Market View; World Stock Indexes; Trading Journal

Stock market rises at the end of last week were driven by speculation on the possibility the European Central Bank (ECB) decides to adopt a comprehensive program of economic stimulus after the meeting of this institution in January.
Asian markets ended positive. Data released in China showed that exports rose 4.7% in November, well below expectations of 8.0%. Imports fell 6.7%, while economists had expected growth of 3.9%. However, revised data showed that Japan’s economy contracted for the second consecutive quarter.
The major indexes fell today mainly due to falling energy producers with Crude at 5 years lowest value.

The signs of strength given by the employment report in the US relaunched the question of the timing of the first rise in interest rates in this country, which will be the central theme of this week.
In recent months, the labor market has gained greater momentum, culminating in the creation of 321,000 jobs in November and a rise 0.40% of wages. The increase in wages, which until last month had been contained, was the latest sign of strength in the labor market.

Stocks fell, extending the week’s decline for the Standard & Poor’s 500 Index, as energy shares renewed a selloff after OPEC cut its forecast on 2015 demand for crude. Yesterday, the specter of Greece returned to haunt European investors. The Athens stock exchange fell 12% after Prime Minister Antonis Samaras have anticipated the presidential elections in February to December.
Considering the fall of yesterday and the fact that several indicators have accused a loss of upward momentum, a correction for the major indexes begins to gain expression. This scenario will be reinforced if the Dax closes below 9835 (Last week Low).

The main event today was the second auction of liquidity provision by the ECB, the so-called TLTRO (Targeted longer-term refinancing operations). These ECB’s operations are intended to stimulate the provision of credit by European banks, through the injection of liquidity in the interbank market to near 0% interest rates. The first operation took place in September, but banks only required 82 600 M. €, which was well below the 400 000 M. € which were the maximum ceiling that the ECB was willing to give. The European institutions asked the Central Bank for 129 840 M. €, aligned with the estimated value which was expected between 100 000 M. € and 170 000 M. €. A portion of the amount requested today will be applied to replace the loans requested from the ECB 3 years ago and which mature in the coming months and may not represent additional liquidity in the banking system. The outcome of today’s auction may influence the ECB’s decision on the adoption of a sovereign debt purchase program. That the request is deemed low, then the ECB will have more arguments to implement new measures of monetary stimulus, so that the balance of this institution reaches 3 000 000 M. € as intended.

Trading was marked by the reaction of European investors to economic data in China whose industrial production was below expectation. Investors are giving attention to the evolution of oil prices and the political situation in Greece.
Oil price remains under pressure hitting new lows.
The main point of Thursday's session was the loss of much of the recovery achieved during the first hours of trading. Apparently, the mentality of buying the dips would prevail and investors were taking advantage of the fall of the previous day to buy shares in the expectation of a final rally of the year, however, the last hours of trading showed a lack of conviction from buyers. The news that Democrats and Republicans could not reach an agreement in respect of public expenditure plan led many investors to sell. The deadline for agreement was ending at midnight but was finally reached. Still, the future of US indices traded low before the European opening.

The Minister of the United Arab Emirates for Petroleum, said OPEC will not change its output even if the price of crude decline to 40 USD / barrel.
The FED’s meeting on Wednesday shall only gain some relevance shortly before its completion.
After the resilience demonstrated earlier in the week, last Friday the US markets have accused some nervousness before the intensification of threats to equity markets. Many investors reduced their exposure to the market or bought puts (put options) to protect their portfolios. In face of this nervousness, Wall Street recorded the worst weekly performance in the last two and a half years.

Once Charles Darwin wrote something like this:
“It is not the strongest or the most intelligent who will survive, but those who can best manage change”
The same is true for traders: Traders that can adapt faster to the market changes are the ones that get consistent and positive results.

The meeting of the FED constitute a further step in the preparation of the financial markets to the normalization of monetary policy in the US process. Key elements of this meeting are the economic projections of the Central Bank for 2015 and the semantics of the statements that result from the meeting. From the statement, investors will try to assess what will be the timing of the first rise in interest rates as well as what will be the pace of their increases.

The rise in the stock markets was supported by Yellen’s statement (and the consequent reaction of US markets) and also the appreciation of the ruble against the dollar.
The FED introduced the concept of “patience” in its statement by stating “that could be patient regarding the beginning of the standardization process of its monetary policy.” However, the big surprise was that the Central Bank has derived the expression “for a considerable period of time” when referring to keeping interest rates at historically low levels. Additionally, when questioned by financial journalists, Janet Yellen said that the FED would not, raise interest rates at least the next two meetings. Considering that the first two meetings held in January and March, the Fed will not raise rates before April 2015.
Another positive factor that emerged from the meeting was that the Central Bank estimated that at the end of 2015, the reference rates are between 1% and 1.25%. Previously, estimates ranged between 25.1% and 1:50%. Thus, it is concluded that the FED provides that the pace of increases in interest rates will be lower than previously expected. With regard to economic projections, the Central Bank predicts that unemployment stands at 5.25% in the end of 2015 (5.50% was the previous projection) and inflation in 1:30% (compared with 1.70% previously).
In short, the outcome of yesterday’s meeting took more positive contours than investors expected. On the one hand, the timing and the pace of rising interest rates will be benevolent to the financial markets and on the other hand the statement significantly reduced the uncertainty hanging over the future of US monetary policy. These factors combined with the state sold on American indices justified the strong positive reaction of the shares on Wall Street. Considering these factors and the very positive statistical seasonality of American markets during this period of the year, it is not excluded a recovery over the next days. Indeed, the past 28 years, the period that includes the last five sessions of the year and the first two of the new year, the S & P had a positive performance 25 times with an average gain of 1.74%.

The European indexes opened up, a day after they have presented a significant increase in their valuation. Yesterday’s behavior was due to the statement of the US Federal Reserve made the day before. European markets continue to be positively influenced by American indexes but the situation in Greece and Russia as well as the evolution of oil will continue to haunt investor sentiment.
Today is expiration date for futures contracts and options on European indexes. Generally, the expiration days of futures and options are more volatile and likely to be performing erratic movements. The most critical periods are the interval between 10h50 and 11h00 (for futures and options on the Eurostoxx50) and 12h00 (for futures and options on the DAX).
“Do not fight the Fed!”. This old Wall Street aphorism advises investors not contradict the Federal Reserve. In fact the echo of the statement from the Federal Reserve was felt in yesterday’s session, with major stock indexes registering gains of more than 2%. Monetary policy has been the most important variable to influence the course of the stock markets in recent years. In addition to not having removed the words “for a considerable period of time”, the Fed reported that the interest rates should not suffer increases before mid-2015, removing the uncertainties that the market had in relation to its timing.
Leading indicators of the economy, anticipating their cycles in 6-9 months increased 0.60% in November, foreseeing a dynamic economy in the coming months.
In US markets, the session will also be influenced by the expiration date of futures and options, which should be reflected in an increase in volatility. The most critical moments are the opening and 19h00.
Japan’s Central Bank maintained its strong stimulus and presented more encouraging outlook for the country’s economy.

Stock markets are trading high, giving extension to the recent rise. At the present time there is a favorable environment generated by the FED’s statement, which is now enhanced by the reduction of threats posed by a number of factors. In Asian markets, crude oil traded higher, as Saudi Arabia argued that in 2015 the oil prices will recover due to a more dynamic world economy. The recovery of oil spread to other raw materials, thus it’s expected a recover in oil and mining sectors, at least in the short term. In the currency market, the ruble also recovered against the dollar.

Tomorrow starts the period that corresponds to the so-called “Santa Claus Rally”. This period includes the last five sessions of the year and the first two of the new year. Over the past 28 years, the S & P had a positive performance 25 times with an average gain of 1.74%. However, as the S & P already appreciated 6% in the last four sessions, it is likely that the Santa Claus Rally this year has already been at least partially anticipated. There is a pattern that has repeated in the last 30 years, during the month of December. This pattern consists of a rise in major indexes during the first 8-10 days of the month, a decline in the interim weeks of the month and the occurrence of “Santa Claus Rally” at the end of the year. So far, this standard has been met.

Take a break, enjoy the winter holidays and spend some quality time with families and friends.
Wish you all a Merry Christmas and a Happy 2015!

Better risk management and opportunity management: It helps to look at the tails of your P/L distribution. Please Size positions appropriately, utilize reasonable stops, ensure that multiple positions are sufficiently uncorrelated, etc. Cutting opportunity short can significantly weigh upon overall returns. Plotting your P/L for each trade and looking at the shape of the distribution will tell you a great deal about your management of risk and opportunity.

Today the stock markets traded with minor variations.
The week will be shorter than usual, due to the closure of markets worldwide on 1 January 2015. Many investors are taking advantage by using vacation time and equity trading volumes are more subdued than usual.
The attention was mainly focused on Greece. The Government once again fails to elect the President of the Republic, which brought some panic among investors, since this failure results in the holding of early elections. The Athens stock exchange fell as more than 12%, but closed with a lower fall to 3.5%.
The main US stock markets closed the session on Monday in a mixed record, with the SP 500 at new highs and the Dow Jones declining slightly.

The beginning of 2015 should be marked by political uncertainty in Greece, the economic and financial situation in Russia and the continuous oil price weakness.

Take a break, enjoy the winter holidays and spend some quality time with families and friends.
Happy trading and a Happy 2015! :-)

American indices closed lower on the last day of the year, breaking the upward trend started in mid-December and that allowed the S&P to appreciate 8% in 6 sessions. Falling US stocks may be explained by a number of factors. The first is that many fund managers, who were able to follow the positive performance of the US stock market during 2014, realized capital gains, thereby creating selling pressure. This trend was particularly visible in the utilities sector, which was the best performer of the year with a rise of 24,28%. The second is that other investors materialized, for tax purposes, capital losses which had in some titles. The third and final reason was the fall of the oil traded in New York, who led their sector to a loss of 0.80% in the session, accumulating a decline of 10% in 2014, which deeply contrasts with the recovery of 11,40% of S&P. The effect of these factors was boosted by the lack of liquidity typical of this season. The economic data did not have any impact on the session. Today, many investors are still on vacation, so the volume should be reduced. Still, the publication of economic data, including the ISM index, which measures manufacturing activity in the country, should be closely monitored.

Equity markets start the year falling.
The new year is already showing many challenges and uncertainties. In the European case, the biggest challenge and risk is represented by the political situation in Greece. This issue is aggregate two fronts. The first is internal and marked by the election campaign. The second is broader and is represented by the response of several European countries to the events of the election campaign in Greece. The weekend brought some developments on both fronts. In the election campaign, the party leader of anti-European left Syriza, Alexis Tsipras said that if he won the next election (25 January) would promote a series of nationalizations and would repudiate a part of Greek debt (about 320 000 M. €). If these promises become facts it is almost certain Greece will leave the Eurozone. Against this speech, the German newspaper Der Spiegel, citing a source close to Chancellor Angela Merkel said that Europe will be prepared for a Greek exit from the euro zone (a possibility which is called by Grexit in the financial world), covertly saying it would be this country the main victim in such a scenario. Given these developments, the European currency fell to below 1.20 against the dollar, the minimum in recent years. With the appreciation of the dollar, oil depreciated.
Parallel to the political situation in Greece, investors will follow the news and rumors for the ECB, which will meet on 22nd this month. Until then, Mario Draghi will firstly analyze the economic data to be published while trying to gain more consensus around the implementation of a sovereign debt purchase program.
US markets retreat before the weakness of European markets and some disappointing data. The sharp drop in oil prices led to the closure of several oil wells in Texas, in North Dakota, Wyoming and Colorado, which not only affected this sector as local economies.
In the coming days, the US stock market will be marked by the contrast of two different factors. Firstly, the uncertainty hovering in Europe. On the other hand, the fact that US funds have gathered 36 000 M.USD subscriptions in the last two weeks of 2014.

European stock markets traded without a clear trend and nervousness dominated investor sentiment. Yesterday, European shares suffered heavy losses, explained by the confluence of several factors: the fall of the oil, the depreciation of the Euro and the situation in Greece. Sometimes financial markets tend to underestimate the importance of a factor, but when its ramifications become evident give you an exaggerated importance. Most likely, the previous day fits this definition. Technically, the area of 9500 is an important support for the DAX, to be the most representative index of the European market. If this level is broken permanently (yesterday DAX ended in 9473), the probability of the German index test in the coming weeks, the minimum December (9219), increases significantly. The publication of the PMI index for the services (relating to major European economies and the euro zone as a whole) usually do not have a significant impact on the trend of the stock markets, however, given the negative sentiment prevailing among investors negative readings exacerbate weaknesses.