stock market analysis

The Psychology Of Trading – Reader Response

Forex Kong 3 Comments

In response to a fantastic line of question from valued reader “Rob” – let’s pull a couple of stops here.

It’s Saturday afternoon…my family and friends have now headed home, and it’s back to business “full-time” for Kong. So what better thing to do than “let loose a bit” after a full two weeks more or less “sitting on the bench”.

After suffering a bit “psychological damage” himself ( alongside the rest of us ), with continued effort actively trading markets these last few months, and in light of one my recent posts “Position Size – When Markets Have No Clue” Rob asks how I may have been able to identify this treacherous market dynamic ( chop ), and manage to keep myself out of harms way.

Excellent question Rob. Absolutely fantastic.

My first tip-off, aside from already having  been very wary of markets going back several months was the complete and total “disregard” markets showed for the taper.

Knowing full well that the fundamental story in the U.S continues to deteriorate , one would have assumed that the “initiation of the taper” would have been the first clue that “the party is over”, and the “free money is ending” right? Apparently not.

Seeing U.S Equities continue to rally in the face of continued negative/poor data “coupled” with the suggestion and “initiation” of tapering told me almost immediately that the puppet still dances and that the Fed was still just as busy behind the curtain.

I never believed they would taper. I still “know” they have done nothing more but generate a media campaign, and if anything are even harder at work propping this ponzi up.

Recognizing this had me immediately trim positions, get to cash , scrap trade plans, get out-of-the-way as…..if I thought the Fed was controlling things when QE was “hip” how do you think I felt seeing things continue to push higher as QE was “supposedly” being cut back.

Bullshit. Total 100% bullshit.

Nothing has changed ( short of a couple of entries / zeros / ones in a couple of computers ) as QE will continue until a scapegoat is found, and an excuse can be made for the bubble bursting – period. Then QE will be doubled.

As well keep in mind that “I too” got caught” getting long the dollar, posting a loss of a % or two regardless of how many times I second guessed / knew in my gut that nothing had really changed.

I too – took the bait.

Then looking at things from a technical perspective, I didn’t get a decent signal from the Kongdictator on even as small a time fram as a 4 H, looking at pairs like USD/JPY trading flat as a pancake for now the entire last 2 months there’s been no question.

Markets have no clue.

I’ll break this into two post….and touch on another point Rob touched on – how this all plays out with traders “psychologically”:

The Psychology Of Trading – Reader Response #2

 

 

 

 

 

Forex Trade Entries – The Wait Is Over

Forex Kong 17 Comments

Call me crazy, as I’ve not really had much to say “forex wise” over the past few weeks but….we’ve finally got a  couple trades shaping up!

I know, I know…its been a long and painful March for anyone not watching their money management like a hawk, as many currencies have done all but what you would have expected. But again….I fell the “shake out” has about run its course.

You’d have to be looking at GBP/AUD as bottoming out here at 1.79 / 1.80 along side all AUD pairs finally exhausting “whatever buying interest” there’s been over the past few weeks.

As “100% backwards” as it may have appeared with all the tough news coming out of China and potential war stirring in The Ukraine, the near term fundamentals in Australia pulled a “temporary trump card” with both AUD as well NZD continuing to push higher.

With some of our favorite candle formations now taking the stage ( hammers and shooting stars ) I’ve got trades setting up “for you” in several currency pairs. ( I’ve been in / adding to these the entire month )

  • Long GBP/AUD “above” current price action ( say 50 pips ) and let price come to you.
  • Short AUD/USD “under” current price action ( say 50 pips ) and let price come to you.
  • Short AUD/JPY “under” current price action ( say even 80 pips ) and let price come to you.

Otherwise it looks to me that the US Dollar is “again” rolling over here, and as we’ve seen most often over the past few months…she falls “along side” risk so…..AUD down, NZD down as well USD down with JPY up, as well EUR and GBP up – as flat out wacky as that may appear to some of you.

Get it on your screen, watch the pairs into next week and see if this doesn’t set up for a trade with some legs.

 

 

Hunting Black Swans – The Season Begins

Forex Kong 10 Comments

You’ve likely heard the term “black swan” before….and I’m not talking about the bird.

The black swan theory or theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight.

With all the “bad news” flying about these days, in such dark contrast to the background of eternally higher stock prices, and the never-ending “sunshine” of Central Bank intervention, it may just be time to consider getting out that cammo, shining up those shotguns, and heading out to the fields to do some hunting.

After all…..you can’t honestly expect some kind of “orderly exit” when things finally do start coming down to Earth do you? Do you?

Black swan hunting anyone?

Here’s a couple of things to keep in your sights:

1. The developing story in The Ukraine.

Once again The United States is sticking its nose where it most certainly does not belong, and is again butting up against Russia and our ol friend Putin with respect to this “tug of war” over The Ukraine. The U.S is hell-bent on having the Ukraine “come over” and join the E.U with aims to set up military / larger positions along the Russian border.

You don’t honestly think its humanitarian interests again driving the U.S do you? Do you?

Please. This scenario may not be on your radar “yet” but trust me……it’s should be.

2. China Carry Trade

China is now making some waves in the currency world and appears to be purposely pushing the yuan down in value to give its exports a bit of a lift amid the nation’s decelerating growth.

Sound familiar? So in other words….the Chinese are now doing exactly what the U.S has been doing for a full 5 years, and the media continues to label the Chinese as currency manipulators?? Hilarious.

The effect of a “falling yuan” has the potential to do “sizeable damage” to the CNY carry trade now approaching levels comparable to that of JPY so….a reversal of this trade would have monster global effects, with “unwind” being nothing short of disastrous.

China is “stirring the pot” now in the currency world and in my view is edging closer and closer to having the Yuan recognized as an “international currency”.

Watch for more signs of a “falling yuan” and the impact on global markets.

3. The E.U Zone

As you can get bored out of your mind listening to the day-to-day data out of any number of European countries, there is really only one thing you need to keep in mind.

The E.U Zone is so screwed, so banged up  and so “far beyond” any realistic expectation of recovery that it could seriously be “any day of the week” where news has it that well……lets put it this way – Spain’s unemployment rate is around 25% so…..you let me know when you hear that puzzle has been solved. Gimme a break.

So with all these potential “black swans” flopping about don’t get caught snoozing there in your blind.  You could wind up having a very, very..VERY bad day.

Oh ya…and the U.S unemployment print added another 348,000 to the line up last week so…….sounds like some real improvement there. Not.

Clues To The Correction – A Graphic Tale

Forex Kong 9 Comments

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?

Absolutely not.

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”?

forex_kong_economic_cycle

forex_kong_economic_cycle

Remember this beauty?

US_Macro_Data

US_Macro_Data

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.

Smart_Money_Forex_Kong

Smart_Money_Forex_Kong

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.

Forex, Gold, The Fed, USD – Trades Next Week

Forex Kong 9 Comments

With all the talk of “collapsing emerging market” currecies, and the now “global move” towards risk aversion, we are starting to get a good idea as to how the Fed’s massive liquidity injections ( which spilled out of the U.S over the past 5 years ) have fueled spending / investment in these countries – and now the effect of that “hot money” being pulled back out.

As you’ve come to understand, huge amounts of freshly printed U.S Dollars invested “elsewhere” in search of better returns ( as if you can imagine..U.S banks / investors groups would rather invest in an “emerging economy” that their own “sinking” econmomy) are now pouring back into U.S holdings accounts in fear of much further downside risk.

The Fed’s commitment to tapering ( or at least until they freak and double QE) has triggered a rise in interest rates “planet wide” as many of these “emerging economies” now scramble like mad to adjust.

Keep you eyes on gold and silver for buying opportunities ( I like EXK as well ANV ), as well be prepared for some “serious letting of air” in U.S Equities as from a technical perspective we’ve not even made a dint yet, and the fundamental trade is pretty much clear as day.

Fed sticks to tapering – and planet goes down hard. Fed boots up QE ( and more ) band-aid gets put back on. I’m really curious to consider “how far they will actually let things slide” , as even another 1000 SP points doesn’t really look to scary on a weekly chart. Things could easily fall much further over the coming months.

Forex wise, we’ve finally come into the shift and volatility needed to pull “serious profits” in a very short time as these things always move “much further and faster” when moving to the downside.

A complacent buyer is one thing……..but a “freaked out seller” is another animal all together.

We gorillas stand to do very well in times of “correction”.

Exactly the same trade idea’s setting up for the following week, short of a couple days (perhaps late in the week for a breather / bounce ( and slightly lower USD ). We are clearly in a proven “up trend” in USD both technically and more inportantly fundamentally so…..I will continue to press until proven otherwise. Fed POMO running once on Monday and then “Double POMO” on the 5th then virtually NO POMO for nearly 2 full trading weeks! Let’s see how markets hold up…..or not.

Forex_Kong_Face_Book

Forex_Kong_Face_Book

I’ve been updating / tinkering with my Face Book page as well if anyone is interested in “liking” or following etc…. Forex Kong on FaceBook

And The The Next Leg Lower…….

Forex Kong 9 Comments

I’d pull up a chart of the SP 500 pretty damn quick if I was you, and consider how far we’ve fallen and “how fast”.

Today’s move upward doesn’t come CLOSE to being considered a “reversal” as we’ve barely even “bounced” – with respect to the near term technical damage done over the last couple of days. Even now the index looking weak moving into the late afternoon.

I usually don’t make short-term calls on U.S Equities but as I see things from a purely “technical perspective” you might expect another day, or even another day or two – before we roll over and take the next leg lower.

That’s right “the next leg” lower.

Long USD trades turned out fantastic, although I’m not at happy with the way I traded it. Another 1% added here with short EUR and CHF providing most of the juice. Now leaning pretty heavy on the short NZD trade moving forward. JPY pairs still suggesting more JPY strength to come so….beware! The ol SP “risk o meter” is still very much so pointed – lower.

 

 

Blame The Emerging Markets – Right!

Forex Kong 5 Comments

The emerging markets are more or less a product of the massive money printing that has been taking place in both the U.S as well Japan.

The reason “emerging markets” are falling is that “funny money” printed in the U.S has previously been “invested” in these emerging countries where one might actually expect a “reasonable return” – as opposed to investment directly in the U.S ( where one can expect “0” return ).

Big American banks take the “funny money” from Ben, and opposed to lending it to hard-working Americans, the money is used to invest in “other countries” where the likelihood of return is much higher.

What we are seeing is the harsh reality ( well I doubt it ) that the “free money” is coming to an end, and large investors are repatriating their “previously invested U.S funny money” back to their bank accounts in the U.S – in a “flight to safety”. It’s the Fed’s doing – not the emerging markets.

Here is my original post from back in September: https://forexkong.com/2013/09/23/emerging-markets-effect-of-qe/

You’ve had plenty of prior warning.

Forex Food – Breakfast Of Champions

Forex Kong 3 Comments

I was up around 4.a.m – so I guess you really can’t call it breakfast.

Finishing up my “early morning analysis” today, I found myself rummaging through the kitchen looking for something “new” to eat, and even more so – “something new to do”.

The world hadn’t yet ended, I had little to do otherwise so I thought I’d take a walk over to the local ” pescaderia (fish market) to see if any lazy fisherman had bothered to get up as early as I.

Bought these little babies. Rock prawns.

Forex_Kong_Food_Breakfast

Forex_Kong_Food_Breakfast

Apply named, as the shell is literally “hard as rock” – these little beauties more closely resemble tiny lobster than a traditional soft shell or spotted prawn, with a much sweeter meat and firmer texture.

I butterflied these and will be grilling momentarily, with garlic butter, white wine a squeeze of lime, cilantro, and of course…….an accompanying cold beer after all…….it’s gotta be 5 o’clock somewhere. He he he…..

Grinding action here this morning / mid day as USD sits flat, and markets continue to flounder. Nikkei falling “further” through support and looking extremely weak with tonnes of trades setting up very nicely.

Forex Market Weather Report – Chance Of Rain

Forex Kong 7 Comments

Well the weekend has come and gone, and so far I don’t see that the sky has fallen.

With a cold front only now developing in China, and investor complacency “still” at all time highs, we can likely look forward to a day of overcast conditions, with an equal likelihood of scattered showers and even a bit of sun. Conditions are mixed – obviously.

A few dark clouds looming over gold, with USD “just starting” to poke its head out, coupled with high pressure conditions – soon forcing USD higher.

Large storms developing off both the Atlantic “and” Pacific coasts of North America, with continued hurricanes, tornadoes, and possible earthquakes down through Brasil and Argentina.

Investors and traders are cautioned to stay indoors today, and not look to make any large trips / moves – until conditions clear.

I’m still eyeing the usual as USD has “almost” ( within a penny ) swung low on the daily, suggesting a short-term bottoming – and further turn higher. JPY has also pulled back so…safe havens take a breather. I wouldn’t be doing anything today as a bull or bear – other than continuing to raise cash / stay indoors and trade safe.

 

Fed To Freak! – QE To Double As Suggested!

Forex Kong 31 Comments

This is hilarious.

Or at least…..it’s hilarious to me as – you know full well what I’ve been talking about these last few months. With only 2 or 3 days down and emerging markets hemorrhaging, currencies selling off like hotcakes, and equites taking it on the chin.

A little “wakey wakey” out there people!  Anybody just “a little nervous” about what’s going on?

Gees….2 days and the sky is falling. Hello!

Well – CNBC is stumped of course, but still very, very positive about “buying the dip” and tapering “just getting started”. Uh Huh. Right..tapering as global growth / appetite for risk sets up for a major “tanking”.

The Fed will freak out sooner than later, pull taper and double QE as suggested.

EEM ( The Emerging Markets ) will be temporarily “saved” , U.S equities will rally “once again”, the U.S Dollar will continue it’s slide into the toilet, and the American people will be told “once again” that the Fed is a freaking superhero.

If you’re piecing this together at all, I hope you’ve come to realize what an impact “tapering” would have had ( I’m already talking in the past tense ) as the global “dependence” on these massive injections of liquidity has become so great – that essentially…it’s the only thing holding the house of cards up.

UPDATE: CNBC now quoting Kong with suggestion that “the Fed may need to look at “pulling back” on tapering!! But….I thought it was “pulling back on QE! – Give me a break!

I’m not putting a date on it, but as suggested here “forever” – this thing is so fragile, so dependent on stimulus, that ( in my view ) even the ridiculous “suggestion” of tapering QE could very well be the catalyst for a global move towards risk aversion.

Confirming that China’s growth is slowing, Canada pulling down GDP estimates, The EU a complete and total “disaster waiting to happen” and the U.S data so fudged…SO FUDGED it can’t even be considered relevant – what have you got?

Recovery baby…..oh ya – you bet. You buy that dip……then you keep buying.

Killing it……kiiiiillllllling it short humanity……long interplanetary travel.

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