Technical Update - Thursday, November 28

KRUGER INSIGHTS THURSDAY, NOVEMBER 28, 2013

Joel Kruger 

Holiday Trade - Happy Thanksgiving to all those celebrating! As per my analysis in the previous piece, markets are expected to trade razor thin for the remainder of the week. However, this does not mean we won't see activity. Still, trading holidays is never recommended and I always favor looking to fade any extreme moves that happen during holiday trade when fuller trade resumes post holiday. Though the Euro managed to put in another bullish close on Wednesday, we did see a good deal of resistance above 1.3600 and ahead of the cited medium-term internal resistance at 1.3650. Moreover, the market still failed to put in a daily close above 1.3580. I still like the idea of looking to fade Euro strength and would recommend against looking to buy at current levels. At the same time, we will need to see a break and close back under 1.3490 to put the pressure back on the downside. Elsewhere, the Pound has been the standout outperformer in recent trade on the back of some very well received UK growth data. The latest break above stops at 1.6260 now opens the door for fresh upside towards 1.6500 over the coming sessions. 

Isolated Activity - Yet, even with the noted strength in the Euro and Pound in recent trade, broadly speaking, the US Dollar is still the favored currency. The commodity bloc and emerging market currencies remain on a downward trajectory against the buck, and currencies like the Canadian Dollar are contemplating a move to fresh yearly lows (USD/CAD yearly high). It is actually not all that surprising to see the Euro and Pound outperforming, with the Eurozone and UK economies having already endured the brunt of the global downturn and starting to move back in the right direction. The ripple effects from the crisis are now a lot closer to the commodity bloc and EMs, and this is why we are seeing these markets still pressured. Looking ahead, I continue to forecast medium and longer-term Yen weakness and project gains in USD/JPY to 110.00 in 2014. At the same time, I would not rule out the possibility for a short-term retreat to some previous resistance turned support at the former triangle top in the 99.00-100.00 area, to allow for a healthy correction.

Commodity Slide - The one catalyst that could potentially inspire this move would be a long overdue capitulation in US equity markets, with the Yen expected to find bids on traditional correlations, at least for a short time. I do not believe the Yen will rally significantly if equities pull back as the traditional flight to Yen correlation in risk off markets no longer applies. The Yen is by no means a safe haven currency, and any strength on these merits will not be sustainable. But again, I still expect the market to respond to this familiar correlation for a short while. Right now, everyone is looking for the liquidation in equity markets, but as of yet, still no signs. Elsewhere, the OIL market is making noise, with the black gold dropping to fresh multi-week lows. There is some solid rising trend-line support off of the 2012 lows which comes in around $92.00, but given the latest breakdown on the daily chart, I would be looking for an overshoot of this trendline support and potential drop to psychological barriers at $90. I then like the idea of looking to buy OIL. Finally, GOLD remains well offered on any rallies, and with the market breaking back below $1250, the door is open for a full retracement to retest the late June multi-month lows at $1180. I also like the idea of buying GOLD further down, but will be waiting to see how the market responds if and once $1180 is retested. That's all for today. Have a good one.

Technical Update - Wednesday, November 27

KRUGER INSIGHTS WEDNESDAY, NOVEMBER 27, 2013

Joel Kruger 

Not All That Bullish - In recent updates I cited EUR/USD 1.3580 as the key level to watch above, and the market has since broken through this level. However, as per my analysis, I also said we would need to see a daily close above 1.3580 to officially force a shift in the short-term structure. We have yet to see a daily close above 1.3580 and it will be interesting to see how the market trades on Wednesday. Still, the truth is, even if we were to close above 1.3580 on Wednesday, there is more medium-term internal resistance from October at 1.3650, which should invite fresh offers. As such, I still can not get behind any Euro bullishness at current levels, and continue to favor a sell on rallies approach. At the moment, we would need to see a break and close back under 1.3515 to confirm this bias and open the door for renewed downside pressure.

Isolated Event - But remember - trade is expected to lighten up significantly for the remainder of the week, with US market participants running for the exit today to get a jump on the Thanksgiving holiday. I never like trading around holiday sessions and would recommend proceeding with caution. In fact, some of the best opportunities present post thin holiday volatility. Another interesting insight with respect to the Euro is how isolated the price action has been and that the single currency has not been having its traditional influence over other major currencies relative to the US Dollar. While the Euro has been running higher, most of the other currencies are still well offered against the Buck. This only helps to reaffirm my general bearishness of the Euro, as I contend the broader price action still favors the US Dollar.

Full Circle - Overall, the underlying theme in markets still centers on the performance in the US equity market. Throughout 2013, the one major constant has been the relentless surge in US equities to fresh record highs. While all other assets have for the most part been confined to ranges (I know the Yen is an exception, but no surprise given correlation), US equities have been the primary beneficiary of continued ultra accommodative Fed policy. Interestingly enough, I don't think the disconnect here is as disparaging as some might think. In the end, this is all a part of the ripple effect from the initial crisis in 2008. Money flowed out of the US Dollar and into Europe and then out of Europe and into the commodity bloc and emerging markets, and then out of the commodity bloc and emerging markets into equities. Equities are the final stop on this train before everything comes full circle again and we finally get back to sensible conditions. Soon money will flow out of equities and the pullback will be substantial as market participants finally look to book profit in anticipation of Fed policy normalization. In 2014, the incentive to be invested in equities will be substantially reduced.

Technical Update - Tuesday, November 26

KRUGER INSIGHTS TUESDAY, NOVEMBER 26, 2013

Joel Kruger 

Front Loaded - Unless you have managed to jump on this latest USD/JPY breakout or be long equities, trading has been rather difficult in recent weeks and months. For the most part, the major currencies have been locked in consolidation, and there really haven't been any clear opportunities. Even USD/JPY was a difficult play before finally breaking out some days back. While I do think all of this will change and the catalyst will come from a reversal in the stock market, I am not sure sure we should get too excited about expecting anything this week. The US markets will be closing up shop early on account of Thursday's Thanksgiving holiday, and US market closures tend to quiet markets. Tuesday and Wednesday's US economic calendars are however stacked and we could get some movement on the back of these results. First up is some housing data today, followed by initial jobless claims on Wednesday (amongst other data). Any signs of improvement in these respective data series, could help increase the probability of a Fed taper as soon as next month. And we all know what influence a taper will have on the stock market and risk assets. 

Tale Of The Tape - Technically, the S&P did put in a bearish reversal close on Monday indicative of a top, and we will have to wait and see if this bearish formation shows and follow through into the Tuesday close. Meanwhile, USD/JPY remains very well bid on dips, but with daily studies overbought, there is the possibility that we see a corrective retreat back below 100.00 before the market considers its next major upside extension through 103.75. Elsewhere, Aussie and Kiwi have regained a bit of a bid tone, but look for these markets to once again be well capped against the buck on rallies into 0.9300 and 0.8350 respectively. The Canadian Dollar should also be very well offered on rallies as USD/CAD prepares for a break beyond 1.0600 to fresh yearly highs. Look for USD/CAD dips to now be supported ahead of 1.0400. Moving on, Cable has once again been very well capped above 1.6200, and the latest topside failure could now open a more immediate retest of recent lows at 1.5850. Finally, last but not least, the Euro isn't sure which way it wants to break at the moment. I would be keeping a close eye on 1.3580 above and 1.3400 below. The 1.3400 level is more significant in my view as I believe the risks in EUR/USD are tilted to the downside. Below 1.3400 would open an eventual 1.3100 retest.

Technical Update - Monday, November 25

KRUGER INSIGHTS MONDAY, NOVEMBER 25, 2013

Joel Kruger 

How Quickly We Forget - It wasn't too long ago you would wake up, look to see what the Australian Dollar was doing, and know immediately how this was translating into risk appetite and equity market performance. But those days are gone now. The Australian Dollar no longer serves as a proxy for risk and the currency has completely broken away from this correlation. As we look at the market on Monday, US equities have catapulted to yet another fresh record high, while at the same time, Aussie is at its lowest levels against the buck since early September. So what happened? Well - simply put - there came a point when the Australian economy finally started show legitimate signs of cooling off, and favorable yield differentials were no longer enough incentive to be wanting to have the Aussie exposure. The result - a massive liquidation in the Australian Dollar that is still playing out today. But I am not so sure there is as much of a disconnect between the Australian Dollar and US equities. In my view, this is all a part of the domino effect from the initial crisis in 2008. First it was the US Dollar, then it was the Euro, now it's commodity bloc and emerging market FX. 

When You Least Expect It - So what next? Next I think we come full circle back to the US and look for the final beneficiary of this free money central bank economics to be exposed. Of course I am talking about US equities and the probability that this furious rally will fizzle out at some point in the very near future. We have yet to see the catalyst for the liquidation in equity markets, but I am quite certain that it is very very close. Big reversals often happen when no one thinks they can happen, and that the market can only continue in the direction it has been heading. With US equities, we have certainly arrived at a point where it looks as though there is nothing to stop these markets from rallying even further. But from experience, this is when you finally get that nasty reversal. So be on the lookout in the sessions ahead. We have a data stacked initial half of the week, with US markets closing up shop for Thanksgiving on Thursday. Things could get very interesting this week. USD/JPY has been the most notable mover on the currency front, and though I remain aggressively bullish, with the market seen through the yearly high at 103.75, it is worth noting that daily studies are very stretched right now, and we could see a sizable short-term pullback before the next upside extension.

Technical Update - Friday, November 22

KRUGER INSIGHTS FRIDAY, NOVEMBER 22, 2013

Joel Kruger 

Neither Here Nor There - Quite the hodgepodge on Thursday with the market all over the place. Where to start. Well - it isn't too often that you see currencies like Aussie and Kiwi grouped together with the Yen. All three of these currencies were standout underperformers on the day. Traditionally, it is more common to see Aussie (Kiwi) and Yen on opposite ends of the spectrum. Yet, on this day, these markets were linked together in some strange corner of the universe. So how did this translate from a risk perspective? Here is where it gets even more perplexing. On the one hand, US equities managed to once again negate the most marginal of dips, only to rally back just shy of the record highs from Monday (stalled at 78.6% of weekly high-low move). Yet at the same time, the EUR/CHF cross rate (which I consider to be a formidable sentiment indicator), did not confirm the equity bullishness, trading lower on the day. But if we are to really break things down, I think we need to assign the Yen weakness less to any risk on trade and more to the high probability that a Fed policy reversal results in a widening of yield differentials out of the Yen's favor. If we can reconcile the price action this way, then almost everything makes sense. The US Dollar is broadly bid with risk correlated currencies more exposed on the anticipated shift in yield dynamics. So Kiwi weak, Aussie weak, EUR/CHF lower, Yen lower.

No Asset Bubble You Say? - This leaves us then with only the equity market price action to contend with. If markets are in fact pricing in a Fed policy reversal as evidenced by the currency reaction, why then are stocks not responding with the same level of trepidation. Equities continue to confound, ignoring the warning signs from the fixed income market, and refuse to show any sign of let up. I know some Fed officials have said that they do not see any asset bubble, but it is hard to think of anything but when you have a market that is singularly tied to its expectations of limitless Fed policy accommodation. So where to from here? I see us now transitioning into a period where US economic data is still not amazing, but at the same time good enough to convince the data dependent Fed it needs to initiate a taper. This should not do anything in the way of stifling the economic recovery ( and should actually encourage it), but at the same time, should also result in a period of medium-term weakness in the stock market (as this reality is finally absorbed). It stands to reason that if stocks were in fact so well supported by the Fed on the way up, they should be rather vulnerable when the Fed finally removes itself from the equation. I know many of you still don't think the Fed will move to taper any time soon, but there is certainly a growing consensus at the central bank that this is exactly what should be done sooner than later. Still, we will need to see an S&P break back below 1775 at this point, to encourage the law of gravity. Have a good weekend!

Technical Update - Thursday, November 21

KRUGER INSIGHTS THURSDAY, NOVEMBER 21, 2013

Joel Kruger 

Awake The Sleeping Giant - So market participants are coming around to the fact that the Fed will start to reduce asset purchases sooner than later, and we are finally seeing signs of movement in places other than equities. A key bearish reversal in EUR/USD has caught the attention of FX traders, with the major currency pair ending a sequence of consecutive daily higher lows, and putting the pressure back on the downside. Inability to establish above 1.3550 offered some early warning signs of Euro exhaustion early Wednesday, while the subsequent break and close back under 1.3475 confirmed. But the price action in FX extends beyond the Euro, with risk correlated currencies broadly hit. Aussie and Kiwi were sold more aggressively, while emerging market FX was even more determined to head for the exit. When analyzing markets, I also always like to look for subtle developments that might help to actually confirm a legitimate shift in sentiment. In this case, it was the price action in the Israeli Shekel of all currencies that really proved to be compelling. The Shekel has been relatively well bid over the past several months, even in periods of widespread USD strength. So when the currency sold off by more than 1% against the US Dollar on Wednesday, it sent an even stronger message of the potential shift in market dynamics.

Still A Stone's Throw Away - Of course, it wouldn't be fair to conduct today's analysis without also discussing the collapse in GOLD. Presumably, the yellow metal has come under pressure on Fed reversal prospects, and the break below critical support at $1250 now opens the door for a retest of the multi-month base from late June at $1180. Still, it is the US equity market that remains at the center of everything, as this is the market that managed to keep on trucking when all else was quiet. Over the past few days we have seen some legitimate signs of short-term topping, but have yet to really undergo the more intensified liquidation that I am looking for. Despite the 3 consecutive down days in the S&P (first real sequence of this kind in 2 months), the market remains just a stone's throw away from Monday's record high, and the decline in equities on Wednesday pales in comparison to the sell-off in other risk correlated assets. So we are still seeing some hesitation from this overinflated asset that has flown far too high on the borrowed wings of the Fed. At this point, we would need to see a break back below 1740 to truly generate some buzz - but I do think we are headed in that direction. So what to look out for? I would say that this could lead to more broad US Dollar demand on narrowing yield differentials, vulnerability on the commodity bloc and EM FX, more weakness in gold, possible demand for Yen, and downside pressure on EUR/CHF. Stay tuned.

Technical Update - Wednesday, November 20

KRUGER INSIGHTS WEDNESDAY, NOVEMBER 20, 2013

Joel Kruger 

Will Take What We Can Get - So not exactly the follow through I was looking for in US equity markets after a convincing bearish reversal day from record highs on Monday. Still, I suppose the fact that we didn't negate the pattern and actually managed to at least closer lower in the S&P, was a small victory for my bearish outlook. Interestingly enough, when looking at the bullish S&P channel since November 2012, it actually seems as though the market should really stall out here, and at a minimum, start to roll back over towards the 1700 area, where the next medium-term higher low is sought out ( I contend that we will fail to make that next higher low, with the market actually turning quite bearish as 1700 is easily breached). I will now be looking for a more intensified liquidation in stocks over the coming sessions, and I wouldn't be surprised in any way if the catalyst for such action was the pricing out of some ultra dovishness that had been discounted post Yellen testimony. Technically, the S&P will need to take out initial stops below 1750 to get things going, but a break of this level might not be as far off as many of you think. 

Still Worth A Few Bucks - As far as currency markets are concerned, not much to report except for a whole lot of yawning. We really haven't seen any excitement in recent months, with the latest USD/JPY break back over 100.00 probably topping the list of head turners. While the Euro has been very well bid over the past several sessions, I wouldn't get too excited about this market breaking out unless we can establish back over 1.3550. I would say that a daily close above the level would be required to shift the short-term structure, and even then, on a medium-term basis, I still favor selling rallies. If we do in fact get that pickup in equity selling in the sessions ahead, I would also be careful with any broader short USD exposure. Downside pressure in stocks could translate into a flight to safety -flight to buck mentality, and the US Dollar could emerge as a clear outperformer. Let us also not forget that if equity markets come under pressure on Fed reversal expectations, this would fuel positive US Dollar flows on yield differentials. Finally, it is worth mentioning that some risk correlated currencies have been showing renewed sell interest of late. If we look at markets like the Peso, Rand, it helps to confirm suspicions of a potential escalation in uncertainty.

KRUGER INSIGHTS TUESDAY, NOVEMBER 19, 2013

Joel Kruger 

Francly Speaking - While many had initially discounted Yen strength on Monday as being driven off broader USD weakness, it seemed to me the price action was disconnected from the Dollar move and possibly more a warning sign of a potential reversal in risk assets. Sure enough, this all came to fruition into the close, with the Yen remaining well bid, while the rest of the currency market came back under pressure against the buck. So what was it that had me thinking differently? Well - it wasn't exclusively the price action in USD/JPY. It was a combination of some renewed Yen demand in conjunction with a pressured EUR/CHF market. Although the Franc has taken a bit of a back seat in recent months, on account of the lack of volatility and well publicized SNB intervention, we must not forget the direction in this cross rate can still be used as a formidable risk barometer, particularly when being confirmed by the Yen. Though I do not subscribe to any theory that advocates sustained Yen demand from here, there is a very real possibility the currency manages to find decent short-term interest on traditional correlations. For now, I would consider the possibility of a USD/JPY pullback into the 97.00's and EUR/CHF decline below key support at 1.2215.

Classic Textbook - Moving on, perhaps the most significant development on Monday, was the bearish reversal in US equities. At this point it would be extremely premature to call for a top, but at the same time, the bearish outside day formation in the daily S&P chart, after the market posted a fresh record high around a major psychological barrier, should at least by textbook standards, open the door for additional weakness over the coming days. Fundamentally, it seems Carl Icahn is getting credit for the reversal, after warning the stock market could easily have a "big drop." But the reality is that a very healthy corrective adjustment in equity markets is long overdue. The jury is still out on whether this actualizes just yet, but I am really not sure how the market can retain such a bid tone with every ounce of dovishness seemingly already priced in. We are then left with a slowly recovering economy, elevated unemployment and less than impressive corporate earnings, variables that would normally have a weighing influence on risk assets. For now, let's just wait and see how it all plays out Tuesday. It has been very difficult to get any sort of pullback in equity markets, though admittedly this move does have a certain feel to it.

Technical Update - Tuesday, November 19

Technical Update - Monday, November 18

KRUGER INSIGHTS MONDAY, NOVEMBER 18, 2013

Joel Kruger 

The Gravy Train - Everyone is wondering when this equity gravy train will show any form of stalling out, with the market continuing to find bids to fresh record highs. The fundamentals have already been rendered meaningless for some time and the only thing that matters is monetary policy expectations. And just when you think every ounce of dovishness has been priced in, amazingly, more of it seems to surface. So when will it end? When or if will we ever see a market that loses its hypersensitivity to sneezes from central bankers? Or when will we see a market that has finally priced in all the dovishness there is to be priced in? I thought we had reached that point a few months back, and yet clearly we have not. But the more this relentless bid tone persists, the more I worry about the severe risk of a more intensified liquidation in asset prices. Back in 2008, central bankers were forced to take historic measures in response to a bubble that had burst, only to create another bubble today in the form of this unwavering escalation in equity prices.

Profits Anyone? - The bottom line is that the global economy is still far from out of the woods, and central bankers have continued with these emergency monetary policy measures because they believe things are still not good. So to sit comfortably with a risk correlated asset at record highs in the face of this fact should be more than unsettling. At this point, I believe market participants should think long and hard about additional upside prospects from free money central bank incentives, and should probably say thank you and look to realize these profits. Whether this will ever happen remains to be seen. On the currency front, there really isn't anything too exciting going on. Most currencies are locked within a consolidation, and the only real mover of note is the Yen. USD/JPY has broken out of multi-week triangle, and the move should open the door for an eventual retest and break of the 2013 high at 103.75. Still, I would be careful buying at current levels, and favor buying the major pair into the next dip that results in some oversold intraday studies. Given what I believe could be a pullback in risk assets in the sessions ahead, I would be concerned that this pullback could open renewed short-term demand for Yen on traditional correlations. Overall, I still favor buying the buck across the board on any dips.

Technical Update - Friday, November 15

KRUGER INSIGHTS FRIDAY, NOVEMBER 15, 2013

Joel Kruger 

The Amazing Yen - Another week coming to a close and the story is pretty much the same. While we have seen a bit of movement, for the most part, markets remain locked within a consolidation, while equities continue to press to fresh highs. The Yen is probably the most interesting major currency right now, with USD/JPY breaking back above the 100.00 barrier for the first time in several weeks, looking like it wants to really confirm its bullish break of a medium-term triangle pattern. Ultimately, this pair should track higher in the weeks and months ahead, and I am projecting a move to 110.00 in the first quarter of 2014. Still, in the short-term, I am not comfortable recommending a long at current levels, and would prefer to wait for another dip to look to buy into. My concern is that a sudden shift in the equity market could have an influence on the Yen (on traditional correlations), and we could see one more sharp USD/JPY drop of a few hundred points before the market looks to formally reassert and embark on its next major upside extension journey.

Curtain Call - Overall, from here, I suspect things should get interesting. We are now entering what I would say is the final 4 weeks of the year (the last two weeks of December never really count). Given things have been rather tame, I would be on the lookout for a major pickup in vol. But for anything to change, we need to see some form of a healthy pullback in the equity market. The one way price action is just not healthy and the market being so heavily tied to monetary policy is even more dangerous. As I said some weeks back, selling rallies has proven to be an exercise in futility, and the best way to go is to take your shots on downside breaks. The key short-term level to watch below is S&P 1775, and selling this break could be the next worthwhile trade. Over the coming days I will start to think about the opportunities I see in 2014 and look forward to sharing these thoughts. Have a great weekend!

Technical Update - Thursday, November 14

KRUGER INSIGHTS THURSDAY, NOVEMBER 14, 2013

Joel Kruger 

Flamethrower - So Yellen says the Fed still has more work to do and Bernanke follows up with the central bank has been falling short on its dual mandate. And what is the net result? Stocks race to another fresh record high on Yellen and stay supported on Bernanke. I don't think there is any disputing just how ridiculous the price action in the stock market has been. But perhaps more outrageous than the irrational exuberance fueling the relentless demand, has been the fear-like behaviour whenever the market starts to show any sign of intraday weakness. It almost feels like the market is racing higher in fear of what will happen if it ever again actually needs to recognize the forces of gravity. In my mind, I have an image of a guy shooting a flamethrower straight up in the air at a bunch of people hanging for dear life on the side of a building, forced to keep climbing higher to avoid getting burnt.

Very Thin Ice - My contention is the same as it has been for the past several months. How do we have a central bank that is still keeping monetary policy at emergency levels because things are bad, and at the same time, an equity market that is posting fresh record highs? Yes. It is true this policy has incentivized the rally in stocks. But just like those people on the side of the building, stocks are moving higher because they have to and not because they want to. There is something so unsettling about all of this and yet as a forecaster and trader, it has been very difficult to express this view with any success. The Fed needs to be very careful now. I believe they are treading on very thin ice, and putting a lot at risk by continuing to encourage this stock market parabolicism. If stocks continue in this melt-up fashion, the risk of another bubble bursting (if it isn't there already) becomes a virtual certainty. And when this bubble bursts, there will be no more tools left in the bag to clean up the mess.

Technical Update - Wednesday, November 13

KRUGER INSIGHTS WEDNESDAY, NOVEMBER 13, 2013

Joel Kruger 

Analog Comfort - Currencies mostly consolidating declines against the buck into Wednesday, while US equities starting to show signs of potential topping yet again. Right now, we can't get overly excited with the very minor pullback in stocks, but a break below S&P 1740 should get the ball rolling. I have been waiting for the start of a major corrective pullback in equity markets and believe this move is just around the corner. Still, taking up residence in Camp Bearish has not been fun in recent months, and for the time being, it is a very lonely place to be. But there are some out there that share the same views and it is at least nice to know that I am not entirely alone. Zerohedge put out a great little piece on Tuesday, highlighting the power of analog analysis, and I would recommend that all of you take a look. Even if you don't agree, you would have to admit it is a compelling little read.

Subtle Breaks - Moving on, though we have seen no major moves in FX of late, there have been some notable developments which could be warning of a pickup in the buck's favor in the days ahead. While last week's EUR/USD break below 1.3460 got things going, more recently, Cable has taken out key support at 1.5895, now opening deeper setbacks into the 1.5500 area, while, AUD/USD and NZD/USD have managed to break down below some key multi-week lows, to expose a retest of the respective yearly lows. Another major pair in focus (also warning of USD strength ahead) is USD/JPY. However, things might be a little trickier in the short-term with this one. Technically, I still see USD/JPY locked within a multi-month triangle that has yet to be broken. My analysis shows triangle resistance at 100.00, and really only a break and weekly close above this level would officially open the door for a bullish breakout. Until then, proceed with caution and stand aside.

Technical Update - Tuesday, November 12