Positioning with Medium Term Fundamentals

A thread to keep track of my thoughts on medium term fundamentals and trends in which positions can be built. For me, I've tried the short term intra-day stuff. Don't have the time to manage something like that. I have a job, a life, and hobbies. They all encompass markets, but to balance them out, I prefer to build positions with the trend. In this manner, time is with me, not against me.

27Feb2012.

JPY. BOJ finally found something that works. with breakeven for expporters calc'd by the cabinet office @ 87.00 for USD/JPY, I assume they will continue talking the market up and in the coming months, add another leg to their QE program. This should weaken JPY. Did I mention record trade deficit? Their exporters are dying. They are moving operations. Japs being japs, they are nationalistic and want their boys to remain onshore. They will continue to try to weaken the JPY, though the 2yr+ downtrend could take awhile to reverse. Nonetheless, we have seen the weakest JPY in the past 2yrs. Possible change of gears here, but thus far, visibile only on the daily.

GBP. BOE contemplating QE again, depending on data. they want to avoid a 'severe recession'. Could be win/win.
Good data --> up.
Bad data --> QE.
Possible strong GBP cus of this.

Long GBP/JPY on dips seems likely.

AUD. Depends on data. RBA has said they lean towards easing IF data deteriorates. Data dependent. But risk on ccy.

NZD. rebuilding probby the main theme. They got something like NZD36bn worth of fiscal injection for rebuilding. should give kiwi a pop.

I clearly like short JPY alot at this juncture. We are seeing 70% reduction of JPY longs. They all got fucked.

USD. I believe this is equity dependent at this juncture. If we see a breakout above 13,000 dow and 1371 for SPX, we could see more dollar weakness.
we are also seeing further equity real money boys going, "oh SI)U*#&. I missed the boat!" and waiting for a dip to buy into. Buy side friends confirm this.

Longer term, I think we are due for Dollar weakness since most central banks are going to be supporting the economies and trying to keep this boat afloat.
Medium term, risk on.

Barring a default in Europe, risk faces a win-win scenario over the medium term.

Corrections will likely be used to add positions because of this.

(A) if the global economy is strong, stocks and risk will of course rise;

(B) If growth is weak, we are likely to see a wave of liquidity and fiscal support via central banks:
(1) Fed via QE3 if US economy weakens,

(2) China's 'fine tuning' policy in 1q12 - expect fiscal injection and monetary loosening. expect AUD to benefit and NZD as well, by proxy.

(3) LTRO by ECB could easily be expanded, and they will do as much as they can to ensure there is no banking crisis. In the mean time, eurozone pollies will do their best to smooth things over and push things back along the growth path.

C/banks have either added to the punch bowl or taken it away. Don't mess with them. Currently their incentive is to add to it. So I am of the view that therein is the medium term direction... weeks/months, with the inevitable risk off along the way.

While I will trade with the risk on/off trend, I have a bias towards risk on for the coming months, and am inclined to hold on longer in that direction.

In particular, I like, short JPY, short USD, long AUD, NZD, and in the interim, GBP due to potential QE again. The dip in GBP due to QE is likely to be bought into like all the recent dips.

----

some background. I have been working on my entries for a long time. found out recently that the next 3 to 5 bars of visibility is do-able, but ridiculously time consuming.

looking to position with the bigger trend, and build positions. have been long A/J and N/J since 85+ and N/J since 66+.
JPY is strengthening, looking to add on to positions. hope don't get taken for BE.

----

hoping to incite some medium term discussion, since the entries and mgmt part are all up to the individual.

will update when there are other thoughts/changes in the environment, as time permits.

While the BOJ changed its language in describing 1 percent consumer inflation as a near-term price "goal," it avoided describing it as an explicit target. Political pressure from the current fin minister Azumi to keep pace with inflation tgt, given that Japan is currently undergoing deflation.

With the new 30-trillion-yen target, the BOJ needs to buy 20 trillion yen more assets by year-end. Thus far, they've done JPY10tn. So perhaps 2 more major tranches of buying.

However, given the effectiveness of the current inflation targeting (a silent one...talk about no pressure in BOJ...) and limited bullets, of estimated JPY10tn x 3 for the yr, BOJ would probably be thinking of an alternative to its asset buying program, esp since Japan is already flush with liquidity.

Current options are for BOJ to buy more assets, and also JGBs in the longer end of the curve.

---


I am cognizant of the main monthly/weekly trend in JPY being for appreciation though. A tad skeptical, but I lean towards the policy approach at the moment. Will trade with the daily trend, but hold longer towards the policy bias.

CFTC IMM data showing 17,257 contracts net long for USD/JPY. This however, is a drastic reduction from 55,171 contracts reported during the first week of Feb. Perhaps markets remain cognizant of the long term downtrend in USD/JPY.

All these should continue to translate to JPY weakness in the longer pull.

one of the scenarios Im looking for, is a breakout (BOT from now on. Im lazy to type), above 1371 for SPX and 13000 for DJIA.

This should give rise to a weaker USD. Of course, expecting 1.35 to break north on EUR/USD. Will be willing to buy a dip in Fiber @ moment.

Still like cmdty/JPY longs, though upside probby another 1.5big fig due to heavy heavy PPZ. Willing to buy e dip and cross fingers for another run though... if tt happens.

---

NZDJPY looks rather heavy at 68.75 region. Other than that, the other pairs look quite snazzy.
In particular, I like GBPJPY and EURJPY. The long term charts suggest possible upside could be significant if it plays out.

The events do line up. Currently, we are risk on, and EU politicians seem to be getting their act together. Barring something falling apart in April after Greek election, the wash of money from the LTRO should keep things afloat. No doubt that tomorrow's LTRO take up will be solid. Who the hell would refuse money @ 1% when you can roll it into sovereign debt yield > 1%? THE carry trade there. Banks get their funding with no volatility from ccy. The interest could help them shore up their capital, countries in the EU tt need funding get it.

Lets see how equities go. Any dip in risk should provide some decent oppties to load up long risk.

For GBP, prospects of QE could keep GBP buoyant in the interim.

AUD is proabbly not going to outperform NZD in the medium term despite the firmer interest rate.

The main reason for this is that AUD terms of trade has actually been deteriorating, and RBA has said that they lean towards rate cuts, IF external conditions deteriorate. This would mean Europe and mainly China.

China is apt to see some sorta softlanding scenario. See how things go 5Mar when the National People's Congress convenes. Premier Wen is expected to announce something along the lines of growth < 8% for the first time.

This is in line with China's current 5 yr plan of sustainable growth rather than fast growth.

We could see AUD moderate because of this, but AUD/USD higher on risk appetite via the weak USD.

NZD, while it could suffer a tad bit due to the AUD/China association, has NZD30+bn of rebuilding for the year. Expectations are also for a rate HIKE, as opposed to a rate cut like AUD.

Pairs I have views on @ e moment:

Comdty/JPY
GBP/JPY
EUR/JPY

Again, I see limited downside in the medium term trend for these pairs.
GBP and EUR in particular have upside catalysts.
BOJ came out with a statement today saying that the trade deficit might partially be a reason why JPY has been depreciating.

---

Interestingly, I had a look @ GBPJPY n EURJPY monthlies, possible long term breakout patterns present, but lets see how those pan out.
If they do occur, current long positions could turn out to be immensely profitalbe in the coming months given the view of GBP n EUR catalysts and JPY weakness.

Will be immensely important to watch BOJ in the coming weeks/months to see what their stand is on current developments.

EUR/USD

Waiting for NZDUSD and AUDUSD to breakout of daily consolidations before considering positioning.

EUR529bn uptake of LTRO money yest. Great. So in the interim, we expect to see liquidity and insolvency risk to fall off the cliff. Banks and financial institutions should also have enough to tide them over the increased capital requirements. LTRO money will also be rolled into soverign bills in particular, so out goes the concerns of sovereigns like Italy not having enough $ to meet their obligations.

Altogether, not too bad a thing, though whispers suggest tt ECB leans towards NOT having another LTRO auction.

Bernanke didn't talk about QE3. The markets sold somewhat. However, data in the US is improving, hence no mention of QE. GDP came in at +3.0%, with improvement again in Chicago PMI. Beige Book reports generally +ve across all sectors.

Either way, both events lean towards the positive still, with no effects on the medium term fundamentals. USD bearish still.

HOWEVER, market sentiment seems to be teetering some what at this juncture. It could go either way still.

BUT, any decently sized rally in the USD is probably going to be sold.

----

BOE says unlikely to have another QE given recent inflation data, which has been +ve despite weak employment and demand. Interestingly, this caused a spike in GDP which has been sustained.
Given that QE implementations have resulted in knee jerk selling, and then a rally after... no QE = immediate rally --> GBP fundamentally strong?

Lets see how this goes. Currently, 1.59/1.60 region is a tad heavy, but if there are decent risk/rewards, perhaps might be worth a shot positioning.... KIV. I do like the engulfing forming in the 4hour though on a range breakout. Test of 1.60 region got faded like a bitch, so I smell a big KO barrier being defended. See how on the 6pm close here. I'm on GMT+8, charts show FXPro type closings. Profit potential abt 1.5big figs to 1.6090 where 200WMA is.

Good day Cyrus.

I've been reading your thread and like your analysis. It sums up the major "market movers" and what to look out for.

Just out of curiosity, any thoughts on the CAD? I'm sure (or not) the oil price is providing some buoyancy to the CAD as well as better data from the US the last couple of months. Any other factors?

CAD's been one of the pairs that I don't have much views on actually. I am well aware of the correlation with oil, but the sensitivity (or elasticity, whatever) to oil seems to be rather off. I know that WTI and brent have BOTH broken out and are trending, but CAD has been a mess across everything except perhaps CADJPY?

CAD has been one of those currencies that currently ranks last on my analysis list. Primarily because of choppiness.

I would lump it _VERY broadly_ with AUD and NZD... but kinda like a dim witted cousin with savant moments.

That said, their PMI data has been resilient. Let you know when I get down to it's analysis.

My current analysis list is AUD & NZD fundamentals and the stance of their central banks, JPY (cabinet office provides some great stuff) CHF which is mainly SNB statements I suppose, followed by CAD... quite last on the list @ e moment bro... heh.

For good reason!

There''re probby gonna be clearer trends out there.

CAD is has been giving crap for trends lately. Even SGD has been trending better than it. So... why go for the difficult $?

Just would like to clarify abit of my background.

Am quite adept w TA. I've got some fuq-ing cert for it even. Been doing this TA, PA, PPZ, whatever thingo for yrs.

While I have the right skill set, I've not been able to trade the short term because to make money, you have to stare @ the screen and manage actively. I dont have that luxury. Life, hobbies, job, etc.

I figured that the BEST way to play this game is to position, build positions, and hold. In this manner, once I BE, I can go, "ok fuck it. trend, do your job, make me $."

The bigger R:R is made in the swings as well, not in the short term momentum. This can take days/weeks to unfold properly, but for a hefty payoff in terms of R:R.

I had the skills to profit for so long, but the time and effort demands of the method for short term trading was incompatible with my time and the rest of my life.... which I do enjoy as well! Trading is this manner is MUCH LESS stressful, intellectually more stimulating, and thus far, quite profitable. My attitude leans abit more towards "investing", at least in my mind. The fundamentals have to line up w price/trend, then buy/sell to hold for as long as it makes sense. Don't sweat about the 10pips of movement or the 1R, 2R fluctuations in P&L. Let the trend and fundamentals do its work, manage risk, ignore the noise.

I ignore my P&L fluctuations. I trail my stops rather sparingly. Been sitting on G/J and N/J for +150pips++, but am aiming for infinite yield for G/J and looking to t/p @ key weekly PPZ for N/J in the 68.75/69 region.

Thanx for the reply!

We have the same mindset about the markets. I've been at it for about 3 years now and have finally realized the power of building positions and holding it for infinity yield. Trying to trade noise is a mission and what for, so I can swap my current office job for another one. F that!

HAHA. I couldn't have said it better myself bro!

Thankfully, my current office job is very very much in line with ccy fundamentals. Not too bad a thing @ all.

ur welcome btw. pse feel free to share your thoughts or ask qns... I will endeavour to ans as time permits.

I like how Cable has reacted to news on BOE's QE.

If yes, sell, the rally.
If no, immediate rally.

Good signs of GBP strength. Trend is not as clean as I would like it to be on the daily, but pretty clean on the 4hour. Managed to position long @ 1.5940. Would have gotten long in the 5925/30 region, but had NO F*$(ing internet connection @ that moment! Dafuq!

Looking to BE, and leave it alone, as usual. Targeting 200WMA @ 1.6090.

From the way Cable has reacted to 1.60 region on 1st try, and how it's not traded there for awhile, I smell a option barriers there. The first test @ 1.5993 and sell down tells me it's being defended, and defender now has less bullets. If there is a firm try today, a breach of 1.60 would force him to defend again, and ideally, the other boys force him to cover HARD, resulting in a BOT > 1.60.

I am contemplating whether to leave this as a position, cause the trend in the daily/weekly isn't exactly snazzy and the location of my entry doesn't seem to be too fantastic. I lean towards banking this trade, but might reconsider letting it run... we'll see how if/when Cable crosses 1.60.

Shirakawa Says to Continue Easing Until Inflation Goal in Sight 10:30
[8301 JP 43200, +700.00 1.65%]
Bank of Japan Governor Masaaki Shirakawa says it’s important to achieve stable prices through easing.
• NOTE: BOJ set price stability goal of 1% inflation in Feb: {NSN LZD9SV6JTSEK <go>}
• Shirakawa speaks at parliamentary committee in Tokyo

As anticipated! HA.

----------
Yes. BOJ indeed has incentive to continue to ease and try hit their inflation target.

They will certainly continue to talk down JPY and I think, find more creative ways to ease since they "only" have JPY65tn, of which 43tn is used alr. So about 2.2bullets of JPY10tn left.

More creative measures are anticipated. BOJ has been cracking its skull trying to weaken JPY through intervention for e past 3 yrs. Now they've found something tt works, they ain't gonna let go yo.

----

Am happy to sit tight on GBP/JPY. NZD/JPY, I'm kinda wondering if I should sit tight, cause it's @ uber major weekly PPZ.... tempted to unload and buy on a dip again... if this is done, I would be betting on the dip occuring, and a chance to go long again... if not, I might miss the boat.

However, given that JPY should continue to weaken, with certainty, there will be another chance to reload again. Am inclined to taking profits off the table as it approaches 68.75/90. UBER MAJOR PPZ @ 69/70 region.

Hi Cyrus:

Good stuff. I am more a lurker here than a writer. Interesting read. Keep it up.

Hi Cyrus,
Nice analysis of our current trends on all things Yen.

GJ has a nice long Weekly contiuation Pinbar sitting just below the 130 level. Interestingly enough our Friday bar was a Pin whose high just snuck across the line. The last 2 Sunday Gap Trades have jumped higher by about 70 pips before sliding downwards to get us back to the 6EMA...and another trip upwards. Further devaluations of the Yen MAY have us pushing 135 quite soon.

This a very good time to be watching BOJ.

Best,

Eric.

talk about potential.... in addition to BOJ policy.

Hey Eric,

Thanks for dropping my.

I share your thoughts on GJ.

At the moment though, am a tad wary of the way the rest of the risk environment is trading. Smells like it might roll over.
======

On Friday, we saw the Dollar strengthen rather significantly, likely on the back of EUR/USD selling down further from 1.3500. Commodity related AUD and NZD also showed broad weakness but US equities dipped unconvincingly, as did the CRB commodity index.

The S&P 500 and Dow have yet to close convincingly above key levels 1,371 and 13,000 respectively and volatility, measured by the high-to-low range has been shrinking week on week which, in an uptrend, tells of reluctance to bid.

For certain, markets are no longer full out bullish and we would watch closely if the S&P 500 and Dow test last week’s lows at 1,354 and 12,882. Sharp selling below this could trigger off a correction lasting several weeks. Dollar strength likely to continue in line with last week’s momentum.

======

Trimmed positions somewhat to bank some profits in the interim. Holding on to about 1/2, which I'm willing to BE on whilst waiting for oppty to add on original size + more risk, should markets provide the oppty to.

Weekly's still show an uptrend, but the dailies and below look a tad shaky.

Taking the daily/weekly into view, then considering actions wrt my entry timeframe of the 4hour. I dont have time to manage anything < 4hour given that I hold a full time job.

I remind myself that I am a position trader and am looking to hold for a min of 2 to 3 days rather than intra-day.

This method of thinking automatically helps me to filter out the trades that fit into this time horizon and thus, helps me to identify and catch larger moves.

Am conditioning my thinking to think of at least, the next 100bars or more. Though last week, I realized that some damn nice trades come WITH the weekly trend, away from BRNs. Missed EUR/USD @ 1.35 and EUR/GBP at 0.85. Looks like I'm adding a "fade BRNs with the weekly trend" type setup to my playbook.

===
Overall: KIV-ing. Lotsa consolidations. Willing to sell risk opportunistically while keeping in mind that the weekly is still bullish.
Bias towards buying on dips and holding long risk positions vs sell risk.

AUD/USD:
Wkly Uptrend. Potential buy @ Wkly PPZ 1.0400/1.0380.
Stalling out now though. Watch for potential reversal buys in the weekly PPZ above.
Might be able to sell in the interim if it begins trending lower in the interim.

NZD/USD:
Similar view as AUD/USD.
The level to watch for downside support is 0.8000/0.7960
Consider looking for oppty to sell on rally in the 4hour this week. Position small and hold.

USD/CAD:
Watch oil. See if there are signs there. Correlations picked up lately.

GBP/USD:
PA is bearish off 1.60

EUR/GBP:
Wkly PA.
Sell zone strong @ 0.8390/0.8400. Wkly trend is down. Position and hold.

USD/CHF:
Bullish wkly, PA, see if this pans out. Trend is “ok” up.

GBP/CHF: Ditto.

CAD/CHF:
Bullish PA. Clearly a CHF side move towards weakness.
w/PPZ in 0.9350 region tested w major sell down. See if can go long on a dip at 0.9100/0.0.8950 this week.

USD/JPY:
Wondering if it might be a good time to go long this week. If Dollar strength plays out on risk aversion, this would certainly be the case. JPY pairs have held up firm (weak JPY), despite the general sell down in risk on Friday.

CAD/JPY:
See how oil fairs. If oil is ok still, this would be a good bet since JPY continues to be weak.
edit: K. JPY strengthening... cad could be weak on oil. downside possible for cmdty/jpy pairs this week.

EUR/AUD:
Bearish PA. watch 1.20 as S.
Rallies to be sold this week. 1.2950/1.3000 very very uber good location to sell into downtrend.

NZD/CHF:
Now: likely to dip is < l/wk low @ 0.7459.
Later: 0.7400. see if can buy here. See if trend still up if/when reaches here.

NZD/SGD:
Now: likely to dip.
Later: 1.0250. see if can position long here.

thanks mate. =) glad its useful.

thinking abt fundamentals/policy is much more interesting that just raw PA trading.

helps that the big boys also think in this manner, so we look to piggy back...

Well, one of the trade offs I'm staring @ right now.

Held G/J and N/J positions for about 2 wks+, and they might get obliterated by the risk off move.

The thing about this time horizon, is that positions need management. I've lightened up on positions in anticipation of this, banking about 2/3 of the profits.

The plan is to re-load them on the dip + some additional risk IF it survives,
OR, if positions get killed by the market, well, so be it. Try will begin building possys again when there's oppty.

While price pattern formations etc say "distribution", the trend IS, still upwards, and I have come to terms that I do not know for certain. Thus, I scale out when I begin to scratch my head.

Three Natural Laws of Trading, set out by Chick Goslin are really helpful:
(1) The future is unknown
(2) Continuation is more likely than change
(3) Prices fluctuate

Sounds so DUH, but man, do they make sense when you are attempting to make this game work.
The thing is to be able to write about 1 page of implications regarding each of the 3 laws, then ask yourself, "how does this apply to my trading style, and position management?"

Jesse Livermore, Stanley Kroll, Chick Goslin, Richard Dennis, Ed Seykota, Joel Rensink, Peter Crowns, PipEasy and many of my heros of trading have one thing in common, and that is they are big trend traders.

I was musing about something Livermore said, "in the market time is time, money is money."
So it means that there can be a long time when you make fuck all, and other, rake it in by the truck loads in a short period of time.
BUT, in order to do this, you have got to be on board!

Participation. Participation. Participation. (rant end)

----

The trade off for times like these, is that the market makes money for u as time goes by because _you are in_.

To profit, one has to participate.

This was what Livermore meant in ROASO when he talked about old turkey saying, "it's a bull market. no man can afford to lose his position in a bull market."

To profit, you have to participate. Small is better than nothing. Many x small = Large size.

Therefore in a nice, solid trend, one can stay in and rake it in by incrementally rolling profits.

It is also MUCH MUCH easier to add on when you look at your P&L and see +200pips x 4 positions... so what's the big deal about another 40pips risk? Gone are the days of sweating over every damn pip! Fuq dat! =)