Unless we see a remarkable turnaround this week then we are likely to see the first negative month for European equities this year, as well as the biggest monthly decline in stocks since May 2012. The sharp reaction from financial markets to even the suggestion that the current Fed stimulus program may be coming to the end of its road has prompted a sharp sell-off in not only stock markets globally, but bonds and commodity prices. This mere suggestion of stimulus withdrawal has shown how fragile the current stock market rally has been and it could be some time before markets settle down to where they should be as investors become more discerning about company fundamentals.
Looking at the Currency Market, The USD Index bounced from oversold levels near 80 on Wednesday when Bernanke delivered his Hawkish comments. The Index now trades near the 82 handle and this has seen Bearish developments for EURUSD pair and the GBPUSD pairs, Both down over 300 pips for the past 3 trading sessions. Looking at the EURUSD pair we have a cluster of daily moving averages close to the current price action and these will likely be retested soon. The 200 Day Moving Average is at 1.3065 and a break below this may point for additional losses as the fundamentals support a weaker Euro with another rate cut or more easing expected before the year end and the other issue in this pair is the likelihood of Dollar strength for the rest of the year with Quantitative easing purchases being tapered and the Dollar gaining from this development. Just as I have been typing a major U.S. Bank has issued a sell recommendation in EURUSD at an entry point of 1.3180, a stop at 1.3280 and a target of 1.28.
This has a nice risk-reward set up and looks a very solid trade.
Looking at Cable, over the past few weeks it worked similarly to the EURUSD as the USD long positions were wound down and the pair made rapid gains on the back of this. Along with this a lot of the U.K. Data has been positive of late and has supported Sterling pairs. The pair even managed to reach its 200 Day Moving Average at 1.5710 last week but could not close above it and now we trade at 1.5351. If the new governor of the Bank of England Mark Carney adopts a dovish policy which he is expected to do we may see the yearly low of 1.48 tested sometime before the year end.
Good luck in the Markets
Monday, 24 June 2013
Friday, 21 June 2013
TGIF
Thank God It's Friday....The global equity markets will be counting down the minutes to the closing bell in the US this evening after a long hard week of massive declines. The big decision that we had all been waiting for come and scared the markets. The idea that the FED may act on the idea of 'Tapering' the existing level of QE was the catalyst that top callers have been looking for.
We saw the drastic effects on the global markets especially in the US, again highlighting the markets dependence on central bank intervention. It is amazing to see how dependent stocks have become on the FED and in its purest form it is scary. We have seen billions wiped off the global equity market over the idea that the FED may act to reduce its current easing due to the fact that the US economy is showing signs of improvement, one may ask the question, 'If the economy is improving is this not a good thing for stocks?' and although it should be I will list a few reasons why this is not the case;
We saw the drastic effects on the global markets especially in the US, again highlighting the markets dependence on central bank intervention. It is amazing to see how dependent stocks have become on the FED and in its purest form it is scary. We have seen billions wiped off the global equity market over the idea that the FED may act to reduce its current easing due to the fact that the US economy is showing signs of improvement, one may ask the question, 'If the economy is improving is this not a good thing for stocks?' and although it should be I will list a few reasons why this is not the case;
- The recent rally that we have seen from January 2013 has been based on the level of central bank intervention rather than economic fundamentals. This is not only the case in the US, Japan has experienced drastic stock market growth based on the BOJ 75 Trillion monthly injection.
- The economic fundamentals have not shown a correlation to the extreme easing measures in place and I don't think that anything has changed since pre easing measures have been introduced.
- Markets are focused on sentiment, and sometimes irrational and illogical. In an ideal world good news should be good news and bad news should be bad news, however with the level of global bank intervention we have created a world where the opposite is in fact the case.
- It should be a good sign for the US economy that the FED are considering reducing there level of easing to support the economy. From their research they feel that the US economy is moving in a direction that it may be able to stand on its own to feet.
- We need to experience a shift from CB intervention, we need to experience a rotation from intervention to stability a situation where economies and stocks can be judged on their own performance and innovation capabilities rather than how much the FED is willing to print.
We have come a long way in a short period of time and we are beginning to see some money come off the table as institutional investors lock in some profit as they fear what the next few weeks might bring. It is important to note that markets can fall a lot quicker than they can climb. The next dilemma on the table is where to invest your money next? Where is the safe-haven? Usually investors and hedge firms would run to defensive asset classes such and Gold/Silver/Bonds but that play is no longer available.
There exists no safe-haven, we have seen the drastic fall in Gold over the last couple of months and more importantly over the last couple of days with all major technical levels breached. The bond market is in the brink of collapse and neither of these plays will be supported by the FED's plan of tapering QE. The stronger USD will make Gold relatively more expensive to global investors, and there is a solid argument to support the commodity/ emerging economy bull cycle coming to an end.
As a trader/ investor this is a time that you need to sit down and analyse your portfolio. If you have been involved in the recent equity bull cycle over the last 5 months then I do believe it may be a good opportunity to cash in on gains and wait for another buying opportunity. It is my personal belief that equity markets will recover in the short term as investors try and get there head around the fact that 'Tapering' is a positive sign for the US economy in the long run.
Happy Trading
@lowkeycapital
Thursday, 20 June 2013
Taper Thursday
Last Night Ben Bernanke and the FOMC delivered their most Hawkish guidance in a long time hinting that Tapering is coming sooner rather then later and changed the threshold for Tapering of future Asset purchases. The Market expected him to maintain some what of a dovish tone in his remarks but when he talked about changing the threshold of tapering to nearer 7% from 6.5% unemployment the Dollar took off with Bonds, Equities, Metals and Commodities all going south from a stronger Dollar and the prospect of reduced liquidity in the system.
Bernanke gave guidance into reducing purchases but left the caveat that its down to data so the market will continue on in the good news is bad and vice versa approach. All eyes will be back on the Data and the Tapering Trade will be the major fundamental driver over the summer months. We feel that the moves may be overdone considering the Dollar was very oversold and their may have been a lot of short covering on short Dollar positions that traders were exiting quickly once they heard the Uber Dove Bernanke's hawkish rhetoric.
A lot of the Moves from last night are still playing out and in the Metals market and these may indicate that they are lasting and not ones to try and fade like the Currency moves. Gold hit the lowest level since 2010 this morning as the Spot USD contract traded at 1304. Major psychological levels in all base metals are approaching and moves below these could be very bearish. Copper sits at 306 approaching 300, Silver at $20.4 and Gold off the lows at $1314, all very close to breaking long term support levels and all looking very weak fundamentally as physical demand has started to dry up from a Slowing Chinese and Emerging Market growth. Some analysts last week started to call for Gold to go to $1200 per ounce in the coming weeks and they could be spot on considering leveraged funds will start to be Margin called on Long Gold positions once $1300 is broken. Expect heavy stop loss selling if this level goes.
Looking at Currencies, We mentioned last week that the CFTC positioning of EURUSD traders was more neutral then net short a few weeks ago leaving the pair open to faster declines as the currency was overbought and the Dollar oversold, however the move has been drastic from 1.34 to under the 1.32 handle in less then 12 hours. Poor European Manufacturing data has added to the sell off in this pair along with Strong U.K. data.
Yesterday's Daily candle was what we call in Technical Analysis an Outside Day reversal. This is when the High and the Low point of the day's range is greater then that of the previous day and is highly bearish. Combined with a pick up in Volume and a fundamental development it looks like we could have a medium term cap on the EURUSD price action at 1.34. The price action will undoubtedly come back to retest a cluster of Moving averages between the 1.30 and 1.31 handles. Another bearish development is the crossing of the 200 Day Moving Average underneath the 55 Day Moving Average, this generally signals additional downside in a pair and will have a lot of Euro bulls re-thinking their positions for the next few months with more easing potentially on the cards from the ECB in the form of Negative deposit rates or a narrowing of the corridor.
Bernanke gave guidance into reducing purchases but left the caveat that its down to data so the market will continue on in the good news is bad and vice versa approach. All eyes will be back on the Data and the Tapering Trade will be the major fundamental driver over the summer months. We feel that the moves may be overdone considering the Dollar was very oversold and their may have been a lot of short covering on short Dollar positions that traders were exiting quickly once they heard the Uber Dove Bernanke's hawkish rhetoric.
A lot of the Moves from last night are still playing out and in the Metals market and these may indicate that they are lasting and not ones to try and fade like the Currency moves. Gold hit the lowest level since 2010 this morning as the Spot USD contract traded at 1304. Major psychological levels in all base metals are approaching and moves below these could be very bearish. Copper sits at 306 approaching 300, Silver at $20.4 and Gold off the lows at $1314, all very close to breaking long term support levels and all looking very weak fundamentally as physical demand has started to dry up from a Slowing Chinese and Emerging Market growth. Some analysts last week started to call for Gold to go to $1200 per ounce in the coming weeks and they could be spot on considering leveraged funds will start to be Margin called on Long Gold positions once $1300 is broken. Expect heavy stop loss selling if this level goes.
Looking at Currencies, We mentioned last week that the CFTC positioning of EURUSD traders was more neutral then net short a few weeks ago leaving the pair open to faster declines as the currency was overbought and the Dollar oversold, however the move has been drastic from 1.34 to under the 1.32 handle in less then 12 hours. Poor European Manufacturing data has added to the sell off in this pair along with Strong U.K. data.
Yesterday's Daily candle was what we call in Technical Analysis an Outside Day reversal. This is when the High and the Low point of the day's range is greater then that of the previous day and is highly bearish. Combined with a pick up in Volume and a fundamental development it looks like we could have a medium term cap on the EURUSD price action at 1.34. The price action will undoubtedly come back to retest a cluster of Moving averages between the 1.30 and 1.31 handles. Another bearish development is the crossing of the 200 Day Moving Average underneath the 55 Day Moving Average, this generally signals additional downside in a pair and will have a lot of Euro bulls re-thinking their positions for the next few months with more easing potentially on the cards from the ECB in the form of Negative deposit rates or a narrowing of the corridor.
Wednesday, 19 June 2013
Wicked Wednesday
Good Morning Traders
Today could mark the most important day for global equity markets as we wait to see the outcome from the two day FOMC meeting followed by the Bernanke press conference. There has been a lot of speculation over the last couple of weeks that we may see the FED deciding to cut back on its agressive monetary easing programme but lie rest assured the market activity this week alone would suggest otherwise.
Yesterday we had another aggressive move to the upside across global equity markets and it was significant that we did not see any selling pressure into the closing bell. We have all seen the aggressive level of volatility over the last couple of trading sessions with the DOW recording triple digit moves in six of its last seven trading sessions this can be directly linked to the uncertainty of the FED's decision this afternoon.
As a trader we must be aware of the equity market movement in the build up to today's meeting in order to get a good understanding of which direction we might move to. The recent rally in the equity markets highlights the fact that investors are expecting no tapering so if this decision is announced don't expect to see too big of a move as it will have been largely priced in. The danger I see is the press conference that takes place after the announcement, Bernanke will definitely be questioned in a roundabout way as to whether 'Tapering' is likely over the coming months and any commentary to suggest this will inevitably see the market give up some of its gains.
In terms of the FX market we saw the EURUSD pair breach the 1.34 handle for the first time since February and the pair now trades just below the 1.34 handle from its morning high of 1.34100. The USDJPY has lost direction and is well off its highs but is hoovering around the 95 level. As we know the BOJ have tried to weaken the JPY but the screws are beginning to come un-done and it will be interesting to see if they step in again and increase their existing easing policy of 75trillion a month.
In conclusion, we are expecting a quiet morning session, there could be a few small swings prior to the announcement and expect to see severe volatility sometimes irrational during the press conference, but we are expecting to see no change in the QE level and maybe some talk of potential tapering towards the end of this year if economic data reaffirms their decision.
Happy Trading
@lowkeycapital
Today could mark the most important day for global equity markets as we wait to see the outcome from the two day FOMC meeting followed by the Bernanke press conference. There has been a lot of speculation over the last couple of weeks that we may see the FED deciding to cut back on its agressive monetary easing programme but lie rest assured the market activity this week alone would suggest otherwise.
Yesterday we had another aggressive move to the upside across global equity markets and it was significant that we did not see any selling pressure into the closing bell. We have all seen the aggressive level of volatility over the last couple of trading sessions with the DOW recording triple digit moves in six of its last seven trading sessions this can be directly linked to the uncertainty of the FED's decision this afternoon.
As a trader we must be aware of the equity market movement in the build up to today's meeting in order to get a good understanding of which direction we might move to. The recent rally in the equity markets highlights the fact that investors are expecting no tapering so if this decision is announced don't expect to see too big of a move as it will have been largely priced in. The danger I see is the press conference that takes place after the announcement, Bernanke will definitely be questioned in a roundabout way as to whether 'Tapering' is likely over the coming months and any commentary to suggest this will inevitably see the market give up some of its gains.
In terms of the FX market we saw the EURUSD pair breach the 1.34 handle for the first time since February and the pair now trades just below the 1.34 handle from its morning high of 1.34100. The USDJPY has lost direction and is well off its highs but is hoovering around the 95 level. As we know the BOJ have tried to weaken the JPY but the screws are beginning to come un-done and it will be interesting to see if they step in again and increase their existing easing policy of 75trillion a month.
In conclusion, we are expecting a quiet morning session, there could be a few small swings prior to the announcement and expect to see severe volatility sometimes irrational during the press conference, but we are expecting to see no change in the QE level and maybe some talk of potential tapering towards the end of this year if economic data reaffirms their decision.
Happy Trading
@lowkeycapital
Tuesday, 18 June 2013
Tuesday Morning Update
Good Morning,
Market nervousness about Fed tapering was perfectly illustrated late last night after a late article entitles "Fed likely to signal tapering move is close" from an FT Journalist and Fed watcher, sent US Markets into a sharp tailspin just before the close and Put some immediate strength into the USD. Once Markets had determined it was simply an opinion piece and there was nothing new in it they managed to recover enough to still close higher, but the entire sorry episode signifies how reliant on central bank stimulus markets have become. We hear an awful lot about how stocks are so cheap yet the mere prospect of slowing down the stimulus measures is enough to send markets into a tailspin. They can't be that cheap then, that investors are able to feel comfortable buying them, unless there is a Fed comfort blanket backstopping them?
With the Dry up in Volume in the Financial Markets in the past couple of trading weeks we have seen a break down in the Trend that we had observed all year and a break down in the correlation between different instruments. This could be for a number of reasons but the most likely is that the Market is at a turning point and the fundamental driver is the "Tapering talk" from the Federal Reserve. We personally do not buy into this. There is two things you can rely on in this world and that is night to turn to day and for Bernanke to be dovish. So the strategy for trading the FOMC minutes tomorrow has to be to buy Gold and sell the Dollar against a foreign currency.
We believe that the Dollar has reached an oversold level and it is setting up a number of attractive trades such as a short EURUSD position and a short Cable position. However with the Dollar likely to fall again tomorrow it is best not to enter this these positions until later in the week. EURO CFTC positions last week showed that the market is not as short as it was 3 weeks ago and this more balanced positioning will allow the Euro decline quicker on any Euro negative news or Dollar positive news. All the shorts have nearly been squeezed out as we approach 1.34 in this pair and with Analysts at Soc Gen and Bank of America calling for a decline to 1.20 before year end it could be time to adopt another speculative short position. Remember Soc Gen called a Euro short at the End of February before we saw it drop from 1.37 to 1.27 and they could be on the money again here.
Good luck in the Markets
Market nervousness about Fed tapering was perfectly illustrated late last night after a late article entitles "Fed likely to signal tapering move is close" from an FT Journalist and Fed watcher, sent US Markets into a sharp tailspin just before the close and Put some immediate strength into the USD. Once Markets had determined it was simply an opinion piece and there was nothing new in it they managed to recover enough to still close higher, but the entire sorry episode signifies how reliant on central bank stimulus markets have become. We hear an awful lot about how stocks are so cheap yet the mere prospect of slowing down the stimulus measures is enough to send markets into a tailspin. They can't be that cheap then, that investors are able to feel comfortable buying them, unless there is a Fed comfort blanket backstopping them?
With the Dry up in Volume in the Financial Markets in the past couple of trading weeks we have seen a break down in the Trend that we had observed all year and a break down in the correlation between different instruments. This could be for a number of reasons but the most likely is that the Market is at a turning point and the fundamental driver is the "Tapering talk" from the Federal Reserve. We personally do not buy into this. There is two things you can rely on in this world and that is night to turn to day and for Bernanke to be dovish. So the strategy for trading the FOMC minutes tomorrow has to be to buy Gold and sell the Dollar against a foreign currency.
We believe that the Dollar has reached an oversold level and it is setting up a number of attractive trades such as a short EURUSD position and a short Cable position. However with the Dollar likely to fall again tomorrow it is best not to enter this these positions until later in the week. EURO CFTC positions last week showed that the market is not as short as it was 3 weeks ago and this more balanced positioning will allow the Euro decline quicker on any Euro negative news or Dollar positive news. All the shorts have nearly been squeezed out as we approach 1.34 in this pair and with Analysts at Soc Gen and Bank of America calling for a decline to 1.20 before year end it could be time to adopt another speculative short position. Remember Soc Gen called a Euro short at the End of February before we saw it drop from 1.37 to 1.27 and they could be on the money again here.
Good luck in the Markets
Friday, 14 June 2013
Friday Feeling
Good Morning Traders
Well we find ourselves at the end of another crazy week highlighted by extreme volatility and a lack of direction. Yesterday we saw a nice bounce from the lows and the US markets looked like they did in the opening months of the year as they moved in one way. The move yesterday was significantly important as we saw the initial loss of the 1600 level on the S&P500 and we briefly traded below 14900 on the Dow. The market changed from Risk Off to Risk On in a matter of minutes and there was no fundamental logic behind this aggressive buying.
It will be important to see how we wrap off the week, another day in the green might bring some optimism into the market and encourage a few retail investors back into the equity markets. Another significant thing that we will be keeping our eye on its $AAPL due to its significant influence on the S&P500, the stock traded briefly below the $430 level and a close below this could have caused a drag on the US equity markets. However we have noticed an inverse correlation between the pair which is unusual as a trader you would imagine that if the S&P500 was moving higher so to would $AAPL but it is not the case, they move in opposite directions. We put this down to the fact that money was in in $AAPL when the S&P500 was declining and investors, when $AAPL hit the $700 level things turned around an the $AAPL stock began to decline and the US Equity market began to rally and we saw money come out of $AAPL and move into the US equity markets. However I believe that this relationship will persist, if we do see a significant market correction we could see money move back into $AAPL.
And finally we do not expect to much volatility today the news flow is light and volume has been relatively low in the morning session so we will find our levels and wait for the setup's before entering the market.
Happy Trading
@lowkeycapital
Well we find ourselves at the end of another crazy week highlighted by extreme volatility and a lack of direction. Yesterday we saw a nice bounce from the lows and the US markets looked like they did in the opening months of the year as they moved in one way. The move yesterday was significantly important as we saw the initial loss of the 1600 level on the S&P500 and we briefly traded below 14900 on the Dow. The market changed from Risk Off to Risk On in a matter of minutes and there was no fundamental logic behind this aggressive buying.
It will be important to see how we wrap off the week, another day in the green might bring some optimism into the market and encourage a few retail investors back into the equity markets. Another significant thing that we will be keeping our eye on its $AAPL due to its significant influence on the S&P500, the stock traded briefly below the $430 level and a close below this could have caused a drag on the US equity markets. However we have noticed an inverse correlation between the pair which is unusual as a trader you would imagine that if the S&P500 was moving higher so to would $AAPL but it is not the case, they move in opposite directions. We put this down to the fact that money was in in $AAPL when the S&P500 was declining and investors, when $AAPL hit the $700 level things turned around an the $AAPL stock began to decline and the US Equity market began to rally and we saw money come out of $AAPL and move into the US equity markets. However I believe that this relationship will persist, if we do see a significant market correction we could see money move back into $AAPL.
And finally we do not expect to much volatility today the news flow is light and volume has been relatively low in the morning session so we will find our levels and wait for the setup's before entering the market.
Happy Trading
@lowkeycapital
Thursday, 13 June 2013
Thursday Morning Update
The Nikkei 225 had another rough night of trade as the main Japanese index went over by 6% as Investors and traders alike lose faith in the great experiment going on in Japan. The Yen has been strengthening for the past couple of weeks and could strengthen more as it has technically broken through a lot of strong support levels and trendlines that have provided a base for its weakening throughout 2013.
The Breach of 95 in USDJPY major leaves a test of 90 very likely as the Market has stopped believing in the Japanese bet to beat deflation and to stimulate economic growth. The "Long Japan" trade (Long Nikkei, Short Yen) is being unwound quickly by Hedgefunds and this has put Global Equity and Bond Markets into Turmoil as market participants have started to questioning the effectiveness of Quantitative Easing programs around the Globe. This is a serious Red Flag warning as is the Break Down in the American Dollar, which normally gains during times of Risk off and Uncertainty in the Financial Markets. The Dollar has been breaking down heavy in the Past 2 weeks as talk of Tapering echoes around the Markets on a daily basis. Stock Market correlations have broken down as the Bond Market and the Equity markets sell off together which is a very worrying sight. Bond Yields in the States have risen to 2.25% on the 10 Year. The end of the QE program in the states should effectively strengthen the Dollar as it is reducing The Federal Reserves Balance sheet as there is less Dollars being printed and pumped into the Economy. The reason why the Dollar is in fact weakening is because the Fed is supporting the Bond Yields by buying so many each month and with the inevitable tapering of Bond purchases on the Horizon traders are positioning themselves for bond yields to increase dramatically as the Fed takes off its Economic Stabilizers.
Looking at the Euro currency, 2 weeks ago we talked about the EURUSD technically and how the Market was net short but not going down and with the lack of bad news coming out of the Eurozone and Draghi's more hawkish tone at the last ECB press conference it has caused an epic short squeeze in the pair and could see some further upside to 1.35 near term as there is still shorts to be squeezed out. Saying this however, We still believe there is a lot of Political and Economic uncertainty in the single currency and with the Dollar approaching key support at an oversold level it may not be long before we start heading south again in the pair. If this is just a Dollar correction it has set up a lot of great levels for traders to enter positions at. A short of the EURUSD pair at 1.35 with a stop loss at 1.3750 could be a very attractive swing trade with a target of 1.25 or below, as would a short of Cable at 1.57 as it approaches its 200 Day MA at 1.5710. We also believe that the Japanese Government may come out all guns blazing at their next meeting and adopt an even more aggressive easing program. With the USDJPY pair sitting at the 94 handle as I type it could set up a huge trade with Analysts still calling for 110 to 120 by Year end. These are certainly some very interesting swing trades that are starting to set up nicely but it is not time to fade the moves quite yet. The Volatility in the Nikkei and the JGB market must ease before entering a position as the Liquidity in the Market has dried up in the last few weeks and the Moves are overdone and your position could be stopped out very quickly.
Good Luck in the Markets
The Breach of 95 in USDJPY major leaves a test of 90 very likely as the Market has stopped believing in the Japanese bet to beat deflation and to stimulate economic growth. The "Long Japan" trade (Long Nikkei, Short Yen) is being unwound quickly by Hedgefunds and this has put Global Equity and Bond Markets into Turmoil as market participants have started to questioning the effectiveness of Quantitative Easing programs around the Globe. This is a serious Red Flag warning as is the Break Down in the American Dollar, which normally gains during times of Risk off and Uncertainty in the Financial Markets. The Dollar has been breaking down heavy in the Past 2 weeks as talk of Tapering echoes around the Markets on a daily basis. Stock Market correlations have broken down as the Bond Market and the Equity markets sell off together which is a very worrying sight. Bond Yields in the States have risen to 2.25% on the 10 Year. The end of the QE program in the states should effectively strengthen the Dollar as it is reducing The Federal Reserves Balance sheet as there is less Dollars being printed and pumped into the Economy. The reason why the Dollar is in fact weakening is because the Fed is supporting the Bond Yields by buying so many each month and with the inevitable tapering of Bond purchases on the Horizon traders are positioning themselves for bond yields to increase dramatically as the Fed takes off its Economic Stabilizers.
Looking at the Euro currency, 2 weeks ago we talked about the EURUSD technically and how the Market was net short but not going down and with the lack of bad news coming out of the Eurozone and Draghi's more hawkish tone at the last ECB press conference it has caused an epic short squeeze in the pair and could see some further upside to 1.35 near term as there is still shorts to be squeezed out. Saying this however, We still believe there is a lot of Political and Economic uncertainty in the single currency and with the Dollar approaching key support at an oversold level it may not be long before we start heading south again in the pair. If this is just a Dollar correction it has set up a lot of great levels for traders to enter positions at. A short of the EURUSD pair at 1.35 with a stop loss at 1.3750 could be a very attractive swing trade with a target of 1.25 or below, as would a short of Cable at 1.57 as it approaches its 200 Day MA at 1.5710. We also believe that the Japanese Government may come out all guns blazing at their next meeting and adopt an even more aggressive easing program. With the USDJPY pair sitting at the 94 handle as I type it could set up a huge trade with Analysts still calling for 110 to 120 by Year end. These are certainly some very interesting swing trades that are starting to set up nicely but it is not time to fade the moves quite yet. The Volatility in the Nikkei and the JGB market must ease before entering a position as the Liquidity in the Market has dried up in the last few weeks and the Moves are overdone and your position could be stopped out very quickly.
Good Luck in the Markets
Wednesday, 12 June 2013
Dangerous Trading Conditions
Good Morning Traders
Volatility coupled with uncertainty has the markets direction less and dangerous. There are a few catalysts that have appeared over the last couple of days that has resulted in the violent swings we have seen;
Volatility coupled with uncertainty has the markets direction less and dangerous. There are a few catalysts that have appeared over the last couple of days that has resulted in the violent swings we have seen;
- The global bond yields have started to move in a more aggressive fashion to the upside. The level of easing from all of the major central banks have helped to maintain yields at historic low levels, but with tapering being mentioned volatility is back.
- There has been increased speculation that the FED will reduce the existing level of QE ($85bn) over the coming months, and there was market talk that initial tapering could range from between $5-10bn. Although this should be seen as a good sign that the economic conditions are improving the markets will more than likely run scared.
- The situation in Japan has changed dramatically, and no investors and traders a like are beginning to question the success of their aggressive easing policy. Their effort to devalue the JPY to stimulate domestic growth has taken a turn for the worst as we have witnessed exterminate JPY strength with the recent moves from; (USDJPY 103 - USDJPY 96.7). The BOJ left the level of easing on hold yesterday, and the market used this as a sell signal.
It will be interesting to see the next move and I feel that all the pressure on this market is to the downside. As noted in earlier blogs the market has come a long way in a relatively short period of time and the longer it stays at these levels without making higher highs I get worried.
We have seen a relatively positive open across the equity markets this morning and it will be interesting to see if we can stay in the green up until the opening bell in the US. However in such a volatile market it is important to keep stops tight and cash in on big moves when they happen. The global economies have become dependant of external stimulus and that is why we are at the levels we are today, its looks as though policy makers may be contemplating taking the foot off the gas and seeing if this market can hold itself on its own too feet.
Just one other point to note from yesterdays trading session and it is more related to Irish traders and Investors and one of our national banks BOI who suffered a massive 7% decline in the share price yesterday, after a report published that the banks are still under a significant amount of pressure and profitability is still a long way down the road. As I've mentioned previously I do believe BOI to be a buy around the €0.15-0.12 level and I would see this pull-back as a buying opportunity for long term investors.
Happy Trading
@lowkeycapital
Tuesday, 11 June 2013
Tuesday Morning Update
Yesterday was a dismissal day for Volume and volatility as the Market took a day off in wake of the carnage observed last week. With no tier 1 Data seen until later in the week we may see a few days of range trading until we get some additional news to give the Market some direction. S&P changed its outlook on the U.S. Government to Stable from Negative Yesterday which gave the greenback some initial strength before pairing these gains as the Dollar Index dropped lower later in the session. EURUSD hit session highs at 1.3258 from being as low at 1.3180 in early NY trading. USD/JPY was bid early and touched 99.20 before drifting lower to 98.70 as the Greenback slumped. Just as I type we have broken the 98 Handle to the downside in wake of some comments from BOJ Governor Kuroda. The volatility in the Nikkei 225 and the Yen currency looks set to continue as Investors and Market participants are mixed in their opinions on the experiment going on in Japan and if it will prove to be effective or potentially one of this biggest financial disasters of all time.
During today's Asian session we saw the BOJ keep monetary policy unchanged and retained the plan of 60-70trl annual rise in Monetary Base. The BOJ left funding terms unchanged after JGB yield volatility and refrained from extending the duration of fixed rate-supplying operation. It kept up its promise to continue easing until its 2% inflation target is reached and will make policy adjustments as needed. The Nikkei 225 Future did not take to these assessments well and the Yen currency strengthened on the back of this move.
These assessments seemed re-assuring to the market but it did not react as expected and this could lead to further downside in the Japanese stock market as investors and traders obviously wanted to hear of a more aggressive easing plan or evidence that the easing program was having some positive effects on the Japanese Economy.
Good Luck in the Markets
During today's Asian session we saw the BOJ keep monetary policy unchanged and retained the plan of 60-70trl annual rise in Monetary Base. The BOJ left funding terms unchanged after JGB yield volatility and refrained from extending the duration of fixed rate-supplying operation. It kept up its promise to continue easing until its 2% inflation target is reached and will make policy adjustments as needed. The Nikkei 225 Future did not take to these assessments well and the Yen currency strengthened on the back of this move.
These assessments seemed re-assuring to the market but it did not react as expected and this could lead to further downside in the Japanese stock market as investors and traders obviously wanted to hear of a more aggressive easing plan or evidence that the easing program was having some positive effects on the Japanese Economy.
Good Luck in the Markets
Thursday, 6 June 2013
Correct me if I'm wrong.......
It looks like the market is in correction mode and the market sentiment has changed dramatically over the course of the last couple of weeks, and we are heading lower. The recent sell off has not experienced any significant level of buying and traders look to be taking money off the table as we move lower. It is important to note that we came a long way during the first 5 months of this year, and the longer the market the continues to move lower the more money we will expect to see been taken out of the equity market.
The market seems to be following on from what happens overnight in Asia/Japan, and this follow through is beginning to hurt both the US and European equity markets. There are a combination of factors that have triggered this recent move to the down side;
The market seems to be following on from what happens overnight in Asia/Japan, and this follow through is beginning to hurt both the US and European equity markets. There are a combination of factors that have triggered this recent move to the down side;
- The economic climate in Japan has changed, and with the significant swings experienced in the Nikkei over the last couple of weeks there seems to be a consensus that the monetary easing policy adopted by the BOJ may be showing signs of failure.
- There has been recent remarks from the FED that we could see their level of QE reducing coming into the Q3/Q4 of this year. The market has been living off this aggressive policy and investors fear that the market will not be able to cope without this assistance.
- As mentioned previously the market has come a long way in a relatively short period of time and it looks as though the 'Bears' and beginning to enter the market and the 'Bulls' are not supporting this move any longer.
- The market dynamic has changed and traders/ investors need to be able to adapt to this change and alter trading strategies accordingly. The 'Buy the dips' mentality no longer exists and we have seen no support in recent weeks to the move lower, which we have experienced over the last months.
- We have again been shown that the market is too highly dependent on monetary easing and government support. We have been noting the correlation between stock market prices and QE over the last few months, and it looks like we have been spot on. The levels of QE have driven the market higher but the underlying fundamentals remain weak. We now have a global economy with more liquidity and higher stock prices but economic data continues to show weakness.
We expect to see this move continue over the coming weeks and we will wait to see if the equity markets can find some support. We are looking at specific levels (SPX 1500, DOW 14500). Just to note that if we seen this correction continue we could see a significant move into the defensive asset classes such as Gold, Silver, and Bonds.
Happy Trading
@lowkeycapital
Wednesday, 5 June 2013
Trend End?
The first 5 months of 2013 has seen a strong trend in the American Equity Markets that has correlated with the weakening Yen. Uncertainty In Japan about the "all in" gamble on the QE program and talk of Tapering of Asset Purchases in the States has left investors uncertain and quick to take profits on a very good run year to date. Technically we have a solid topping pattern on the S&P 500 and the Down Jones 30, with a high at 1687 on the S&P and 2 shoulders at the 1660 level. We trade at 1630 on the cash as I type and some more weak American data would undoubtedly lead to a test on the 1600 level to the downside.
We have a major Risk event on Friday in the Form of the Non-Farm Payrolls release. Last month saw a huge rally on high volume when they beat Estimates at 165,000. A consensus figure of 170,000 is expected on Friday with an unemployment rate of 7.5%. It is very unclear how the Market may react to a better or worse figure as a strong reading with a reduction in the Unemployment rate may be seen as a negative in terms of future Asset Purchases by the Fed. A worse reading may show that the QE program is diminishing in effectiveness and this may cause a sell off aswell. The best play is to wait for the initial reaction before trading this release or to trade Gold or the Dollar against a foreign currency. The Dollar index will immediately price in the chances of The tapering of Asset Purchases and sometimes the Equity markets take slightly longer to react then the Dollar as the initial knee jerk reaction of Algo's buying or selling of Equities can reverse quickly and the first move may not be the right one.
Looking at the Euro currency, We saw a short squeeze higher in the Major Pair last week with some month end Dollar sales which has popped the Single currency to 1.31 against the greenback over the last few trading sessions. Tomorrow we see the ECB's rate decision and press conference and we await Mario Draghi's speech to see what clues about future policy he gives. Another rate cut is not expected at this meeting but talk of narrowing the Corridor which is the Lending spread minus the Deposit spread seems to be a better overall option as negative rates seem a no go now.
Expect a quiet session today with lower volume as traders square positions ahead of the 2 Big risk events of the month Tomorrow and Friday.
Good luck in the Markets. Lowkey
We have a major Risk event on Friday in the Form of the Non-Farm Payrolls release. Last month saw a huge rally on high volume when they beat Estimates at 165,000. A consensus figure of 170,000 is expected on Friday with an unemployment rate of 7.5%. It is very unclear how the Market may react to a better or worse figure as a strong reading with a reduction in the Unemployment rate may be seen as a negative in terms of future Asset Purchases by the Fed. A worse reading may show that the QE program is diminishing in effectiveness and this may cause a sell off aswell. The best play is to wait for the initial reaction before trading this release or to trade Gold or the Dollar against a foreign currency. The Dollar index will immediately price in the chances of The tapering of Asset Purchases and sometimes the Equity markets take slightly longer to react then the Dollar as the initial knee jerk reaction of Algo's buying or selling of Equities can reverse quickly and the first move may not be the right one.
Looking at the Euro currency, We saw a short squeeze higher in the Major Pair last week with some month end Dollar sales which has popped the Single currency to 1.31 against the greenback over the last few trading sessions. Tomorrow we see the ECB's rate decision and press conference and we await Mario Draghi's speech to see what clues about future policy he gives. Another rate cut is not expected at this meeting but talk of narrowing the Corridor which is the Lending spread minus the Deposit spread seems to be a better overall option as negative rates seem a no go now.
Expect a quiet session today with lower volume as traders square positions ahead of the 2 Big risk events of the month Tomorrow and Friday.
Good luck in the Markets. Lowkey
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