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 

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

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;

1. 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.
2. 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.
3. 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.
4. 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.
5. 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

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

Things are heating up...

Good Morning Traders
Its a lovely sunny day here in Dublin this morning, and the weather is beginning to heat up coming into June just like the markets. Yesterday we saw another down day for most of the global equity markets lead by the overnight decline in the Nikkei 225, this selling pressure continued throughout the European session and into the US session. We did see a slight rally after the European close however we are back trading in the red again this morning.

It looks like the market has run out of steam, it has come a long way in a very short period of time off the back of poor fundamentals. Let's not forget this market has been driven by central bank intervention and promises, not strong core fundamentals. The market is unsure what direction it wants to go, and it will inevitably come down to Bernanke and when he might taper his current easing policy.  Its a funny predicament because surely a reduction in the level of QE would signal that the economy is improving and making a step in the right direction, however as soon as those words come out of his mouth expect to see traders, investors, mutual funds, pension funds and other large institutions close equity positions.

However that is all down the line and in more relevant terms, the market looks tired to me, I think we will find it hard to make new highs unless we have some really good data today or the US jobless claims are  really poor tomorrow. If the jobs number comes in worse than expected it will be seen that QE will be around for longer than a better than expected number so bear that in mind.

In terms of today I expect to see markets quiet as everyone will be keeping an eye out for tomorrows number, I will be adopting the 'Sell any rally' approach as I don't believe that this market can go higher without a new catalyst, and the longer that the market remains up here without making new highs it signals to me that this could be a market top.

Happy Trading
@lowkeycapital

Morning Update

Good Morning,
                        A strong rally Yesterday in Japanese Stocks gave European Stocks a strong day closing near Year to date highs but once Europe closed the American bourses started to go south and have continued lower overnight, now nearly 200 points off the highs of yesterday. It's dangerous to call a top but we now have a technical double top in place on the American Equity Markets and with some fundamental uncertainty around the markets at the moment it looks a perfect time to take some profit for the first 5 months of the year and re-assess.

Price action still trades above a rising 4 hour trendline dating back to the middle of April and firmly above its 200 Period Moving Average.  Buyers will still be found at these levels but a loss of the 200 Day MA and a Close of the candle below here could signal further declines and might see a lot of Bulls re-thinking their long positions.

EURUSD price action looks sluggish after re-testing and failing at its 50% retracement of its decline from 1.37 to 1.275. Looking at the Euro from a fundamental perspective we may see more easing in the coming months as the ECB are the only Central Bank with more available ammunition to weaken their currency in the hope of providing additional stimulus and growth potential. With the U.S. economy improving and hints of an exit from their Quantitative Easing program it may cause a broad Dollar rally against all Pairs which would cause a significant decline in this pair towards the 1.20 mark or lower.
However the Euro has proved to one of the most resilient currencies throughout the past few years and any adversity has always seen it rally back and with the Market being heavily short any form of good news or U.S. negative Data may cause an epic short squeeze in this pair where traders exciting short positions and speculators going long causes the price action to be squeezed higher. For an uptrend to be confirmed a break of the downward sloping trendline from February must be breached. On the other hand a break of 1.2750 would almost definitely open up a test of 1.20 in the coming months.

DOW JONES 30 4 hour chart

The U.S. Equity Markets reversed sharply last Wednesday from some Hawkish FOMC Minutes. The mention of tapering (cutting back on Quantitative Easing) caused a big sell off from all time Intra-Day highs.
However the Dip has been bought and we are now looking to challenge or take out these highs again.
Looking at this 4 Hour chart, you can clearly see a rising 4 touch trendline from the previous dip during late April. All and all the price action looks very bullish even though their is a lot of chatter about a potential correction coming during the summer. We firmly believe a buy and dips strategy still is the best play until their is some significant fundamental news to cause investors to sell into this market. Also a breach of this trendline  at around 15300 Spot would unvalidate the uptrend and look like a potential topping pattern.

Near term support can be found at the different Fibonacci retracement levels on the way down.