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;

1. 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.
2. 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.
3. 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