Hey you only live once right, and in nailing the Nikkei a couple of weeks ago….we might as well just go for broke here. I’ve got absolutely nothing to lose anyway.
The Top Is In!
Peaking on Friday, and now continuing on its way lower U.S Equities will now “finally” roll on over.
With the momo names in tech “quietly leading the way” over the past few weeks, and the Bank Index $BKX flopping around, we’ve now seen what we might call ” final capitulation” in the U.S Dollar to top things off.
A strong U.S Dollar bounce on “repatriation” will only be fueled “more so” by the selling of equities “also priced in USD”.
The money has to go somewhere right? So when you sell something priced in U.S Dollars that money then goes back into your trade account / bank account and BOOM! USD cash position moves higher and higher.
The coming move in USD should put considerable pressure on commodity prices as “they too” shall fall.
And U.S Bonds? Would you seriously want to own a U.S Bond?
We continue to frame trades with a “risk off mentality” including long USD positions as well “waiting in the wings” for several long JPY positions as well.
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Speculation as to “where markets are going next” is running rampid across the various forex, stock trading, news outlets and financial blogs these days, with a pretty equal split between both the bulls and the bears.
And for good reason as….It’s an absolute meat grinder out there.
This being said “caution” is likely the best suggestion anyone can make while markets continue to “sit on the fence” but you know…..you’ve really got to “go with something” as lack of conviction won’t really do much for you either.
Reducing position size or going to a cash position is never the wrong thing to do, so there’s always that….but again – we’re looking to “make some money here” so if it’s a bit of “hard work that’s required” well then?….We’re gonna do it!
I’m going to simplify and keep this short.
The largest QE program on the planet ( coming out of Japan ) is currently doing “nothing” to elevate Japanese stocks as the Nikkei “will” continue to fall here. This is significant in that…if the QE money isn’t doing it anymore ( as well consider the QE money in the U.S now evaporating monthly ) what on Earth would it take to continue pushing higher?
I believe that the “near term” wind has certainly come out of the sails, as U.S “momo names” have also taken their “first leg down”, with Twitter cut in half ( from 75.00 – 37.50 ) and Yelp soon to follow.
The analysis / theory is simple…..just follow the money.
Who’s printing the most money? Where’s that money going?
Do you seriously think the “world at large” is rushing to the “supposed safety” of U.S Bonds for anything more than a short-term trade?
I don’t….wait – I do…..no…..wait ( U.S Bonds are gonna top out here pronto ).
These things take time yes. It’s a grind yes, but there are many excellent trades setting up for those who are patient, and for those willing to do a little work.
I remain short the Australian Dollar ( risk currency ) as well am keeping a very watchful eye on all JPY pairs as these “will” move fast and hard with further weakness coming in Japanese stocks.
I continue to look for a stronger US Dollar on the “repatriation trade” and see us at a significant turning point here. Should USD fall lower it will only mean the trade has been “put off” a touch longer as much further weakness in USD will have some larger “ripple effects” with our friends across the pond.
I don’t believe the U.S can allow USD ( if they can really help it remains to be seen ) to fall much further without risking a serious, serious knock to whatever credibility it still has left.
Lots of great stuff on tap this week, so good luck everyone!
I’ve made light of it before as it’s a handy thing for “non forex traders” to also consider keeping in mind.
The currency pair AUD/JPY has long ago been directly associated with the “risk on” trade, as traders simply borrow ( sell ) Yen ( as the base lending rate in Japan is practically 0% ), then invest (buy) the same money in a higher yielding currency such as AUD ( base interest rate currently paying 2.5% )
It’s essentially free money, and rests pretty much as “the backbone” for most major banks – as far as forex strategy is concerned.
When this trade “unwinds” ( when risk appetite wanes, and banks and major investors begin to seek “safety” ) you certainly don’t want to be on the other side of it – as the move is nothing short of amazing.
Lets take a look at the “unwind” back in 2008, and consider where we’re at with the pair today.
The pair “peaked” right along side “peak activity” surrounding the Bank of Japans massive QE program and equally massive dilution of the Yen, sometime “around this time” a full year ago.
We can see that it’s done very little since, as “risk” apparently rages on ( as seen via U.S Equity prices ) in the West.
A “swing high” here marking a “lower high” on a monthly chart would prove to be a very, very powerful technical sign that the turn is indeed near, as big banks and institutions will have used these past few months to quietly whittle away, adding to positions here, selling a bit there, getting themselves into position slowly as to not turn price against them with any large-scale moves.
Until of course the large-scale moves commence ( as seen via the “red candle waterfall” of 2008 ) where the big boys have already gotten out and retail investors “unknowing” get caught holding the bag.
One has to consider that “if the Big Banks are running the show” ( as we all know they are ) – don’t you think they’ve got the info / knowledge / plans in place long before we ever hear of them?
Do you think the biggest players on the planet get “caught” suddenly realizing that things are turning? Or perhaps because they missed a bit on CNBC? There is absolutely 0% chance of this as it’s this is “their market” and the house always wins.
Equities in the West continue to grind as the turn has already been realized in Japan. These past 4 or 5 days are again what we call “distribution days” as big players unload to those late to the party, in preparation for the next “real money to be made” on the short side of town. Currency wise a large and solid “short AUD position” has been building for quite some time, as other “risk off trades” slowly fall into place day-to-day.
Very relaxed here as positioning is well underway and the tiny squiggles don’t really mean much at this point.
I can’t see how unemployment data out of the U.S ( 344,000 more last week ) could be helping anyone with their medium and longer term trade ideas, but I’d love to hear the arguement.
We’re looking for a stronger dollar these days, as the reality of continued Fed tapering and a generally disappointing earnings season ( in my opinion ) begin to take their toll.
As we’ve discussed here in the past, the general effect of tightening the money supply “eventually” leads to higher lending rates/increased borrowing costs, pinching corporate earnings and pressuring stock valuations.
I think it’s fair to say we’ve most certainly seen the “mojo” taken out of the “momo” stocks in the tech sector already, as well the $BKX Bank Index ( which I follow as an additional “bellweather” for U.S Equity strength ) as it “continues” to on its path of “lower highs” and “lower lows”.
Via currencies I’ve been positioned “generally short” for several weeks now seeing AUD/JPY top out around 94.50 as well The New Zealand Dollar finally rolling over. CAD took its last breath here in just the past two days essentially “completing the trio” of risk related currencies to begin their journeys downward.
Pushing through the last remaining day or two of chop in USD, opens the flood gates “wide” to a plethora of excellent “medium term” trade opportunities long the safe havens, and short the commods.
My expectation is to see The Nikkei ( The Japanese Stock Index ) continue to lead markets “decidedly lower” ( and I’m talking like….Nikkei at 11,500 now at 14,500 type lower ) as the general lay of the land has obviously already shifted to a “risk off” / safety seeking environment.
For those interested in more specific and detailed “trade ideas”, regular “intermarket analysis” as well deeper learning / understanding of forex markets – please join us at www.forexkong.net as our trading community continues to grow.
You would seriously have to have your head stuck so far underneath the sand as to “not” see what’s shaping up here that….well…..whatever.
The Japanese Nikkei has indeed rolled over as suggested and the YEN is on fire. Commodity currencies are getting trampled left and right, and even a pile of the stupid parts of the U.S equities markets ( $tran – Transports swinging high, and $BKX banking index creating “yet another” lower high ) continue to show fatigue.
Trading markets with a single sided “bias” isn’t trading – it’s hoping.
When you’ve got this kind of this information taken directly from the “largest, most liquid, most widely traded market on the entire freaking planet” ( the forex market ) looking you directly between the eyes….what else do you need?
Maybe a nice 3 or 4 days of big fat solid , ugly red candles will do the trick for you then…..but of course….by then it will already be much too late.
Heed to the sun setting on Japan. Take heed risk takers! Take heed!
I’ll need to smack you in the face with a sushi roll if you don’t pull up your charts and start finding a way to get long the Japanese Yen and short Japanese stocks. The U.S to follow.
From a fundamental perspective we need to look at things from the top down.
Now…..depending on “how high you climb the beanstalk” things may appear very different as…we all climb as high as we can ( based on our own knowledge and understanding ) formulating an overall view of “what we think” is going on below. But what if you don’t climb high enough? Is your perspective “all encompassing”? Or are you only seeing things from a vantage point that ( innocently not knowing ) only allows you to see a small portion of the larger picture.
How high do you need to climb in order to formulate a macro view “wide enough” to feel that you’ve got things in the proper perspective – and in turn use this perspective to your advantage?
This of course…is wildly subjective,and always up for debate as – we all formulate our “macro views” based on our own experience, knowledge and understanding.
My macro views start with “Earth” if that says anything.I then start to work myself down.
Movement in financial markets is merely a “bi-product of human activity” so……it only makes sense to better understand who’s got the largest influence and what their intensions are no? Central Banks sit high above you and are currently in “desparation mode” world wide – doing everything they can to keep the “debt balls up in the air”, while facing the stark reality of continued “slowing global growth”.
As a retail investor don’t kid yourself. This has nothing to do with “mom and pop” buying a couple stocks with hopes of making a buck or two. The big boys push this thing around “like a skinny kid on the playground” with the sole intention of extracting your “hard earned live savings” as readily as possible – then depositing them in their offshore bank accounts.
You are at war every single day you put your money at risk in financal markets, against an enemy with every possible weapon at their disposal. Failure to recognize this generally leads to one thing, and one thing only. Failure.
If you can’t adopt a “warrior type attitude” with respect to your trading / investing then you may want to consider taking something up that’s just a little “teeny weeny” bit “safer”.
Lets entertain a hypothetical situation for a moment…I mean – why not right?
Let’s say “what if”………
What if I’m correct in suggesting that the 15,000 area of The Japanese Nikkei Index marks the top, and that indeed ( as seen in the past ) this “top” will soon be mirrored in U.S Equities as well?
Now I’m not talking about a “mid-term top” or a “short-term top” – I’m talking about the “top of all tops”. The kind of top you can only imagine / dream that you may have been fortunate enough to have identified, and in turn – traded accordingly.
Yes….”that” kind of top.
So…..What if I’m right?
Can you imagine having yourself positioned not only “before” a major turn in the markets but for a “bearish turn” at that? Allowing your trades to move into profit based on market dynamics “driven by fear and panic”?
How bout letting those trades sit ( much like an investment ) for several months, or even ( in timing it correctly ) “several years” considering what might be coming down the pipe in a longer term “global macro” sense?
What if these levels in stock market valuations ( in both Japan as well U.S ) reflect levels that may “never be seen again”, or at least not for several years to come?
It’s fun to think about, especially as these past months have been so tricky.
I keep coming back to that 20 year chart I posted the other day, considering that “wow you know Kong……you might just be right”.
Friday’s sell off in U.S Equities certainly took a number of people by surprise now didn’t it?
This in itself “not surprising” as the current state of “passivity” and “complacency” among investors is at or “above” all time highs. People have got this crazy idea in their heads that everything is moving along as planned, the “recovery” is well underway and that essentially ( no matter how many times they change their tune ) the Fed is there to screw you oops – “save you” if things start to get ugly.
I borrowed this chart from the good fellows at Zero Hedge to illustrate an important point.
Realistically – how much further do you think the market can stretch ( considering we are already in one of the longest, overstretched, Fed induced, pump job markets in the history of mankind ) before doing what “markets always do” as illustrated in the chart below?
What could possibly have you think that for “whatever reason” – this time it’s going to be different, with historical data going back to “the beginning of time” showing the “boom and bust cycle” repeat, again , and again , and again?
Tell me! Don’t just read this crummy little blurp and go back to the T.V! You tell me what it is that “you know” that has it that “this time”…yes “THIS TIME” – IT’S GOING TO BE DIFFERENT.
It can’t be the Fed…..cuz ( haven’t you been listening? ) the Fed says it’s going to continue with it’s tapering and within the next year END IT’S QE PROGRAM all together….so don’t give me that.
It certainly won’t be U.S Corporate earnings as expectations for earnings have come down considerably for the first quarter, and what? You imagine the spring and summer quarters will be any better?
It can’t be “global growth” as every estimate from the IMF down to the average joe blow walking down the street knows – global growth “ain’t goin nowhere” anytime soon so…….
So what is it Sherlock? What is it that “you know” that the rest of us don’t, that would have you “buy and hold” now?
You can make light of a particular currency pair’s price level (such as AUD/JPY yesterday afternoon), as well point out its general connection / relationship / correlation with “risk appetite”, and BAM!
Perhaps it’s a touch too early to say, but I’m seeing reversal’s in just about every single pair I track with respect to a reversal in “risk appetite” – with both USD as well JPY showing strength here overnight.
Did I need to wake up and check SP futures? or perhaps tune into my local financial news this morning to get an idea of where U.S stocks may be headed here today? Nope.
Obviously I’m short AUD/JPY from yesterday, and will be adding a couple more long JPY ideas here today. The long USD’s I’ve got will be added to as well.
I can’t imagine another “triple digit gain” here in the U.S today, as this counter trend rally peters out.
Did it really matter if the economic data was “so so” these past 6 months – as the continued efforts by both The Fed and The Bank of Japan just kept pushing equity prices higher and higher regardless?
I don’t know how many times I pulled up charts, pointed out facts, figures, levels etc suggesting these last “several hundred” SP points where merely a “last-ditch effort” to keep the spin “positive”, and keep the story “believable” just a little while longer. Did it matter?
Regardless of any of the underlying “fundamental factors” suggesting slower global growth, until it’s “in the news” and the media machine, The Fed, and the Wall Street algorithms switch to “sell” – the data doesn’t matter one hill o’ beans.
The contraction phase has clearly begun, with the Fed sticking to its guns ( for now ) and stock price set to “re adjust” reflecting prices a little closer to those of us down on Earth.
If you didn’t know back “then”…………where in the graph below do you think we are “now”?
Remember this beauty?
And this one, with respect to the movement of supposed “smart money” ( the big boys) vs “dumb money” ( retail investors )….essentially suggesting “selling” the entire last year and a half.
It’s really no surprise at all that markets are finally making the “obvious turn” lower, considering everything we’ve learned / seen over the past couple of years.
When you consider they’ve had no business being this elevated in the first place.
If we aren’t on the other side of the mountain now ( after 5 straight years of Fed induced stock prices ) resulting in essentially “zero” new economic growth, and now entering a macro phase of “tightening and contraction” I really can’t wait to see what they pull out of their hats next.
Watch for the next “retail bounce” likely already here, and if I was doing anything ( other than trading currency ) I’d be using the opportunity to sell.