While I do not believe this is the scenario that will play out at this point....I do want to offer it up as a possibility. As traders, we never want to be surprised - try to consider all angles.
Given Monday's sharp drop into the upper end of the support zone that I was looking for, I was pretty sure we were nearing the end of the correction that began last week. Today's price action was weak out of the gate but......continue reading
Well traders, it was a day for the bulls - at least in equity/futures land. The Dow made new highs and the S&P's were up by just under 1% but again FX was left to its own and that can be problematic for FX traders. We continue to see FX and commodities lag the move higher in the S&P's.
While this does not prevent us from taking trades - we are long one of the 'lead laggards' - USD/JPY - I do feel that this continued imbalance is not supportive of equities over the long run and thus could lead to some pretty nasty surprises at some point. But I digress.
The fact is, equities are going higher and our job is to simply tag along for the ride with the best correpsonding FX trades/ideas. Per the Top 5 this AM, I was looking for this scenario in the S&P's - that obviously did not play out:
It became pretty obvious after the opening that I was on the wrong side of the market - I hate it when that happens - but adjusted accordingly. The updated count is seen below:
Good evening. Investing and managing ones portfolio is an intriguing practice. Keeping ones ears to the ground and reading research reports/commentary is just as important as being fluent in technical analysis or fundamental analysis - depending on your take.
I realize that many clients either do not have the time, or perhaps the interest in keeping up. But hey, that is what Portfolio Alerts is for - let me do all the heavy lifting behind the scenes and provide you with the neat and tidy road-map. That said, an integral way for me to keep clients in the loop and build a narrative as to how I navigate the markets on your behalf is for me to share my observations in between the 'official trade selections'. So, with that brief statement out of the way, allow me to share this recent comment conveyed to me by a good friend who is a money manager here in Bend, OR:
Dave - career risk is alive and well. Once "conservative" clients are beginning to feel like they "aren't aggressive" enough. The herd mentality is strong and this will continue to push markets higher in my opinion. It's tough for me to debate clients on the merits of their argument as patience is rarely rewarded. It gets back to a subject I mentioned to you a few months ago: judging success. It's a difficult proposition, one that has been distorted greatly.
As I have said in recent postings, I am certain this run higher in stocks and bonds will end very badly. When? I have no idea, but it could still be some ways off. The Fed's easy money is very seductive but has and will continue to create massive distortions.
So, in the interim, I will play the bullish game but with one very cautious eye. With my eyes and ears on the markets everyday it will become more obvious as to the 'when' and I am confident I will play the next inflection point like a pro and not only keep clients out of harms way but make a few bucks in the process.
Traders, we saw the first signs of selling in equities today - certainly a rare occurrence recently. The damage was minimal, off .25%, but could be the signs of something a bit more ominous developing. More on that below.
With the the weaker equities it has allowed for a pull-back in USD/JPY - the one pair I am keeping a close eye on currently. As noted earlier in the day, I am looking for prices to move lower towards the 95.60 area.
Bear in mind it is entirely possible that today's low at 95.70 could have completed Wave 5 of C of iv. I will keep you updated on this. Either way, a long set-up is setting up very nicely in here. A NEW TRADE ALERT is likely in the near future.
Turning to equities, I continue to believe that something is brewing in this market - recall from this AM's update:
- While equities move higher (in a pretty odd way - more below) FX and related markets are not moving higher in tandem.
- Investor complacency is at highs. The VIX made a new multi-year low yesterday.
- Yesterday's high were made on the lowest volume in several weeks (excluding holidays)
- The number of NYSE stocks making new 52-week highs was at 328 yesterday - much lower than the 443 last Tuesday, as well as the 464 back on Jan. 24
- Chinese stocks, as viewed via the Shanghai Composite, were off 1% overnight
What I have learned in over nearly 20-years of trading is that it never pays to draw an absolute line in the sand and make bold predictions - it can be harmful to ones trading account. Rather, an informed opinion is preferred, as it allows one to approach the market with caution and respect.
In addition to these thoughts, there is a key technical development in the S&P's that traders/investors should not ignore....
It is now 10 straight days up for the Dow Jones (DJIA) - it makes for great headlines (although that is debatable) but what does it really mean - is it good or a warning flag?
I will choose the later. When you combine these incremental gains each day with the overall wave count I am looking at - which suggests a top of some degree - this labored move higher makes me concerned; not celebratory.
If we look at the number of up closes in the DJIA over the preceding 20-days that number is pretty darn high at 15 - historically speaking. Similar or slightly higher readings in early 2011 and 2010 resulted in a period of equity weakness.
So, the word of the day is not 'grizzly bear' but rather 'caution'. I firmly believe that traders should never be surprised by what the market does - a good analyst/trader will consider several scenarios - all of which are plausible on some level. This is merely one of the scenarios I am looking at.
Lastly, I have seen markets like this before in my nearly 20-years of trading. Sometimes you just say to yourself - 'Wait, I have seen this movie before'.
Yesterday's strong recovery on the heels of the Cyprus news was impressive and unexpected. Nonetheless, I am not so sure that the S&P's will hold these gains. I think the next move will be lower towards 1532/20
Cyprus was again the issue of the day, with EUR/USD falling sharply even with a stronger than expected ZEW survey. Downside momentum accelerated once it was reported that the ruling party in Cyprus would abstain from the vote, thereby guaranteeing its defeat. This saw EUR/USD bounce off its lows
The headline risk continued with a a brief bounce back above 1.2900 as the ECB stated it would continue to provide liquidity was but is not sustained. Equity markets too were focused on Cyprus, but closed off the lows with the DJIA actually scraping a marginal increase on the day. Predictably, Treasuries rallied.
To me, absent the losses in EUR/USD and other FX pairs, equity markets seem largely unfazed. Yes, they are off last week's highs but this news from Cyprus, to me at least, is potentially a lot more nasty than what is being seen in the media. Trust has been broken plain and simple. Stock bulls and media cheerleaders have already concluded that Cyprus is contained, even as the exact details of the bank deposit confiscation are worked out.
Maybe they are right - but I doubt it. However, with nearly 20-years under my belt I have seen similar situations in the past. Let's review:
- The sub-prime crisis was deemed 'contained'
- Housing prices were not in a bubble and of course bubbles can never be known in advance.
You get the point - it pays to think critically and keep the business channels on mute. Cyprus has all the hallmarks of yet another unfolding mess and that is all you need to know. We cannot know what comes next but to blindly whistle past is insane.
So, to me, the best way to move forward for the next day or so is to keep a bearish bias. The charts suggest this as does the overall tone of the news flow. Today's updates in both the FX Top 5 and the Futures Alerts intra-day updates - showed that the S&P's were pretty easy to isolate turning points and downside targets.
Here are the updated charts that should serve as a good barometer for the next several hours:
Traders - we certainly had our share of volatility today compliments of the on-going situation in Cyprus. A couple of thoughts:
- Coming into today the S&P count was certainly bullish per this AM's Top FX Charts update. Prices did try to move higher initially but got whacked above the 1558 level. This was likely headline driven.
- On the other side of the coin - EUR/USD looked awful coming into today's session after failing overnight to get back above 1.3050 - as noted in the AM's Top FX Charts
I was saying to my colleague Jason last night on a conference call that at some point the S&P's are either going to notice EUR/USD getting wrecked...continue reading
Aspenalysis: Simple To Follow FX Trade Ideas
