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EurAnalysis Kindergarten 24 replies

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  • #13,841
  • Dec 8, 2011 4:24am Dec 8, 2011 4:24am
Quoting knoholygrail
There is no perfect correlation since sometimes other factors are at play.

However in general when the Dow is going down or SP500 more or less the same thing. The ratio there is about 7 to 1 and again this is general.

When money leaves the Dow it means thar risk is off and the money flows into US Bonds to be parked.

The Euro is sold and American Dollars are bought and then the US Bonds are bought. I follow the Yield on the 2 Year US Bonds and the 10 Year US Bonds.

The movement between asset classes moves the charts as prices change.

If...
I would add the other scenario when the move comes from stocks in the other side of the equation (europe not the DJ) and is probably a bit more relevant for today. In broad term, a rate cut, which is dovish Fx wise, is very bullish for stocks as money flow for better gains to more riskier assets. In the case of the euro today is very interesting the reaction because the "risk on - off" scenarios that you very well described are also in play.

In simple words, a rate cut is bearish for the euro but the rally in stocks if it is follow in the US can trigger weaker dollar too on risk. The outcome will depend in the offset of the 2 variables (is a complex FA case today, not easy for new traders exploring FA). Obviously, a euro rate cut will be very bearish for the pair and inversely proportional to stocks if you didn't have risk off environment with debt issues and tomorrow summit.

sisse
Pending conversations? PM for a chat...I am mainly in OTM now
  • #13,842
  • Dec 8, 2011 4:39am Dec 8, 2011 4:39am
Time is coming to warm you .

Note Time showing is in IST
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  • #13,843
  • Dec 8, 2011 4:52am Dec 8, 2011 4:52am
Quoting sisse
). Obviously, a euro rate cut will be very bearish for the pair and inversely proportional to stocks if you didn't have risk off environment with debt issues and tomorrow summit.
maybe clear the books a bit down sub 1.33 to get ready for the long move when they announce that the euro has been saved once again.

as the Fed and ECB rates draw closer to par the game will change. I mean, if the euro lasts that long...
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,844
  • Dec 8, 2011 5:08am Dec 8, 2011 5:08am
Quoting The Fool
maybe clear the books a bit down sub 1.33 to get ready for the long move when they announce that the euro has been saved once again.

as the Fed and ECB rates draw closer to par the game will change. I mean, if the euro lasts that long...
Assuming euro doesn't collapse and as long as we have rate differentials between the euro and dollar, the euro will be always stronger. Draghi in 2 months will put as back to square one on the hikes (still higher) opening a whole new set of FA levels according to my charts when debt risk is " cleared" short term...but thats for later....

sisse
Pending conversations? PM for a chat...I am mainly in OTM now
  • #13,845
  • Dec 8, 2011 5:09am Dec 8, 2011 5:09am
Quoting sisse
I would add the other scenario when the move comes from stocks in the other side of the equation (europe not the DJ) and is probably a bit more relevant for today. In broad term, a rate cut, which is dovish Fx wise, is very bullish for stocks as money flow for better gains to more riskier assets. In the case of the euro today is very interesting the reaction because the "risk on - off" scenarios that you very well described are also in play.

In simple words, a rate cut is bearish for the euro but the rally in stocks if it is follow in the US...
I think it is also useful to know that the risk on/off correlation, now in place for 3 years, is probably more driven by expectation than anything else. Expectations which are programmed into trading bots.
Kill the ego, or it will kill the mission.
  • #13,846
  • Dec 8, 2011 5:13am Dec 8, 2011 5:13am
i just got a feed on fitch and some ease on italy's ratings.


possible lowering italy ratings?
Have I got something on my face, SOLDIER?
  • #13,847
  • Dec 8, 2011 5:23am Dec 8, 2011 5:23am
Quoting AaronWard
I think it is also useful to know that the risk on/off correlation, now in place for 3 years, is probably more driven by expectation than anything else. Expectations which are programmed into trading bots.
Well, all moves in the markets are driven by expectation (the real ones), call them interest rate, inflation, P/E ratios, weather factors or whatever. The risk on/off have been a roller coaster in the euro the last 3 years.

From panic in 2008 (massive sell off via dollar) to recession after (massive rally via euro) to debt risk (massive sell off via euro) to flat economy (rally via dollar [QE, etc]) to euro debt crisis again (limited sell off so far via euro)...

IMO for us is more relevant and the key link is not in trading bots (those are just statistical and algo methods and we can't do anything about it) but in Treasuries ...they don't lie ...

In any case, let see what the summit bring to the risk environment for next year.

sisse
Pending conversations? PM for a chat...I am mainly in OTM now
  • #13,848
  • Dec 8, 2011 5:34am Dec 8, 2011 5:34am
Quoting sisse
Well, all moves in the markets are driven by expectation (the real ones), call them interest rate, inflation, P/E ratios, weather factors or whatever. The risk on/off have been a roller coaster in the euro the last 3 years.

From panic in 2008 (massive sell off via dollar) to recession after (massive rally via euro) to debt risk (massive sell off via euro) to flat economy (rally via dollar [QE, etc]) to euro debt crisis again (limited sell off so far via euro)...

IMO for us is more relevant and the key link is not in trading bots (those are just...
Sisse,

Do you find the Treasuries predictive? I find that it doesn't matter what I watch, all the markets pretty much move at the same time.

What I have found useful is spending a lot of time analyzing chart patterns on the Dow. IMO it drives risk on/off and also can be used as barometer for judging how "risk on" the Euro correlation is. Currently it is rather weak.
Kill the ego, or it will kill the mission.
  • #13,849
  • Dec 8, 2011 5:50am Dec 8, 2011 5:50am
Quoting AaronWard
Sisse,

Do you find the Treasuries predictive? I find that it doesn't matter what I watch, all the markets pretty much move at the same time.

What I have found useful is spending a lot of time analyzing chart patterns on the Dow. IMO it drives risk on/off and also can be used as barometer for judging how "risk on" the Euro correlation is. Currently it is rather weak.
Well depends on what kind of predictive you are talking about. If you are talking from a static view, Treasuries (or whatever) move A therefore dollar move B and oil C, etc NO NOT ALL. If there is still some "divergence or lag available in the markets" I don't think not even the fastest algos and computers can exploit that anymore, worse us retail with ADSL connection.

I was more referring at the macro and FA view. For example, Treasuries broke all time levels a few months ago (well before the current EZ meeting and etc) breaking gold from the highs too and giving us a very POWRFUL signal that real money was running to safety (the real safety not dollar). These kind of signals don't have a TA relation in charts as those moves and levels are breach and break not because a scalper or a bunch of speculators are going to "take profits" on the weekly roll but they signal powerful changes between asset classes.

The same with the DJ, oil and etc when they act as reference for correlation. In my view, the importance is not in taking that specific break that specific day at that specific minute but in understanding that fundamental and structural factors are shifting and therefore you need to adjust you FA view and direction analysis in your instrument. Not for you London opening mini trade, etc but from your view (and expectations) on the reaction of the next test of key levels in your charts, etc.

What I have found useful is spending a lot of time analyzing chart patterns on the Dow. IMO it drives risk on/off and also can be used as barometer for...

True but only because we are in risk on/off environment so it won't work when we break it. DJ and friend are screaming to break free from the risk factor but EZ debt keep holding them back. The relation is getting weaker and weaker because we are not any longer in bear territory in stocks because of risk(we are in neutral) but the FA short term risk factors in the EZ are still strongly adverse...

sisse
Pending conversations? PM for a chat...I am mainly in OTM now
  • #13,850
  • Dec 8, 2011 6:00am Dec 8, 2011 6:00am
Quoting sisse
Well, all moves in the markets are driven by expectation (the real ones), call them interest rate, inflation, P/E ratios, weather factors or whatever. The risk on/off have been a roller coaster in the euro the last 3 years.

From panic in 2008 (massive sell off via dollar) to recession after (massive rally via euro) to debt risk (massive sell off via euro) to flat economy (rally via dollar [QE, etc]) to euro debt crisis again (limited sell off so far via euro)...

IMO for us is more relevant and the key link is not in trading bots (those are...
Sisse,
I don't have a crystal ball and I am certainly not psychic. However, I cannot help but think that once American and European publicly traded companies start releasing their Q4 2011 earnings early next year, we will see some disappointing results. My rationale behind this is that I find it ridiculous to believe that amidst all this fear and lack of consumer/corporate confidence generated by the Euro crisis, that corporate revenues and profits have even come close to meeting expectations. Therefore in my humble opinion, no matter what the outcome of the EU economic summit and any more that come after it, whether or not the economy improves or worsens, no matter what the ECB rate is set at, the risk-off sentiment has not even shown it's worse face yet and we will be facing some serious consolidation in equities and commodities for at least the first quarter of 2012.
I would very much appreciate your thoughts on this subject.
Cheers
PT
Those who say it cannot be done should not interrupt those who are doing it
  • #13,851
  • Dec 8, 2011 6:12am Dec 8, 2011 6:12am
Quoting sisse
Well depends on what kind of predictive you are talking about. If you are talking from a static view, Treasuries (or whatever) move A therefore dollar move B and oil C, etc NO NOT ALL. If there is still some "divergence or lag available in the markets" I don't think not even the fastest algos and computers can exploit that anymore, worse us retail with ADSL connection.

I was more referring at the macro and FA view. For example, Treasuries broke all time levels a few months ago (well before the current EZ meeting and etc) breaking gold from...
Many thanks. I think what is going to happen is the general risk on/off will hold true, but it will morph into something a bit different. Gold is acting more and more like a risk on asset. while the Euro is acting less and less like a risk on asset.
Kill the ego, or it will kill the mission.
  • #13,852
  • Dec 8, 2011 6:27am Dec 8, 2011 6:27am
Link to ECB Press Conference 08:30 EST / 13:30 GMT / 14:30 CET

http://www.ecb.int/press/tvservices/...111208.en.html
Those who say it cannot be done should not interrupt those who are doing it
  • #13,853
  • Dec 8, 2011 6:34am Dec 8, 2011 6:34am
Quoting PipTrapper
Sisse,
I don't have a crystal ball and I am certainly not psychic. However, I cannot help but think that once American and European publicly traded companies start releasing their Q4 2011 earnings early next year, we will see some disappointing results. My rationale behind this is that I find it ridiculous to believe that amidst all this fear and lack of consumer/corporate confidence generated by the Euro crisis, that corporate revenues and profits have even come close to meeting expectations.

Therefore in my humble opinion, no matter what the...
Well, you got a very valid and good points. Yours is one of the most probable scenarios for next year/

However, if we go a bit in details we can find some key issues:

1. American and European publicly traded companies start releasing their Q4 2011?
Well not that fast. American companies in retail and services may report "huge" (in 2008 recession levels) positive earnings. So far Black Friday was fantastic and we still have Christmas which represent 80% of the quarter in these sector.

In Europe, retail the picture is bit less positive but is not negative at all. Don't forget that Europe is "rich" and the EZ debt are constrain to the financial sector mostly (expect in Greece, Spain and Portugal that are bad since before) and the majority (middle class) won't feel YET (for Christmas) the problems.

Both in Europe and the US, the Industrial, manufacturing and others will feel the impact a lot more but again Q4 is Retail driven so we'll need the "confirmation" next quarter.

2. no matter what the outcome of the EU economic summit and any more that come after it, whether or not the economy improves or worsens, no matter what the ECB rate is set at, the risk-off sentiment has not even shown it's worse face yet

Well mostly agree but I think the outcome IS VERY important, not because of a potential bounce but because of the risk of a CATASTROPHE.

3. and we will be facing some serious consolidation in equities and commodities for at least the first quarter of 2012.

US is already consolidating and it will probably will start picking up (not bull market but positive) before ELECTION. Europe is flirting with double dip and Emergency markets (China especially) starting to feel the effects so definitively agree that once we confirm the move from bear market to neutral without risk we can have a long consolidation period. (btw bad for us traders)...

Rate and conference coming....Let's get this party started...

GL today
sisse
Pending conversations? PM for a chat...I am mainly in OTM now
  • #13,854
  • Dec 8, 2011 6:46am Dec 8, 2011 6:46am
Euro Interest rate 1%..... .25 cut
I don't care which way the market is going as long as it's going my way
  • #13,855
  • Dec 8, 2011 6:47am Dec 8, 2011 6:47am
Quoting PipKiller
Interest rate 1%..... No change
???? ...cut 25bps mate

sisse
Pending conversations? PM for a chat...I am mainly in OTM now
  • #13,856
  • Dec 8, 2011 6:48am Dec 8, 2011 6:48am
And now on with the show !!!
  • #13,857
  • Dec 8, 2011 6:48am Dec 8, 2011 6:48am
Quoting sisse
???? ...cut 25bps mate

sisse
already corrected myself
I don't care which way the market is going as long as it's going my way
  • #13,858
  • Dec 8, 2011 6:53am Dec 8, 2011 6:53am
Quoting knoholygrail
And now on with the show !!!
Welcome to the back assed world where an interest rate cut causes a currency to spike.
Kill the ego, or it will kill the mission.
  • #13,859
  • Dec 8, 2011 6:56am Dec 8, 2011 6:56am
Quoting sisse
Well, you got a very valid and good points. Yours is one of the most probable scenarios for next year/

However, if we go a bit in details we can find some key issues:

1. American and European publicly traded companies start releasing their Q4 2011?
Well not that fast. American companies in retail and services may report "huge" (in 2008 recession levels) positive earnings. So far Black Friday was fantastic and we still have Christmas which represent 80% of the quarter in these sector.

In Europe, retail the picture is...
Thanks for that Sisse... and yes I agree that a consolidation period is not good for us traders. Time will tell. Now to see what Draghi has to say at the press conference.
Those who say it cannot be done should not interrupt those who are doing it
  • #13,860
  • Dec 8, 2011 6:57am Dec 8, 2011 6:57am
Quoting AaronWard
Welcome to the back assed world where an interest rate cut causes a currency to spike.
This is a newbie's worst nightmare.
Understanding why is not that difficult though.

ADD: Just wait for it... the questions will be coming soon.
Those who say it cannot be done should not interrupt those who are doing it
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