption that rates in the U.S. are about to spike higher is likely wrong. Higher yields in U.S. debt attracts flows of capital from countries with negative yields which push rates lower in the U.S. Given the current push by Central Banks globally to suppress interest rates to keep nascent economic growth going, an eventual zero-yield on U.S. debt is not unrealistic.
2. The coming budget deficit balloon. Given the lack of fiscal policy controls in Washington, and promises of continued largesse in the future, the budget deficit is set to swell back to $1 Trillion or more in the coming years. This will require more government bond issuance to fund future expenditures which will be magnified during the next recessionary spat as tax revenue falls.
3. Central Banks will continue to be a buyer of bonds to maintain the current status quo, but will become more aggressive buyers during the next recession. The next QE program by the Fed to offset the next economic recession will likely be $2-4 Trillion which will push the 10-year yield towards zero.

The next bull market is coming, it just won’t be in stocks.
It will be in the U.S. Treasury market which will coincide with the next recessionary drag in the economy within the next 12-18 months (at the most).
As I have written previously, interest rates have everything to do with economic growth. Since economic growth is almost 70% driven by consumption, with savings rates extraordinarily low and debt hitting record levels, small increases to interest rates will have an immediate negative impact on the consumptive capability of U.S. citizens.


The chart below goes to my point. Currently, interest rates are 4-standard deviations above their 1-year moving average. (For an explanation read this.)
http://realinvestmentadvice.com/wp-c...sis-020218.png
How often has this happened going back to 1965?

Never.
Negative events such as the S&L Crisis, Asian Contagion, Long-Term Capital Management, etc. all drove money out of stocks and into bonds pushing rates lower, recessionary environments are especially prone at suppressing rates further. Given the current low level of interest rates, the next recessionary bout in the economy will very likely see rates near zero.

Furthermore, given rates are already negative in many parts of the world, which will likely be even more negative during a global recessionary environment, zero yields will still remain more attractive to foreign investors. This will be from both a potential capital appreciation perspective (expectations of negative rates in the U.S.) and the perceived safety and liquidity of the U.S. Treasury market.
However, what you will notice is that each time rates were as overbought as they are currently, they coincided with either a recession, a correction, or a major market crash.

Could this time be different? Sure. It’s possible.
But probably, it won’t be. The stock market is a reflection of the economy, not the other way around. Higher interest rates are a drag on economic growth which will impact earnings and valuations for the market.
Not tomorrow. Or even next week.

But over the next several months, higher interest rates, if they remain elevated for long, will have a deleterious effect on the economy.
Valuations will become problematic.

Furthermore, the safety of bonds becomes much more attractive when the yield is significantly above the dividend yield in stocks. (Why take the risk is stocks for a sub-2% yield when I can get 3% in a U.S. Treasury?)
That’s not hard math.

Things are finally starting to get interesting.

http://www.whatdoesitmean.com/index2485.htm


This is the GEOPOLITICAL SIDE OF FOREX TRADING


Benjaminis

1. BenjaminIs
2. | Commercial Member | Joined Dec 2014 | 3,465 Posts | Online Now

THE GREATER FOOL THEORY - REALITY VS PERCEPTION

PLEASE READ TO BE AWARE !!! 65% off of 25,000 will be under 10,000 JUST IMAGINE !!!


https://www.hussmanfunds.com/comment/mmc171218/

1. Post 4,249
2. Cleanup
3. Quote
4. Jan 10, 2018 11:08am

1. BenjaminIs
2. | Commercial Member | Joined Dec 2014 | 3,466 Posts | Online Now

https://www.zerohedge.com/news/2018-...hen-tips-are-1

When the 10Y rose above 2.50% yesterday (and spiked another 10 bps today on the China TSY buying news), various pundits emerged, calling for an end to the secular bull market in rates, starting with Bill Gross ,who said that the "bond market was confirmed today", followed by Jeff Gundlach who said that while Gross is early, it will only take 2.99% on the 30Y to break the trendline.
https://www.zerohedge.com/sites/defa...0Y%20Gross.jpg
Then, this morning it was the turn of Mint Partners' Bill Blain to declare the onset of normalization and that "this was the moment we've all been waiting for." And the WSJ even trotted out a staple headline we have seen every year since 2010: "Investors Prepare for Inflation as Bond Yields Rise."

Maybe, but it is just as likely that this is the old headfake which we see every single year when there is a brief inflation scare which is then promptly swept under the relentless deflationary (almost entirely from a wage standpoint) tide.

To be sure, not everyone is buying the "bond bear market" thesis.

In a note released this morning, SocGen's FX strategist Kit Juickes observes that "the (bond) bears are calling for a picnic" but he is skeptical that this is the time, and here's why: "I'll believe the bond market has turned when 10year TIPS yields have broken 1% (and nominal yields have broken 3%). That's where yields ran out of steam in the 2013 Taper Tantrum, as the sell-off in asset markets (notably in EM), prompted the Fed to soften its tapering stance and change its forward-guidance."

What followed then was the demise of term premium in bond yields and much lower estimates of equilibrium real interest rates.
And yet, not even Juckes is willing to stand in the way of rising yields:

"I don't think there's enough inflation, or indeed enough growth, for the Fed to risk a proper market tantrum, so I fully expect them to stand in the way of a meaningful move higher in yields, but the big question for 2018 is, without a doubt, whether there's anything central bankers can do to prevent markets reacting to balance sheet normalisation (other than just not do it)."

Should Gundlach be correct, and 10Y yields explode higher once 2.63% is breached, we may find out in the immediate future.

Meanwhile, keep in mind that Juckes was the strategist who correctly pointed out last September that it was China's intervention in the FX market on September 8 when it scrapped reserve requirements and allowed a surge in the USDCNY (and dollar in general), sending 10Y yield higher. We summarized his take as follows:
To summarize, if Chinese reserve accumulation drove yields and the dollar down, supporting higher-yielding currencies in general, then the previously discussed dramatic reversal by the PBOC on September 8 marked the turning point. Or as Juckes puts it, "policy was changed, signalling the end of Yuan appreciation, the end of the rally for Treasuries, high-yield currencies and the euro. When USD/CNY stops rising, buy EMFX and EUR/USD again?"

And while we agree with Juckes that bear market calls are premature, we are far more interested what he will have to say about today's news of the day which is clearly China's explicit warning to Trump to stop threatening wage war, or suffer the loss of the biggest foreign buyer of US Treasurys, the mere hint of which sent 10Y yields to the highest since March.

Here is Juckes' entire note:
The (bond) bears are calling for a picnic

Bill Gross has declared a bear market in bond-land and Jeffrey Gundlach has proclaimed the start of an ‘era of quantitative tightening'. Yesterday I pointed out that the turn higher in USD/CNY last September was accompanied by a sharp rise in Treasury yields, but the collective wisdom is that this bond sell-off is made in Japan rather than China. More prosaically, it's down to optimism about US growth, concern about inflation ahead of Friday's CPI data, lack of demand ahead of this evening's auction of $20bn in 10year Notes; and (last but definitely not least) concern that global central bond-buying is about to go into reverse. ‘Fed balance-sheet reduction tantrum' isn't nearly as snappy as ‘taper tantrum' but still....

I'll believe the bond market has turned when 10year TIPS yields have broken 1% (and nominal yields have broken 3%). That's where yields ran out of steam in the 2013 Taper Tantrum, as the sell-off in asset markets (notably in EM), prompted the Fed to soften its tapering stance and change its forward-guidance. What followed were the demise of term premium in bond yields and much lower estimates of equilibrium real interest rates. I don't think there's enough inflation, or indeed enough growth, for the Fed to risk a proper market tantrum, so I fully expect them to stand in the way of a meaningful move higher in yields, but the big question for 2018 is, without a doubt, whether there's anything central bankers can do to prevent markets reacting to balance sheet normalisation (other than just not do it).

Intriguingly, this jump in US yields isn't doing anything to help the dollar yet. As well as JPY, AUD, NZD and CAD may have more to gain from policy normalisation. I'll work on that for tomorrow's FX Weekly. The divergence between relative real yields and USD/JPY is striking and a taste of what will happen when the BOJ starts normalising ($/Y <100). We'll probably see 111 before relative real yields re-assert their authority. GBP faces a challenge from manufacturing and trade data today and Bullard and Evans are today's scheduled Fed speakers.

So the MONEY FLOW starts when the North American Equity Markets open and of course 2 hours later at 11:30 AM there is less Money Flow as Europe goes home.

I have 6 Trade Plans as of today.

(1) Short US 30
(2) Short SP500
(3) Short USD/JPY

Of course only when we have RISK OFF !!!

(4) Long Silver
(5) Long Gold
(6) Long or Short EUR/USD


Benjaminis

PLEASE GO WITH THE MONEY FLOW

COMMENTS FROM BENJAMINIS: Let us review what we teach and why it works if YOU WORK.

Without your WORK then you are just wasting your time and probably your money.

There is no such thing as Political Correctness here because we are here to teach and share our knowledge ALL FOR FREE until May 31, 2017 and then if you have subscribed to this thread before May 31, 2017, then you will get a FREE LIFETIME PASS to our company website.

SO.... going back to our winning FORMULA for FOREX SUCCESS.

20% of the SUCCESS is yourself the Forex Trader.

20% of the SUCCESS is your EDGE which we teach you and that is Money Flow Trading.

20% of the SUCCESS is control of your RISK (Your hard earned money) Our UNIQUE RISK MANAGEMENT allows you to trade without worry, fear and greed. Of course we want to make sure that you have the right qualities to be a winning Forex Trader so our course is for a period of three months, so we can teach you the right trading methods and we can see your results and make adjustments without your FEAR OF LOSS of Real Money.


20% of the SUCCESS is using and understanding the USE of Technical Indicators which include not only the common ones. It includes the understanding of Supply and Demand. Support and Resistance and the use of Pivot Points which you can see each day on our daily charts that cover ALL our Trade Plans which we also help you develop and explain WHY. These are our Winning Trade Plans that we review every three months or earlier if circumstances in the markets require that.

20% of the SUCCESS is the FUNDAMENTALS, which are much more than Data Releases each day around the world. It includes reports and articles extremely well researched as you can clearly see from this article that explains why the TREND in the Equity Markets especially in North America is DOWN. By understanding the difference between PERCEPTIONS (MARKETS) and REALITY, you then have a good handle on REALITY before the MASSES do and you are not surprised when events eventually unfold.

In order to be able to help you better it is VERY IMPORTANT that you share your thoughts and your QUESTIONS here on our thread.

https://realinvestmentadvice.com/the...-on-crude-oil/

http://news.gold-eagle.com/article/s...gold-price/915

https://www.zerohedge.com/news/2018-...ops+to+zero%29



"Recipe For Disaster": Traders Have Never Been Longer Stocks And Shorter Treasuries


https://www.zerohedge.com/sites/defa...?itok=LY4e264-
by Tyler Durden
Sun, 02/04/2018 - 14:32





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Something strange is going on in the market according to DB's cross-asset desk, and it could be a recipe for disaster if current trends do not change.
First, recall from our Saturday note that even as Goldman's clients are getting more worried that today's market increasingly resembles that of 1987, they have extended their net long equity exposure to previously unseen levels, and as of February 1, equity futures positions were at record highs...
https://www.zerohedge.com/sites/defa...ges/unwind.jpg



... which is understandable when one considers that trader sentiment as calculated by Goldman's proprietary model remains at 100, or the highest possible level, coupled with what until recently seemed unstoppable upward momentum.
https://www.zerohedge.com/sites/defa...0sentiment.jpg

Yet where things get troubling, is when looking at the bond (and interest rate) side of things, where as Deutsche Bank shows, positioning is likewise stretched to unprecedented levels.
First, consider that total net specs across the entire rate space, including Eurodollar and Treasury futures are back to all time lows (i.e. shorts).
https://www.zerohedge.com/sites/defa...llar%20tsy.jpg

After months of telling inquiring reporters that she would share her "Weinstein story" when she felt ready Uma Thurman…

https://c5x8i7c7.ssl.hwcdn.net/creat.../dslogo_sm.png

However, where the trader short bias is especially pronounced, is at both the short-end, i.e. the 2Y treasury, where net specs just hit a new record net short, as well as the other end, or the Ultra-Long futures, where net specs also just hit an all time low (i.e. short) position.
https://www.zerohedge.com/sites/defa...rt%20curve.jpg

To be sure, the sharp spike in net shorts on the, well, short-end is something we cautioned two weeks ago, when we discussed that according to Bank of America, "Momentum Traders Wreak Havoc For 2Y Treasurys, Could Unleash Sharp Bond Liquidation."

Since then, the combination of pro-inflationary economic data, coupled with the ever greater pile-on of CTAs and other momentum traders adding to their short exposure at the 2Y spot of the curve, has ignited a broad treasury selloff not only across the entire US curve, but in Asia (where the BOJ was forced to intervene twice last week to prevent a yield spike), as well as Europe, where Bund yields spike to levels last seen during the 2015 Tantrum.

The obvious problem as anyone who observed last week's market action, is that the selloff in Treasurys was finally noticed by equities (see "How Long Before The Bond Selloff Slams Stocks? Wall Street Answers"), prompting a slew of post-hoc articles by Bloomberg this weekend, such as this one...

For almost a decade, investors have waited patiently for any hint of inflation in the U.S. economy, a sign the recovery can sustain itself without emergency stimulus from the Federal Reserve. Now they’re getting it, and many are shocked at the reaction.

... trying to predict what trader reaction will be to the biggest weekly selloff since January 2016:

Accounts of how concerned investors should be ran the gamut, from confidence traders will rush in and buy the dip, to warnings this time is different -- that selloffs that begin in the bond market have a habit of snowballing.

The best part were the trader quotes, such as this one:

“It is now signaling, potentially, the end of this eight-year bull rally,” said Rich Weiss of American Century Investments. “The Fed is going to have to move the interest rates, the bond market is recognizing that this incremental economic growth will spur on inflation from various sources.”

And this:

“It’s kind of a strange time and we seem to be driven by a fear of what everyone wants, and that’s higher rates,” said Joe “JJ” Kinahan, the chief market strategist at TD Ameritrade. “Higher rates confirm a stronger economy, and the market was very afraid of that all week long. And that’s been a big reason for selling.”

And, of course, the "bag of donuts" bet:

"‘I’ll bet you a bag of donuts that by Wednesday or Thursday of next week the equity market starts finding its footing against the backdrop of more stable bond yields,” Purves said. “And then, like any bottoming process, the market tests it and tests it again and then all of a sudden, boom, new buyers come in.”

But while everyone may have an opinion on what happens next, the reality is that nobody really knows with record positioning in both long equities and short treasuries which one snaps first as one of the two sides of this trade is about to be hurt, badly, once the squeeze begins.

However, one thing that is very likely is that risk-parity funds - those who benefit as long as both stocks and bond yields act in tandem - are set to suffer the biggest hit.
As we pointed out yesterday, Friday's equity market collapse and simultaneous bond market bloodbath was the biggest combined loss since December 2015, but perhaps more ominously, the week's combined loss in bonds and stocks was the worst since Feb 2009.

https://www.zerohedge.com/sites/defa...-00-41_0_0.jpg
And as we further noted, judging by the major correlation regime shift between stocks and bonds that started on Monday, this is something considerably more worrisome for investors...
https://www.zerohedge.com/sites/defa...0203_RP3_1.jpg
... and especially risk-parity traders, who already saw their worst weekly performance since the Taper Tantrum...
https://www.zerohedge.com/sites/defa..._9-59-12_2.jpg
... and will be forced to significantly delever in the coming days - to the tune of tens of billions in net exposure - if the vol surge persists.
What the above means is that, with all due respect to JPM's head quant Marko Kolanovic who last week explicitly stated that he is not concerned about a quant puke as "the move was not large enough to trigger broad deleveraging" and "equity price momentum is positive and trend followers are not likely to reduce equity exposure", we disagree... and it's not just us, so does another prominent JPMorgan analyst, Nikolaos Panigirtzoglou, who voiced the same skepticism. This is what he wrote in his latest Flows and Liquidity letter:

The bond-equity correlation, which has been predominantly negative since the Lehman crisis, has been creeping up YTD towards positive territory. In turn, this raises concerns about de-risking by multi-asset investors who depend on this correlation staying in negative territory such as risk parity funds and balanced mutual funds

Visually, the regime change is shown in the chart below:

https://www.zerohedge.com/sites/defa...0203_RP4_0.jpg
... and also through the lens of Deutsche Bank, which as we showed on Friday, warned that cross-asset correlation has suddenly surged to pre-crash levels.

https://www.zerohedge.com/sites/defa...ss%20asset.jpg
Panigirtzoglou then explicitly warns under what conditions the risk parity derisking could spread to the broader market:

If these equity ETF flows which we believe are largely driven by retail investors start reversing, not only will the equity market retrench, but the resultant rise in bond-equity correlation would likely induce derisking by risk parity funds and balanced mutual funds, magnifying the eventual equity market sell-off.

Finally, note that his analysis does not include the threat of the record net equity longs and net treasury shorts, which was a profitable trade during the negative bond-stock correlation regime, but is a "recipe for disaster" as the correlation, which until recently was deeply negative, turns positive forcing one of the two sides to violently unwind.









Benjaminis

I do not usually trade Asia and the start of Forex Trading for me is the Frankfurt open at 2:00 AM New York Time.


Benjaminis

https://www.zerohedge.com/news/2018-...ops+to+zero%29

RISK OFF ?

https://finviz.com/futures_charts.ashx?t=YM&p=m5


Benjaminis

http://fat-pitch.blogspot.ca/2018/02...-employee.html

SNIPPET:
February Macro Update: Employee Compensation Rises To A 9 Year High
Summary: The macro data from the past month continues to mostly point to positive growth. On balance, the evidence suggests the imminent onset of a recession is unlikely.

The bond market agrees with the macro data. The yield curve has 'inverted' (10 year yields less than 2-year yields) ahead of every recession in the past 40 years (arrows). The lag between inversion and the start of the next recession has been long: at least a year and in several instances as long as 2-3 years. On this basis, the current expansion will likely last through 2018 at a minimum. Enlarge any image by clicking on it.
https://1.bp.blogspot.com/-qkBGJ3S2J...ld%2Bcurve.png


Unemployment claims are also in a declining trend; historically, claims have started to rise at least 6 months ahead of the next recession. Note that recent hurricanes had a short-term negative impact on employment data but recent claims are already near a 40+ year low and are likely to exceed the November low in the next week.

https://4.bp.blogspot.com/-7du83QmWo...E%2Bclaims.png


New home sales made a new 10 year high in November. In the past 50 years, more than a year has lapsed between the expansion's high print in new home sales and the start of the next recession.
https://3.bp.blogspot.com/-0nWV9ZPxJ...ew%2Bhomes.png


Real retail sales (excluding gas) made a new all-time high (ATH) in December. The trend higher is strong, in comparison to the period prior to the past two recessions.

https://2.bp.blogspot.com/-US2l5YXDi...%2Bgas%2B2.png


Here are the main macro data headlines from the past month:
Employment: Monthly employment gains have averaged 176,000 during the past year, with annual growth of 1.4% yoy. Employment has been been driven by full-time jobs, which rose to a new all-time high in January.
Compensation: Compensation growth is on an improving trend, recently notching the highest growth in the past 9 years. Hourly wage growth was 2.9% yoy in January, while the 4Q17 employment cost index grew 2.8% yoy.
Demand: Real demand growth has been 2-3%. In December, real personal consumption growth was 2.8%. Real retail sales (including gas) grew 3.3% yoy in December, making a new ATH.
Housing: New home sales grew 14% yoy in December. Housing starts were at the second highest level of the past 10 years in November, but fell 6% yoy in December. Multi-family units remain a drag on overall development.
Manufacturing: Core durable goods rose 8.8% yoy in December, the second best annual growth rate in 4 years. The manufacturing component of industrial production grew 2.6% yoy in December, near the highest rate of growth in over 3 years.
Inflation: The core inflation rate remains near (but under) the Fed's 2% target.
Our key message over the past 5 years has been that (a) growth is positive but slow, in the range of ~2-3% (real), and; (b) current growth is lower than in prior periods of economic expansion and a return to 1980s or 1990s style growth does not appear likely.

This is germane to equity markets in that macro growth drives corporate revenue, profit expansion and valuation levels. The simple fact is that equity bear markets almost always take place within the context of an economic decline. Since the end of World War II, there have been 10 bear markets, only 2 of which have occurred outside of an economic recession (read further here).

The highly misleading saying that "the stock market is not the economy" is true on a day to day or even month to month basis, but over time these two move together. When they diverge, it is normally a function of emotion, whether measured in valuation premiums/discounts or sentiment extremes.
https://3.bp.blogspot.com/-PpcGTfCPZ...il%2Bsales.png


Macro data will likely underperform expectations in 1H18. Why? Macro data ended 2017 well ahead of expectations. During the current expansion, that has led to underperformance of macro data relative to expectations into the following mid-year (yellow shading). 2009 and 2016 had the opposite pattern: macro data underperformed expectations into the prior year-end and then outperformed in the first half of the year (green shading).


Benjaminis

http://traderfeed.blogspot.ca/2018/0...chology-1.html

SUNDAY, FEBRUARY 04, 2018
Lessons in Trading and Psychology - 1: Regime Changes
https://4.bp.blogspot.com/-mwORgVaDE...TICK020218.jpg
In this series of posts, we'll look at ways of integrating trading psychology and the process of trading. It is my hope that the series will illustrate the richness of the relationship between trading and psychology--a depth rarely captured in traditional writings on the topic.

Here we see a chart of SPY (blue line; 5 minute values) from December 15th through this past Friday, February 2nd. In red, we see a 2-hour moving average of NYSE TICK values over that same period. Recall that this measure captures the number of stocks trading on upticks minus the number trading on downticks at each moment of the trading day. The symbol is $TICK on the e-Signal platform and most others

Note that for a good part of the first half of the chart, the NYSE TICK values stayed above the zero line. As SPY moved higher, we saw evidence of buying strength: more stocks trading on upticks than downticks. Look, however, what happened in the second half of the chart. The distribution of TICK values shifted and we now saw more selling pressure than buying pressure--even as SPY moved to all time highs.

In other words, the psychology of the market changed--we shifted from a buying regime to a selling one--well before SPY made its recent correction. The change in the distribution of TICK values alerted us to market vulnerability.

Here is an analogy: suppose the economy of the U.S. is quite strong in large urban areas of the east and west coasts, but weak everywhere else. A company's sales continue to rise, but when management looks at the distribution of sales, they see that fewer and fewer regions are holding up the rest. An alert management would not be high-fiving over record earnings. They would be reducing production and shifting the product mix to prepare for potential economic downturn.

The psychological takeaway is that we need to drill down and look beneath the market surface and approach each fresh set of data with an open mind. On the day we made a peak in SPY, we had 599 stocks make fresh three month highs and 199 register new monthly lows. Two weeks before that, we had almost 900 new three month highs against 135 lows (data from Barchart.com). The open mind respects price action and market strength, but also is alert to cracks beneath the surface. Then, when price can no longer sustain new highs, volatility increases, and TICK readings become very negative, that alertness allows for a quick transition to the new regime.

You have to have the right information, and you have to have the right mindset of openness. That is an important way that trading and psychology come together to create success.
Further Reading:

NYSE TICK as a Useful Trading Tool

TraderFeed Home Page and Menu
.Posted by Brett Steenbarger, Ph.D.at 7:21 PM

Good Morning

The DOW Futures are down this morning at the moment so we have RISK OFF.

https://finviz.com/futures_charts.ashx?t=YM&p=m5

So I shorted 100 units of US30 and shorted 50 units of SP500

I now am in position for the open.

Please ask questions so I can make sure that you understand.

Benjaminis

http://www.zerohedge.com/news/2018-0...ops+to+zero%29

SNIPPET:
Well, this past week, the market tripped “over its own feet” after prices had created a massive extension above the 50-dma as shown below. As I have previously warned, since that extension was so large, a correction just back to the moving average at this point will require nearly a -6% decline.
http://realinvestmentadvice.com/wp-c...m-020218-2.png
I have also repeatedly written over the last year:
“The problem is that it has been so long since investors have even seen a 2-3% correction, a correction of 5%, or more, will ‘feel’ much worse than it actually is which will lead to ’emotionally driven’ mistakes.”
The question now, of course, is do you “buy the dip” or “run for the hills?”
Don’t do either one, yet.
Yes, corrections do not “feel” good. But they are part of a “healthy” market cycle. In more normal, healthy, bullish trends corrections should be used as buying opportunities to increase exposure to equity risk in portfolios.
However, the recent parabolic acceleration in the markets heading into the New Year was neither normal or healthy. Much of it had to do with the massive liquidity injection by the Federal Reserve at the end of 2017 as shown below.
http://realinvestmentadvice.com/wp-c...500-020318.png
But, after the stumble this past week, it will be interesting to watch the next the Fed’s balance sheet over the next month to see if they continue with their planned $30 billion / month reduction.
At the moment, this is the expected correction we have been discussing over the last several weeks. It is also something we had planned for by reducing overweight positions and adding a short-hedge to portfolios.
With the markets on a short-term sell signal (noted by gold vertical dashed lines in the chart above,) the current correctional process is underway and still has room to go at this juncture. But, with the market now oversold on a VERY short-term basis a rally over the next week, or so, would not be surprising.
It is the outcome of that rally that is most important to the current bull market advance.
This is what we are looking for to drive our next set of portfolio actions:

1. If the market rallies back and sets a new closing high, the bullish trend will be confirmed and equity allocations will remain at target levels and hedges removed.
2. If the market rallies back BUT FAILS to set a new high, a series of actions will take place.
   1. At the point of rally failure, portfolio hedges will be modestly increased.
   2. If the subsequent decline breaks the previous low, the hedges will be further increased and tactical trading long positions will be reduced.

Why is this important?
A Hint Of 1987
A recent article on Zerohedge discussing a view of Albert Edwards is salient to this discussion.
“Certainly, as we explained at our Conference, the current conjuncture feels similar to just before the 1987 equity crash. All that was missing was the slanging match over the weak dollar between the US and Europe.”
He’s right. There are many similarities between today and 1987. Recently passed tax legislation reform, exuberance in the markets, and a strong market rally.
And then the crash.
But no one could have seen that coming? Right?
(We have an in-depth report, titled 1987, coming out next week ONLY for our newsletter subscribers and those who have expressed an interest in our soon to be released RIA Pro.
If you are not currently on our email list and want a copy of the report click here.)
Actually, there were five technical signals, that when considered along with fundamental factors should have been enough to warrant caution at a minimum…that is if you were paying attention.
http://realinvestmentadvice.com/wp-c...2/2-st-spx.png
The graph above, from our 1987 article, highlights the technical indicators which are explained in the report along with a summary of the myriad of fundamental factors that preceded Black Monday. There are certainly many differences between today and 1987, but as we highlight in the report there are many similarities as well worth considering.
Along with plummeting stock prices in October of 1987, interest rates also declined sharply as money sought the relative safety of bonds.
It is here that I also agree with Albert Edwards:
“Every man, woman, and child seems to have decided that the US 10y bond yield has broken out of its long-term downtrend and we are in a bond bear market. Our own excellent Technical Analyst, Stephanie Aymes, shows that 3% (not 2.6%) is the key long-term breakout yield we should be watching. But she thinks that 2.64% was also significant as this means the RSI downtrend has now been broken and a run to 3% is now perfectly plausible. That though does not mean the bond bull market is over.”
With yields now closing on 2¾% and the 30y closing on 3.0%, many see this as a great time to dump bonds and switch into equities. Really?

I decided to close my two open positions because I have other business matters to do today so I was happy to close my two open positions with locked in profits on two Forex trades as you can see of $651.50 US Dollars for 39 minutes of work.

My new locked in total profits in 22 days of trading this FXCM UK demo account starting with capital of $50,000 US dollars is now PLUS $10,705.50 US Dollars or over 20% ROI (Return On Investment)


Benjaminis