You can’t just “write off” the Japanese Yen based in the recent weakness – and the massive efforts put forth by the Bank Of Japan. No matter how you slice it – the Yen “still represents” a safe haven currency based in fundamentals that will likely persist for many years to come.
When things get “tricky” the Yen is gonna get bought hand over fist – no matter what the BOJ wants.
Now…..in looking to draw some kind of intermarket correlation here…it’s simple – JPY bought = risk off.
As bizarre as this may all appear to newcomers – I am currently positioned “long JPY”…..so……
JPY going up = risk off. You can watch any number of currency pairs as well as the symbol “FXY” for further indication.
Eyes open people!
Stay safe for now.
It’s widely expected that The European Central Bank will cut it’s base lending rate by 25 bps later this week.
Now fundamentally speaking a rate cut is usually considered to be a negative for the currency, but here we are again in a position where we must look at the “current environment” – then do our best to apply the fundamentals.
Assuming that every “newbie forex trader” on the planet will take it as a “given” that the Euro will plunge on the news, I’d imagine taking the other side of that trade ( and we know it’s not so fun trading against Kong ) as the current environment will likely absorb any further easing ( or attempt to make things “easier” in Europe ) as positive for world markets in general.
Coupled with the recent weakness in USD across the board – I would expect the EUR to move higher and may even take my long-awaited trade at 1.3170 mentioned here: https://forexkong.com/2013/02/10/long-eurusd-at-1-3170-watch-me/
Otherwise my short USD vs the Commods trades as well CHF have been performing well over the past 3 days, as well the active trading here long JPY “still” looking to see a much larger bounce .
The USD has continued lower as suggested while equities markets still struggle to reach new highs.
I assume that most of you aren’t particularly thrilled with the market these days. I too have been working hard to book profits – squeezing blood from stones.
We knew it was gonna get tricky. We knew about it for weeks leading up to these “final days” before the dreaded “sell in May and go away” either takes hold…..or throws market participants (including myself) for yet another loop. Only time will tell.
The usual correlations we reference (in order to make sense of the markets) are out the window – we know this. The latest stream of U.S data has been absolutely dreadful no matter how hard the media tries to find a positive spin – we know this as well. Global markets are enjoying the largest “money printing party” ever witnessed in the history of human existance as Central Banks around the globe do everything in their power to mask/support the illusion that “everything is gonna be fine” (or else – why would they be printing right?) – again…….this we know.
All said – one needs to consider their current investment goals. If trading is your thing then fine – you will “suit up ” again Monday morning and get back out on the field. You will do battle. You may survive or you may not, but as a trader you’ve got your short term vs long term goals in perspective and for the most part – tomorrow is just another day.
As an investor, I think things are much more difficult. You are compelled to “seek return” and likely “hate” seeing cash just sitting there – seemingly doing nothing for you. You need to be extremely careful as to not “risk too much”….. yet your near term investment goals “command” that you see a return. In all – you likely feel more pressure than the average “gun slinger” short term trader.
It’s a tough spot – no doubt.
I’m not in investment advisor, but I would suggest that investors just take a deep breath – taking stock in the fact that “cash” is a position too.
In times of question “capital preservation” needs to be the primary focus – and with summer upon us I find it very, very hard to imagine anyone will miss any kind of major “upside suprise”. It’s hard to sit on our hands I know – but discipline and patience goes a long way.
This reminds me very much so of a story my father once told me of a young bull and his father – standing on a hill.
Perhaps the gorilla icon and brief description on the “who is kong” page doesn’t really do much for you – and that’s fine.
You’ve chosen your side, whether it be that of the “eternal optimist” or the opposite – convinced “the end of the world” is so soon upon us. Either way you’ve got your mind made up – and come hell or high water……. “you ain’t changin”.
But what if the environment changes?
Like a group of actors “teleported through the wormhole” in some crazy sci-fi adventure – you suddenly find yourself in an environment where the same tactics and philosophies just don’t seem to apply.
Would you consider change then? Would you have a choice?
Do you have a choice now?
Is it “so unlikely” (considering the world we currently live in) that it’s the “investment environment” that is changing so rapidly – and that essentially it’s “up to you” to find a way to change with it?
I’m tired of the bull vs bear argument, and the gorilla originated with the creation of a trade animal that was able to trade without bias, to adapt to environmental changes as they came. A “third” player at the table as it’s all too certain the markets have pretty much got the “bull vs bear” thing figured out no?
The normal correlation of “dollar up = stocks down” and visa versa – has been on its head for some time now. As you’ve likely seen over the past few days while stocks have staged a small rebound, the USD has also continued higher. The two have been trading in tandem.
I’m expecting the dollar to turn downward tomorrow or very early next week – with full expectation that stocks will also make another leg lower.
Something else to watch in coming days will be the currency pair USD/JPY, as the BOJ’s recent efforts to further weaken the Yen has spurred buying across markets with carry traders (as suggested month earlier) clearly taking advantage of the easy money. Weakness in USD/JPY will now correlate with weakness in risk, and markets in general.
I don’t imagine the BOJ has much more to add ( here at their meetings over the weekend ) and in turn – expect this would be a great time for a bounce in Yen, and a further move toward “risk aversion”.
I’m looking to get short USD and “long” JPY ( at the same time – which some months ago would have been sheer lunacy as they are both considered “safe havens” – and I would never have had opposing trades including these currencies) giving you further indication how significant the moves out of Japan have been for markets in general, and add further credence to the study of fundamentals in trading.
Stock guys…..I would look for hedges, or short-term plays in some kind of inverse or “bearish” ETF.
Lets go through these one at a time.
Some time ago I had you take a look at the symbol “TLT” which tracks the value of the 20 year U.S treasury bond. When we start to see bond prices falling – it’s likely that stocks are not far behind. Keep in mind this is a WEEKLY chart, so the trend demands considerable respect.
Please remember – these “big ships” take weeks to turn – and this kind of macro intermarket analysis does not produce an immediate “buy or sell” signal.
It would be my view that regardless of short-term action/volatility – it would take a “considerable move” to actually reverse the weekly downtrend in TLT. Hence – the required “precursor” to lower stock prices No?
TLT in Weekly Downtrend
Lets look at the Commodities Index.
We’ve taken a real beating here – but this sets things up quite perfectly for another “intermarket dynamic” we’ve come to learn. When the “price of stuff” starts climbing higher ( or possibly “rockets” higher ) – what direction is USD moving ? (as commodities are priced in USD) You’ve got it – Commods up = USD down.
Commodities Set To Rise
Here is a previously posted chart of the SP500 – and the obvious area of resistance. I can’t really add much more in that – I believe the easy gains in U.S equities have now passed and for the most part from here on in – it may trade flat to down, with little chance of doing more for your account than grinding it to pieces.
Stocks will get volatile and create the illusion (many times over) that further gains are in the cards, drawing in as much new money as possible while grinding sideways. Short of being a “master stock picker” like the fellows over at Ibankcoin.com – I can only suggest being cautious…very, very cautious.
Finally the U.S Dollar.
The U.S Dollar Also Set To Fall
Not much else to add here as the intermarket analysis above pretty much outlines the direction for the U.S Dollar. I feel we will likely see a time very soon, when U.S bonds, U.S stocks as well as the U.S Dollar all fall together.
Ideas on how to play it? Let’s look at those next.
Its been a long week. And aside from the smashdown in gold – a very boring and frustrating week.
I could post a couple of charts, show you some levels and again point out that “the topping process” is often a long and arduous affair but frankly – what’s the point? Here we are. Here we “still” are. And “here we may be” for several more weeks, as the struggles between bulls and bears play out at the highs. Short term squiggles are pretty irrelevant, as currency markets continue grinding away at traders accounts ( more so my patience) with nearly everything (short of JPY) trading virtually flat for the week.
For the most part I couldn’t place a trade worth more than a couple of tacos if my life depended on it….and it does depend on it!
I wish I had more to share with you. Some amazing trade strategy, or some “top-secret insight” into a potential market move – materializing over the weekend. I wish I had for you the “investment tip of the century” – something to make you rich, something that would change your life forever.
Sadly no – I don’t.
I’ll keep digging here over the weekend, and hopefully plan to “wow you” in coming days. For now I hope you have a wonderful weekend, and we’ll see back here Monday.
NASA announced today that Kepler (its alien world-hunting spacecraft) has discovered two previously unknown planetary systems, including three super-Earth size planets in the much-coveted “habitable zone” – capable of sustaining human life.
It’s really only a matter of time now (with such advancements in technology ) that we finally put to rest the age-old question of our human origins, and make the “connection with the stars” as did our ancient ancestors.
Putting things in perspective – there are more stars in our universe ( each with their own planetary systems ) than the combined total of every single grain of sand on the entire plan Earth. The discovery of these two “Earth like planets” is only the beginning – as we continue to reach further and further out. We will find life – and we will find it soon.
It’s things like this that keep me small, humble. We get wrapped up in our day-to-day lives, the decisions, the stress, the pressure we may put on ourselves, when in the grand scheme of things – we’re not just a tiny grain of sand, but one of billions of tiny people – on that tiny grain.
Consider the significance of a poor trading decision. One decision….. in a day filled with decisions, in a life filled with decisions.
I’m pretty sure you’ll be O.K.
I won’t reference my previous posts. I won’t tell you “I told you so”, or tell you again….to pull your head out of the sand. I will give you the quiet time needed (perhaps crying into pillows or smashing into walls) to reflect and evaluate….. ” what the hell did I do wrong?”.
We are going down people – exactly as suggested.
It’s also been suggested by several of you that I should “pep it up” and try my best to “write something positive”. While this is excellent advice (should I choose to start a “day care” – or perhaps get into grief counseling) – the day I tailor my writing to appeal to some cry baby, sad sack – is the day I poke pencils in my eyes, run down the beach naked, yelling I’ve now seen Jesus!
Trust me – ain’t gonna happen. It will never, ever happen.
We all make decisions in this life, and we all hope they are the right ones. We all do the best we can, and we all hope that when “all is said and done” – we’ve lived our lives with some level of integrity, dignity, decency and respect.
If you’d rather I lie to you – perhaps you need to consider the same.
If you don’t like it – don’t read it.
We are going down.
There will be spikes, and there will be large moves in both directions as we crawl our way through 2013, but as per my latter posts – if not for “one more pop” higher” I am a firm believer that the highs are in. I mean”the highs” in general – like…..not seeing the SP500 at these levels again – period…..end of story, as wel roll over late 2013 / early 2014 on the road to “zero” as the U.S completely collapses – stocks, bonds, housing, currency and all.
You can’t rush the trade. If there is no trade – then so be it.
No trade – “is” the trade.
I know it’s hard, especially when you are starting out. You want to get back out there, you want to see some action, you want another shot at making some money. But an important skill to learn (actually a very important skill to learn) is to be able to access the current environment, and evaluate whether a trade is even warranted at all.
Capital preservation needs to take priority over new opportunities for added profits – and when the markets are crazy – finding a trade (and I mean a good trade) – gets increasingly more difficult. You have to learn to include “not trading” in your trade plan. Embrace it, and consider yourself a better trader for it.
When you can’t find a decent trade (certainly consider that perhaps there isn’t one) and tell yourself “Gees! – Thank god I don’t have any of my hard-earned cash tied up in that mess! – I can’t find a decent trade if my life depended on it!”
As you get better at this – you start to trust yourself. The feeling of “not trading” starts to become a feeling of relaxation and confidence, rather than anxious or stressful.
There will always be a trade….just maybe not today.
For what it’s worth – it’s no picnic out there for me these past couple weeks either. I am still looking short USD with a couple of irons in the fire – but am patiently waiting for a move of some substance. The markets are proving difficult as I suggested 2013 would, and regardless of smaller / less profitable trades as of the past – I am thrilled to have very little exposure.