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Tuesday, December 31, 2013
KRUGER INSIGHTS TUESDAY, DECEMBER 31, 2013
By: Joel Kruger
The Enemy - Over the past several years the retail foreign exchange market has gained a reputation as a market for gamblers looking for the fastest possible way to lose all their money. This is a terrible misfortune as it really has nothing to do with the actual market and more to do with the leverage this market affords. Leverage aside, the reality is there is no better market to trade than FX. After all, what is it that we look for when trading? We want volatility and we want liquidity, and FX gives us both. It is by far the biggest market in the world, and it is constantly on the move. It is open 24 hours a day, and it exposes the trader to happenings across the globe. No matter where you are in the world, you are able to trade (if you so choose) in the regular business hours of your country. You can also be anywhere or meet anyone, and already feel connected in some way, with a knowledge of the economic and political drivers of the person's country. So for any of you out there that had a tough year, don't be discouraged. If you love it, stick with it. I would venture to say you aren't even being fair to yourself. The truth is, if you got hit hard, it means you probably didn't even give yourself the chance to succeed. You can't expect to put everything you have down on one position and let that determine your entire fate. You can't leverage yourself to the max, blow-up, and then say you couldn't hack it in the FX market and FX isn't for you. It's the LEVERAGE that isn't for you.
The Challenge - Give yourself an honest chance. Stop the constant blowing up and remind yourself that this is the most scalable market in the world. If you can trade successfully with a $1000 account in FX, you will be able to do the same with a $100M account. Give yourself one good year where you aren't focused on the money and instead committed to the percentages. Tell yourself that you are in training this year and are not going to make any real money with the trading (the irony being that this will be the first real money you actually make and lose). Commit to taking unleveraged positions where you can feel confident and more certain with the outcome, without having to stress about the downside. Commit to not allowing one trade to determine your fate. If you can do this and look back in 12 months having been up 10-20%, or even up or down marginally, you should pat yourself on the back and feel confident that the next twelve months will be even better. Don't underestimate the power of compounding or the value in being able to stick around. If you can hang in with small victories, before you know it, these small victories will grow larger than you could have ever imagined. But you have to give yourself a fair shot.
A Real Chance - So this is my challenge to you this year. Forget about the dollars and cents for the next twelve months and just focus on enjoying the markets and taking positions that will let you think clearly. Specifically, come to the market each day looking for trades you love, and take position sizes that will let you sleep soundly at a night. Don't take any trades that you don't love. Every day there are bad trades you will be able to convince yourself you like. But it is much harder to convince yourself you love something if it really aint right. And even then, when you find something you love, don't bet the farm. Just take a position size that won't consume you and that you know will let you focus on enjoying your life outside of trading. Err on the unleveraged side. All of this will significantly increase your chances of being here in twelve months. You owe it to yourself to be able to look back at a year of trading and to be able to analyze a legitimate performance period. Like anything in life, if you stick with it, the results usually present. But you just need to give yourself the chance to stick with it. The leverage allowance in FX does a very good job of taking this chance away. So this year, don't let that happen. Be disciplined. Be responsible. Trade unleveraged, focus on the percentages, enjoy the process, and look forward to knowing that if you do this, you are basically guaranteeing you will be here in twelve months. You will have learned a great deal about yourself and the market over that time and you will have given yourself the best lesson you could have ever hoped to have learned from any book or online course. Do you accept my challenge? If so, here's to 2014, a year of awakening and great new beginnings! See you in twelve. Happy New Year!
Sunday, December 29, 2013
KRUGER INSIGHTS MONDAY, DECEMBER 30, 2013
By: Joel Kruger
Carpe Diem - Hope everyone enjoying the holidays. There really isn't all that much to talk about on the fundamental front at the moment, though the price action has really picked up. This, not entirely unexpected in the very thin conditions, with remaining market participants hanging around to see how far they can push things on as little as possible. I wasn't planning on taking any positions in these final days of the year, but when opportunities present that can't be ignored, we should do our best to take advantage. On Friday, EUR/USD had been very well bid in European trade, before exploding to fresh yearly highs beyond 1.3835 (stop hunt extraordinaire) ahead of the North American open. I was off the desk with the family and got an alert on my phone to check what was going on. When I looked at the screen, I initially stared in disbelief, with the hourly EUR/USD RSI tracking just under 95!! This in conjunction with the razor thin conditions, and the market finally testing some longer-term falling trend-line resistance off of the record high from 2008, had me very excited about the rare opportunity to sell into the hyperparabolic move.
Yen Can't Catch A Bid - I sold at 1.3862, and the rest was history. The ensuing price action saw the Euro reverse sharply with the trade well in the money at Friday's close. In an effort to mitigate risk, I took profit on half the position rather quickly, and moved my stop-loss to break-even. I am still holding the remaining half and will look to see how things play out on Monday. Elsewhere, the Yen has extended declines to a 5-year low against the buck, with USD/JPY looking to establish above 105.00. Still at this point, short-term studies are overbought, and I can not advocate buying at current levels, despite how bullish the outlook may be. Overall, there is room over the coming weeks for a push beyond 110.00, but I would not rule out the possibility for a decent pullback before the market looks to reassert. Moving on, GOLD has been consolidating around $1200 after recently stalling ahead of the multi-month lows from June at $1180. I suspect the consolidation to be bearish in nature and will be looking for a fresh multi-month low over the coming sessions below $1180. I still think there is room for further declines into the $1000 area before this market finally finds some decent demand. Finally, US equities show no sign of relenting, with the market once again breaking to fresh record highs. I am short the S&P at an average price of 1836 (fourth attempt in 6 months after taking losses on first two attempts and recently breaking even on the third), and will be looking for a pullback in the days ahead.
Friday, December 20, 2013
KRUGER INSIGHTS FRIDAY, DECEMBER 20, 2013
Joel Kruger
Enter Holiday Trade - Everything changes from now through the next 4 weeks. Markets may move a lot or may do very little, but from today, desks will start to lighten up significantly, with all of the big players taking leave for the Christmas-New Year's holiday. Overall, nothing too surprising in the currency price action this week, with the US Dollar still showing good demand across the board. Even the Euro managed to fall in line, and has since come back under pressure after a period of isolated outperformance. The big disappointment for me has been the lack of follow through from a very pretty bearish weekly set up in US equities last week. Last Friday's close set the stage for the start to a healthy correction in the market, and yet, bulls remained in full control, to easily negate this formation, even in the face of a mid-week Fed taper. Clearly market participants have been encouraged by the Fed's commitment to accommodation, even after the taper, and this has helped to fuel these latest gains. Yet I still contend that additional upside moves will be hard to come by and the equity market should soon start to feel a little more pressure as the realities of contending with a still recovering economy, in a world without the same Fed support, start to kick in.
Gold Back To $1000? - Elsewhere, on the commodity front, GOLD has been a headliner, with the yellow metal breaking down to finally approach the critical multi-month lows at $1180 from late June. Things could get really interesting over the coming weeks, with a clear break below $1180 potentially opening the door for a fresh downside extension back to major psychological support at $1000. I like the idea of looking to buy GOLD into a dip like this, but will be waiting for the right opportunity. Back over to currencies, EUR/CHF has been a market I have been talking a lot about in recent weeks, and it has finally been getting a little more attention after breaking down below 1.2200 this week. Although the price has since recovered back above the figure, I still feel there are legitimate downside risks here, and believe the implications of a test on 1.2000 would be huge on a macro level. A 1.2000 breach would not only call into question the credibility of the SNB, but would also expose other central banks active in intervention, like the Fed and BOJ. Tactically, I remain short risk, and have been exercising this view in the currency markets through the New Zealand Dollar. I hold a short NZD/USD position from 0.8350, and recently established a long AUD/NZD position at 1.0897. I really like both of these trades and will be looking to hold both well into the first quarter of 2014.
New Frontier - As highlighted on Thursday, I stand ready to take another shot at a short S&P position on a break back below 1800. I have traded this market unsuccessfully this year after twice getting stopped for a loss, and the third time this week taken out at break-even, but am prepared to continue to take my shots as I whole heartedly believe this market is poised for a very nice pullback in the weeks ahead. I have also discovered Bitcoin this year and have become increasingly fascinated with the crypto-currency market. While I had some luck with a short recommendation in late November, I certainly am not advocating active speculation. Yet from an academic perspective, the idea is compelling and I will be looking to cover this market more actively in the year ahead. There are a lot of moving parts here, and I am trying to get caught up as quickly as I can. If for nothing else, there are some really bright young minds working in this space and it makes for an exciting time. I'd like to take the time now to wish a very happy and healthy holiday to any of you running off to the slopes or to a warm beach somewhere (I know some of you have plans to do both and I am very jealous). In the end, all that matters is family. This is our biggest and best investment by far. Unlike markets, this investment is guaranteed to produce generous returns if we put in the effort. Let's make sure to remember this now, and take full advantage. Have a good one.
Thursday, December 19, 2013
KRUGER INSIGHTS THURSDAY, DECEMBER 19, 2013
Joel Kruger
When The Third Strike Is A Foul Ball - In the great American sport of baseball it's three strikes and you're out. I suppose yesterday was my third strike with the S&P. Though I will argue that it was a foul tip (strike that still keeps you in the game) given I took no loss on the position (sold 1805 with stop 1805). Still, for the time being, I have been sidelined. Looking back at the Fed decision, it sure was something to see. To think we would get a taper and at the same time, a Fed sounding as dovish as ever, was quite perplexing. The Fed teased hawks with the reining in of asset purchases, and at the same time, buried these hawks with more dovishness than they could handle. Bernanke made it very clear in his statement the Fed was still doing a lot and would continue to do so, and then drove it home with some new forward guidance that rates would not go up until well after the unemployment rate dropped below the 6.5% threshold. That's some kind of a threshold! I suppose two words that were used with a very liberal use on Wednesday were "threshold" and "qualitative." Bernanke described the Fed's approach to policy reversal as qualitative in nature. Now I get that "well after unemployment drops below 6.5%" is certainly not a quantitative metric. But assigning it as qualitative feels more like an assignment by default than anything else. I would classify the approach as vague, abstract and reflective of a central bank that will hold out on a tightening (taper is not tightening...wink wink) at all costs, to avoid the risk of making a bad call. So not too sure how helpful the forward guidance is, and in fairness, not too sure how helpful it could be anyway with so many things that could happen between now and 6.5% unemployment.
Goldilocks - Another thing that struck me yesterday was the Fed Chair's response to a question from Binyamin Appelbaum at the New York Times. Applebaum asked if the Fed was concerned it made the wrong decision in starting to taper too early and effectively do less to help stimulate the economy, as historically, this type of a move had burned the central bank in the past. Bernanke answered that he didn't feel the Fed was doing less. Now I know we are splitting hairs here, but what is the point of a taper if not to signal to markets that the Fed is doing less. It might be on the most marginal of levels, but isn't a taper by definition doing less? So anywhere you looked on Wednesday, it was clear the Fed had no intention of letting the markets think a taper was a tightening in an form or fashion. And so, the S&P rallied a spectacular 40 points off the daily low to trade back just shy of the recently established record highs. The equity market bathed in the dovishness and was relentless into the close. Yet I am still not convinced and am not sure I would be buying into the Goldilocks reaction. In my view, call it whatever you want and mask it however you want, but a taper is still a taper. Yesterday's decision to taper still officially marked the beginnings of a very long path towards tightening, and I do not believe the Fed will revert back to a looser monetary policy than before yesterday, as much as they would have us think they still might.
Too Many Layers - The fact is, economic data has been showing healthy signs of recovery, and if the Fed weren't so shellshocked by the crisis of 2008, they would have been quicker to respond to the recovery in the economy. Instead, the Fed has added several layers of caution into its guidance, and we see this with things like "threshold," "well beyond," "qualitative," and "not doing less." My point here is really not to be critical of the Fed and more so to be critical of the ongoing bid in equity markets. If the stock market is truly forward looking, it stands to reason that it should now be pricing in the end to historic, ultra accommodative monetary policy. And with this pricing in should be some form of a significant corrective decline as the Fed's artificial support is slowly priced out. I believe this is what we will see in the weeks ahead, and would not be expecting much in the way of additional gains beyond the recently established record highs. In light of the above and circling back to where I started today's analysis, I am still standing at the plate and will take another swing on the short side, should the market stall out once again above 1810 and roll back over below 1800. Even if you subscribe to the view that tapering is not tightening, it sure as heck ain't accommodating, and even if you wan't to take Bernanke's word that the Fed isn't doing less, it sure as heck don't mean the Fed is doing more. So while the Fed shift might be analogous to watching an erosion, at the end of the day, the wheels are still in motion.
Goldilocks - Another thing that struck me yesterday was the Fed Chair's response to a question from Binyamin Appelbaum at the New York Times. Applebaum asked if the Fed was concerned it made the wrong decision in starting to taper too early and effectively do less to help stimulate the economy, as historically, this type of a move had burned the central bank in the past. Bernanke answered that he didn't feel the Fed was doing less. Now I know we are splitting hairs here, but what is the point of a taper if not to signal to markets that the Fed is doing less. It might be on the most marginal of levels, but isn't a taper by definition doing less? So anywhere you looked on Wednesday, it was clear the Fed had no intention of letting the markets think a taper was a tightening in an form or fashion. And so, the S&P rallied a spectacular 40 points off the daily low to trade back just shy of the recently established record highs. The equity market bathed in the dovishness and was relentless into the close. Yet I am still not convinced and am not sure I would be buying into the Goldilocks reaction. In my view, call it whatever you want and mask it however you want, but a taper is still a taper. Yesterday's decision to taper still officially marked the beginnings of a very long path towards tightening, and I do not believe the Fed will revert back to a looser monetary policy than before yesterday, as much as they would have us think they still might.
Too Many Layers - The fact is, economic data has been showing healthy signs of recovery, and if the Fed weren't so shellshocked by the crisis of 2008, they would have been quicker to respond to the recovery in the economy. Instead, the Fed has added several layers of caution into its guidance, and we see this with things like "threshold," "well beyond," "qualitative," and "not doing less." My point here is really not to be critical of the Fed and more so to be critical of the ongoing bid in equity markets. If the stock market is truly forward looking, it stands to reason that it should now be pricing in the end to historic, ultra accommodative monetary policy. And with this pricing in should be some form of a significant corrective decline as the Fed's artificial support is slowly priced out. I believe this is what we will see in the weeks ahead, and would not be expecting much in the way of additional gains beyond the recently established record highs. In light of the above and circling back to where I started today's analysis, I am still standing at the plate and will take another swing on the short side, should the market stall out once again above 1810 and roll back over below 1800. Even if you subscribe to the view that tapering is not tightening, it sure as heck ain't accommodating, and even if you wan't to take Bernanke's word that the Fed isn't doing less, it sure as heck don't mean the Fed is doing more. So while the Fed shift might be analogous to watching an erosion, at the end of the day, the wheels are still in motion.
Wednesday, December 18, 2013
KRUGER INSIGHTS WEDNESDAY, DECEMBER 18, 2013
Joel Kruger
The Big Decision - As I scan the currency markets on Fed day, there are no compelling opportunities in the major currencies that are screaming out to me. Whatever the outcome today, I am positioned over the medium-term short risk assets, and have built up decent exposure short NZD/USD and short the S&P. I am in the camp that believes risk assets, particularly US equities, have been supported by Fed policy, and now that this policy is fully extended, these assets will enter a period of underperformance. With this in mind, I think the risks associated with the Fed staying on the dovish side today are far greater than the risks associated with a move towards reversal. If the Fed does nothing today (no taper, or no strong language suggesting imminent taper), I wouldn't be so sure this will translate into a massive equity rally. Again, if the Fed has nothing left to do but stand still, we could start to see equity markets pull back on profit taking, with no fresh incentive to buy. Furthermore, failure to act ultimately sends a disturbing message to market participants, that despite all of the positive data in recent weeks that would support a move towards reversal, the Fed still is afraid to act. So in this scenario where the Fed does nothing and stays on the dovish side, what happens when equity markets fail to respond favorably and actually start to reverse sharply on profit taking. This could create a panic environment with the Fed standing by helplessly, unable to do anything to buoy the setbacks.
Continuity And Cohesion - But if the Fed moves towards a taper, and comes out less dovish than market participants are expecting, at least in this scenario, when risk assets come under pressure, investors will be comforted by the fact that the policy decision and reversal in equity markets are because of positive developments in the economy. This is the better scenario in my view and one the Fed should embrace. I am actually quite surprised analysts are only pricing in a 33% chance of taper today in light of the above, and am concerned that the Fed will cater to analyst expectation and not want to shake things up because of this. Another pro taper argument in my view is that the initiation of the official reversal while Bernanke is still on the watch, will translate into a smoother transition for Yellen, with the move giving market participants a nice sense of continuity and cohesion at the Fed. The two key members at the Fed that were there from the start of this unprecedented monetary easing policy, will be there together to to bid this policy farewell. However, if Yellen is the one to initiate the reversal without Bernanke (the longer she takes the more dangerous), it could open the door of uncertainty, with market participants questioning and comparing the two policymakers. I don't think this is what the Fed will want, especially considering the actual impact of a Fed taper on the economy would be less than marginal at best. Better to get the show on the road now.
Slow Starter - Moving on, I recently established a fresh long position in AUD/NZD at 1.0897 that is underwater. Still, I was fully prepared for the possibility of additional weakness before the bounce and am looking to hold this position into 2014. I will only grow concerned if the market puts in a weekly close below 1.0700. Technically, the price action is unreal, with the market showing oversold across the board. Daily, weekly, and monthly studies are deeply stretched and warn of the need for a major correction. It isn't too often that you get this type of confluence, and when you do see it, as a contrarian, it is a dream. Fundamentally, I believe there is just too much good that has been priced into New Zealand of late, and the relative outperformance in the currency is a severe liability for the local economy. If risk assets come under intensified pressure over the coming days and weeks as I believe they will, look for significant Kiwi outflows, as market participants flee from the higher yielding commodity currency. But let's get something straight right now. While I absolutely love this trade, it does not mean that my whole life is on the line with the position. If it doesn't work out then so be it. I will dust off and move on. But I gotta say..it is a very pretty setup.
Short Of A Lifetime - Last but not least - Bitcoin. I would never have guessed I would be recommending positions in Bitcoin at the beginning of the year, but on November 29th, as per below, I couldn't ignore the hyperparabolic price action. Today I recommended fully exiting the trade at $580 as per analysis earlier this week that targeted at retest of the previous December base at $576. This is definitely a trade I will not forget. I am most intrigued with this virtual currency and am not sure what the future holds for the market. For now, it has caught my attention, and I will make sure to keep an eye. I still think there is a risk for deeper setbacks towards $200, but at the moment, I am sidelined.
Best trade out there might be the riskiest but highly compelling. Sell #Bitcoin $1175 for open objective; stop on daily close above $1375.
— Joel Kruger (@JoelKruger) November 29, 2013
Tuesday, December 17, 2013
KRUGER INSIGHTS TUESDAY, DECEMBER 17, 2013
Joel Kruger
Now Or Never - I'm not too sure how much volatility we will get in the markets on Tuesday, with participants squarely focused on the outcome of Wednesday's Fed policy decision. Irrespective of the outcome, I believe this will be a huge decision that will have a major impact on markets going forward. Recent economic data has certainly been supportive of a shift in policy, and would seem to justify some form of a taper at a minimum. More importantly, strategically, I think a taper or some very strong language tomorrow warning of an imminent taper, would be in the Fed's best interest. I am in the camp that believes risk assets have been supported over the past several years by Fed policy. My worry now is that risk assets have finally taken full advantage of a Fed policy that can't extend any further. If the Fed continues to show an unwillingness to reverse policy even the slightest, we could see a scenario where risk assets start to come off heavily (investors book profit as they no longer see additional incentive from the Fed), with the Fed having nothing it can throw at the situation to buoy the risk liquidation. This in turn would create a credibility crisis and another economic crisis. If however the Fed starts to move on a path towards tightening, at least markets will be able to reconcile any pullback in risk assets, understanding that it is because of the Fed moves. This seems to be the better route at this point, as it will produce a less panicked reaction.
Forget About Monday - Technically, I believe risk assets should come under intensified pressure in the weeks and months ahead, with the charts all warning of topping in these markets. US equities are at the center of it all right now, and a serious pullback is long overdue here with studies so overextended. We saw a very nice bearish reversal week in the previous week, and the price action would suggest that US equities should close this week a good deal lower than where we closed last Friday. Yet the signal has not been sympathetic to bears in the early week, with Monday's sharp rally leaving many bears feeling defeated. Still, I would not throw too much weight behind Monday's rally, with the market only consolidating the previous weekly declines thus far and prepping for what I believe will be the next major downside extension in the S&P below 1760 and towards 1720 further down. Clearly tomorrow's event risk is the leading candidate for such a catalyst, and it would stand to reason that if we were in fact to see this bearish follow through in risk assets, it would imply the Fed decision will come out on the more hawkish side.
Be Careful With Euro And Yen - For currencies, stay away from EUR/USD right now. I like the idea of selling, but also would not rule out the possibility of one more surge to fresh yearly highs beyond 1.3835 and towards major multi-month falling trend-line resistance off of the record highs from 2008, which comes in around 1.3900. I also would be careful with USD/JPY. While the outlook is aggressively bullish over the medium and longer-term, I still feel there is risk for a significant short-term pullback that could take us back into the 99.00's. Otherwise, I would expect to see the US Dollar very well bid against all other currencies, particularly against the commodity bloc and emerging market currencies. Moving on, don't forget about EUR/CHF and the implications here if the market comes under additional pressure and starts to threaten 1.2000. Finally, I am out of the money on a long AUD/NZD trade (long 1.0897), but absolutely love this trade. I got into the position knowing that I would be holding medium-term, and I would only be concerned if we established back under 1.0700 on a weekly close basis. This is a market that has been obliterated this year and is begging for a major reversal higher. I think this reversal is imminent, and also believe that if we do see a shift in risk sentiment, this will weigh more heavily on the higher yielding New Zealand Dollar.
Now Or Never - I'm not too sure how much volatility we will get in the markets on Tuesday, with participants squarely focused on the outcome of Wednesday's Fed policy decision. Irrespective of the outcome, I believe this will be a huge decision that will have a major impact on markets going forward. Recent economic data has certainly been supportive of a shift in policy, and would seem to justify some form of a taper at a minimum. More importantly, strategically, I think a taper or some very strong language tomorrow warning of an imminent taper, would be in the Fed's best interest. I am in the camp that believes risk assets have been supported over the past several years by Fed policy. My worry now is that risk assets have finally taken full advantage of a Fed policy that can't extend any further. If the Fed continues to show an unwillingness to reverse policy even the slightest, we could see a scenario where risk assets start to come off heavily (investors book profit as they no longer see additional incentive from the Fed), with the Fed having nothing it can throw at the situation to buoy the risk liquidation. This in turn would create a credibility crisis and another economic crisis. If however the Fed starts to move on a path towards tightening, at least markets will be able to reconcile any pullback in risk assets, understanding that it is because of the Fed moves. This seems to be the better route at this point, as it will produce a less panicked reaction.
Be Careful With Euro And Yen - For currencies, stay away from EUR/USD right now. I like the idea of selling, but also would not rule out the possibility of one more surge to fresh yearly highs beyond 1.3835 and towards major multi-month falling trend-line resistance off of the record highs from 2008, which comes in around 1.3900. I also would be careful with USD/JPY. While the outlook is aggressively bullish over the medium and longer-term, I still feel there is risk for a significant short-term pullback that could take us back into the 99.00's. Otherwise, I would expect to see the US Dollar very well bid against all other currencies, particularly against the commodity bloc and emerging market currencies. Moving on, don't forget about EUR/CHF and the implications here if the market comes under additional pressure and starts to threaten 1.2000. Finally, I am out of the money on a long AUD/NZD trade (long 1.0897), but absolutely love this trade. I got into the position knowing that I would be holding medium-term, and I would only be concerned if we established back under 1.0700 on a weekly close basis. This is a market that has been obliterated this year and is begging for a major reversal higher. I think this reversal is imminent, and also believe that if we do see a shift in risk sentiment, this will weigh more heavily on the higher yielding New Zealand Dollar.
Sunday, December 15, 2013
KRUGER INSIGHTS MONDAY, DECEMBER 16, 2013
Joel Kruger
Equities Front And Center - Of all the price action in the previous week, the most important was the price action in US equity markets. We have been through this many times in recent months, and I have been looking for a top all throughout that time. Now, once again, there are signs emerging of the potential for this top, following a very convincing bearish weekly performance from record high levels. Still, it is too early to truly make any calls at this point, but we are certainly getting concurrent confirmation on the fundamental front, following a slew of very solid data out of the US over the past couple of weeks. The big questions right now are what the Fed will do in the days ahead, and how exactly the markets will respond? This has been a Fed that has consistently erred on the side of dovishness, and I presume we should expect no different at the upcoming meeting. Yet what makes this interesting right now, is the fact that economic data is making it very hard for the Fed to continue to justify such excessively accommodative monetary policy. I have been in the camp arguing for some form of a taper in recent months, as I believe we have reached a point where the risks associated with continued accommodation are greater than the risks associated with a path towards tightening.
Fed Needs To Be Careful Here - I don't think the Fed needs to necessarily taper this month for the anticipated risk asset liquidation to continue to play out, and believe this capitulation could still transpire with a Fed that leaves policy as is, but at the same time, comes out with a very clear message that policy will be reversing imminently. At this point, if the Fed were to offer no indication of a taper, it would be damaging in my view. Why? Well because it seems we have gotten to a point where risk assets have taken full advantage of monetary policy. So what happens when risk assets have fully priced in accommodation? In this scenario, there is seemingly no place to go but down (if you agree risk assets have been supported by Fed policy). So now you have a market that is selling risk and a central bank that can't do anything about it because all of its tools have been used up and it is fully extended. This is clearly a very dangerous scenario as promotes an unsettling environment. But if the Fed finally starts to taper, it sends a message to markets that things are actually getting better, and we are finally on a path to recovery. So even if risk assets sell off in this situation, at least the market can attribute the selling to the Fed's tightening, and won't be in a position of total despair (like the one where risk assets sell off and the Fed is still as accommodative as can be). What does this mean for the USD? If the Fed comes out on the more hawkish side, I would expect the US Dollar to see good demand across the board (Yen potentially only exception).
Equities Front And Center - Of all the price action in the previous week, the most important was the price action in US equity markets. We have been through this many times in recent months, and I have been looking for a top all throughout that time. Now, once again, there are signs emerging of the potential for this top, following a very convincing bearish weekly performance from record high levels. Still, it is too early to truly make any calls at this point, but we are certainly getting concurrent confirmation on the fundamental front, following a slew of very solid data out of the US over the past couple of weeks. The big questions right now are what the Fed will do in the days ahead, and how exactly the markets will respond? This has been a Fed that has consistently erred on the side of dovishness, and I presume we should expect no different at the upcoming meeting. Yet what makes this interesting right now, is the fact that economic data is making it very hard for the Fed to continue to justify such excessively accommodative monetary policy. I have been in the camp arguing for some form of a taper in recent months, as I believe we have reached a point where the risks associated with continued accommodation are greater than the risks associated with a path towards tightening.
Fed Needs To Be Careful Here - I don't think the Fed needs to necessarily taper this month for the anticipated risk asset liquidation to continue to play out, and believe this capitulation could still transpire with a Fed that leaves policy as is, but at the same time, comes out with a very clear message that policy will be reversing imminently. At this point, if the Fed were to offer no indication of a taper, it would be damaging in my view. Why? Well because it seems we have gotten to a point where risk assets have taken full advantage of monetary policy. So what happens when risk assets have fully priced in accommodation? In this scenario, there is seemingly no place to go but down (if you agree risk assets have been supported by Fed policy). So now you have a market that is selling risk and a central bank that can't do anything about it because all of its tools have been used up and it is fully extended. This is clearly a very dangerous scenario as promotes an unsettling environment. But if the Fed finally starts to taper, it sends a message to markets that things are actually getting better, and we are finally on a path to recovery. So even if risk assets sell off in this situation, at least the market can attribute the selling to the Fed's tightening, and won't be in a position of total despair (like the one where risk assets sell off and the Fed is still as accommodative as can be). What does this mean for the USD? If the Fed comes out on the more hawkish side, I would expect the US Dollar to see good demand across the board (Yen potentially only exception).
Friday, December 13, 2013
Thursday, December 12, 2013
KRUGER INSIGHTS FRIDAY, DECEMBER 13, 2013
Joel Kruger
Yen Will The Slide Stop? - The Yen continues its slide and USD/JPY has finally broken the previous yearly high from May. Fundamentally, there is no surprise with the move, given the outlook for the Japanese economy and extreme response from the government and Bank of Japan. Technically however I would have rather seen a short-term period of Yen strength (ie USD/JPY weakness) before this Yen slide continued. I have said for many months that I fully expect USD/JPY to trade higher and towards 110.00 into early 2014, but given the intensity of the Yen declines, a small correction would be ideal and healthy. Still, if you look at the Yen short trade, it is highly attractive for investors because it gives an opportunity to be long the USD and other currencies, while also actually getting paid to hold that position. The outlook for the US Dollar may be highly constructive against risk correlated currencies, but with these trades, investors need to stress about the negative carry. With the Yen, there is no stress at all, and yield differentials should only continue to widen out of the Yen's favor. And so, the Yen continues to slide.
Wait For The Correction- In the short-term, I had been looking for some older correlations to spark a brief Yen rally (ie USD/JPY pullback), but this has not happened. The irony is that I never believed in the validity of the Yen as a beneficiary in risk off environments, but felt the market still respected this relationship to a degree. Yet in recent days, we have seen a pullback in risk sentiment, and the Yen has only continued to depreciate. The breakdown in this correlation has been glaringly obvious. But short-term, I still can not recommend selling Yen (buying USD/JPY) at current levels, and would defer to the stretched technical studies that are warning the Yen will regain some form of a bid tone over the coming sessions. EUR/JPY has been on fire of late and technical studies are also warning of a decent correction here as well. So stand by and wait for the next Yen rally and then look to aggressively buy USD/JPY, EUR/JPY etc on the dip.
A Patient Kiwi Bear - Elsewhere, I am hanging onto a NZD/USD short from a while back at an average cost of around 0.8355 now. I have also sold the S&P this week at 1805 (stop-loss at cost so no risk) and bought AUD/NZD at 1.0897. The S&P trade has moved a bit in the right direction, while AUD/NZD is off to a more precarious start following some dovish RBA comments. Still, I love this trade and believe that at this point, the market has priced in just about as much Aussie dovishness and Kiwi hawkishness to really encourage reversal prospects here. I will be looking to hold this trade over the medium-term and would only exit below 1.0700. I think 1.1500 is a very reasonable upside objective into early 2014. For those of you focused on EUR/USD, the market put in a bearish reversal day on Thursday, shifting the immediate focus away from the topside and a break to fresh yearly highs. At the moment however, we would need to see a daily close back under 1.3700 to suggest the market is topping out.
Yen Will The Slide Stop? - The Yen continues its slide and USD/JPY has finally broken the previous yearly high from May. Fundamentally, there is no surprise with the move, given the outlook for the Japanese economy and extreme response from the government and Bank of Japan. Technically however I would have rather seen a short-term period of Yen strength (ie USD/JPY weakness) before this Yen slide continued. I have said for many months that I fully expect USD/JPY to trade higher and towards 110.00 into early 2014, but given the intensity of the Yen declines, a small correction would be ideal and healthy. Still, if you look at the Yen short trade, it is highly attractive for investors because it gives an opportunity to be long the USD and other currencies, while also actually getting paid to hold that position. The outlook for the US Dollar may be highly constructive against risk correlated currencies, but with these trades, investors need to stress about the negative carry. With the Yen, there is no stress at all, and yield differentials should only continue to widen out of the Yen's favor. And so, the Yen continues to slide.
Wait For The Correction- In the short-term, I had been looking for some older correlations to spark a brief Yen rally (ie USD/JPY pullback), but this has not happened. The irony is that I never believed in the validity of the Yen as a beneficiary in risk off environments, but felt the market still respected this relationship to a degree. Yet in recent days, we have seen a pullback in risk sentiment, and the Yen has only continued to depreciate. The breakdown in this correlation has been glaringly obvious. But short-term, I still can not recommend selling Yen (buying USD/JPY) at current levels, and would defer to the stretched technical studies that are warning the Yen will regain some form of a bid tone over the coming sessions. EUR/JPY has been on fire of late and technical studies are also warning of a decent correction here as well. So stand by and wait for the next Yen rally and then look to aggressively buy USD/JPY, EUR/JPY etc on the dip.
A Patient Kiwi Bear - Elsewhere, I am hanging onto a NZD/USD short from a while back at an average cost of around 0.8355 now. I have also sold the S&P this week at 1805 (stop-loss at cost so no risk) and bought AUD/NZD at 1.0897. The S&P trade has moved a bit in the right direction, while AUD/NZD is off to a more precarious start following some dovish RBA comments. Still, I love this trade and believe that at this point, the market has priced in just about as much Aussie dovishness and Kiwi hawkishness to really encourage reversal prospects here. I will be looking to hold this trade over the medium-term and would only exit below 1.0700. I think 1.1500 is a very reasonable upside objective into early 2014. For those of you focused on EUR/USD, the market put in a bearish reversal day on Thursday, shifting the immediate focus away from the topside and a break to fresh yearly highs. At the moment however, we would need to see a daily close back under 1.3700 to suggest the market is topping out.
KRUGER INSIGHTS THURSDAY, DECEMBER 12, 2013
Joel Kruger
Back In The Game - So things are finally heating up again for me, and I have been quite active over the past several hours. On Tuesday, I said I would be taking another shot at an S&P short and sold the market Wednesday at 1805 as per my recommendation. But I am going to be very careful with this one and have already eliminated the risk with a stop-loss at cost. Today, I am revisiting another trade that burned me at much higher levels earlier in the year, and have established a fresh long position in AUD/NZD at 1.0897. At the time of the establishment of the position ahead of the European open on Thursday, technical studies were showing oversold across the board from the monthly all the way down to the hourly chart. The price action was way too compelling to ignore. Throw in the fundamentals which should start to weigh on the higher yielding Kiwi in a risk off market environment and the trade becomes even more attractive. Ideally, we should get a quick bounce from sub-1.0900 levels, but I would like to hold this position over the medium-term as I see risk for significant upside. In my view, there is plenty of room for recovery well back above 1.1500 over the coming weeks, and it will be exciting to see how this plays out. So I have taken my shots with both these markets this year, and up to this point, both have gotten the better of me. But we live to fight another day and that day has arrived. It will be a sweet victory if I can come out on top with these two this time round.
So Why Is The Euro Bid? - Moving on, many of you have been asking why the Euro has been so well bid in recent trade, and I warned to ignore the price action in the Euro on Wednesday. While I don't think these Euro gains against the buck will be sustainable, and while I do see EUR/USD reversing lower over the short term, I am also not surprised with the relative strength. I believe a lot of the EUR/USD strength is less a function of the major pair itself and more because of the broader shift in dynamics away from risk correlated currencies. There are many market participants looking to diversify their safe haven investments, and many still believe the Euro to be an attractive option in the long run. So as market participants exit long commodity and emerging market currency positions, they are shifting back into both US Dollars and Euro. In the short-term, the Euro is the primary beneficiary, although I am not sure this will last much longer. Ultimately, I still believe the US Dollar will be the standout outperformer across the board over the coming months as the Fed signals reversal and risk assets capitulate. Elsewhere, EUR/CHF has managed a bit of a bounce in recent sessions, but with nothing truly supportive of this move, I wonder if the SNB has been active again. If we continue to see downside pressure in risk assets into the end of the year, I would be concerned if I were the SNB and would not be too confident that EUR/CHF will stay supported above 1.2200. Currency markets (other assets by extension) will get very exciting over the coming days and weeks if EUR/CHF 1.2000 is actually threatened.
Back In The Game - So things are finally heating up again for me, and I have been quite active over the past several hours. On Tuesday, I said I would be taking another shot at an S&P short and sold the market Wednesday at 1805 as per my recommendation. But I am going to be very careful with this one and have already eliminated the risk with a stop-loss at cost. Today, I am revisiting another trade that burned me at much higher levels earlier in the year, and have established a fresh long position in AUD/NZD at 1.0897. At the time of the establishment of the position ahead of the European open on Thursday, technical studies were showing oversold across the board from the monthly all the way down to the hourly chart. The price action was way too compelling to ignore. Throw in the fundamentals which should start to weigh on the higher yielding Kiwi in a risk off market environment and the trade becomes even more attractive. Ideally, we should get a quick bounce from sub-1.0900 levels, but I would like to hold this position over the medium-term as I see risk for significant upside. In my view, there is plenty of room for recovery well back above 1.1500 over the coming weeks, and it will be exciting to see how this plays out. So I have taken my shots with both these markets this year, and up to this point, both have gotten the better of me. But we live to fight another day and that day has arrived. It will be a sweet victory if I can come out on top with these two this time round.
So Why Is The Euro Bid? - Moving on, many of you have been asking why the Euro has been so well bid in recent trade, and I warned to ignore the price action in the Euro on Wednesday. While I don't think these Euro gains against the buck will be sustainable, and while I do see EUR/USD reversing lower over the short term, I am also not surprised with the relative strength. I believe a lot of the EUR/USD strength is less a function of the major pair itself and more because of the broader shift in dynamics away from risk correlated currencies. There are many market participants looking to diversify their safe haven investments, and many still believe the Euro to be an attractive option in the long run. So as market participants exit long commodity and emerging market currency positions, they are shifting back into both US Dollars and Euro. In the short-term, the Euro is the primary beneficiary, although I am not sure this will last much longer. Ultimately, I still believe the US Dollar will be the standout outperformer across the board over the coming months as the Fed signals reversal and risk assets capitulate. Elsewhere, EUR/CHF has managed a bit of a bounce in recent sessions, but with nothing truly supportive of this move, I wonder if the SNB has been active again. If we continue to see downside pressure in risk assets into the end of the year, I would be concerned if I were the SNB and would not be too confident that EUR/CHF will stay supported above 1.2200. Currency markets (other assets by extension) will get very exciting over the coming days and weeks if EUR/CHF 1.2000 is actually threatened.
Wednesday, December 11, 2013
KRUGER INSIGHTS WEDNESDAY, DECEMBER 11, 2013
Joel Kruger
What's Important And What Isn't - It isn't uncommon to see some wacky price action into the end of any given year, and I suppose this year should be no different. At the moment, we are seeing a notable divergence of the Euro (Pound) against other major currencies relative to the US Dollar. While the Euro (Pound) has been relatively well bid against the buck in recent trade, other currencies have not been following the same path and are still seen pressured versus the USD. This therefore makes for an interesting mix of trade and could be quite misleading. For me, the indicative price action is the action away from the Euro. The relative weakness in the other markets is what is important, as I believe this is reflective of markets that once did a very good job of outperforming while the Euro (Pound) were underperforming, and are finally now on the other end of the stick. Simply put, this is a function of the various phases of the global downturn that began back in 2008. First it was the US, then it was the UK and Eurozone, and now finally it is the commodity bloc and emerging markets. While the US economy is focused on a start to policy reversal and a return to normalization, the commodity bloc and emerging market currencies are just now feeling the ripples from the initial crisis. Meanwhile, the Eurozone is still in disarray, but has taken the worst of hits and is slowly on its own path to recovery.
Forget About The Euro - So with this in mind, it isn't all that difficult to reconcile the price action. Still, I wouldn't be getting too bullish on the Euro at current levels, and believe the single currency will once again come back under pressure against the buck on the yield differential story (albeit not as much as the other currencies). So while the Euro is still finding bids and may want to retest the October yearly high over the coming sessions, don't take this as a message that currencies are bid in general against the buck. It is quite the opposite actually. Today for example, all of the risk correlated currencies are tracking lower, while the Euro is clearly doing its own thing. The Yen is higher as well, but this is a completely different story and is actually quite supportive of my analysis. We are in a risk off environment right now, and the renewed demand for Yen is something that would confirm this shift in risk sentiment. Though I have said repeatedly that I do not believe there is any true redeeming attraction to Yen in flight to safety markets, this does not change the fact that we are sill seeing remnants of this familiar correlation. Moreover, I have also been highlighting the movement in EUR/CHF over the past few weeks, with the relative weakness warning of danger ahead. At this point, the last piece of the puzzle will need to come from the US equity market, where a correction is long overdue. All of this comes down to a market that is in denial that Fed policy has had anything to do with the recovery in risk assets, but is now slowly waking up to this reality and on the verge of heading for the exits. So forget about the direction in EUR/USD right now and pay attention to everything else that is going on.
What's Important And What Isn't - It isn't uncommon to see some wacky price action into the end of any given year, and I suppose this year should be no different. At the moment, we are seeing a notable divergence of the Euro (Pound) against other major currencies relative to the US Dollar. While the Euro (Pound) has been relatively well bid against the buck in recent trade, other currencies have not been following the same path and are still seen pressured versus the USD. This therefore makes for an interesting mix of trade and could be quite misleading. For me, the indicative price action is the action away from the Euro. The relative weakness in the other markets is what is important, as I believe this is reflective of markets that once did a very good job of outperforming while the Euro (Pound) were underperforming, and are finally now on the other end of the stick. Simply put, this is a function of the various phases of the global downturn that began back in 2008. First it was the US, then it was the UK and Eurozone, and now finally it is the commodity bloc and emerging markets. While the US economy is focused on a start to policy reversal and a return to normalization, the commodity bloc and emerging market currencies are just now feeling the ripples from the initial crisis. Meanwhile, the Eurozone is still in disarray, but has taken the worst of hits and is slowly on its own path to recovery.
Forget About The Euro - So with this in mind, it isn't all that difficult to reconcile the price action. Still, I wouldn't be getting too bullish on the Euro at current levels, and believe the single currency will once again come back under pressure against the buck on the yield differential story (albeit not as much as the other currencies). So while the Euro is still finding bids and may want to retest the October yearly high over the coming sessions, don't take this as a message that currencies are bid in general against the buck. It is quite the opposite actually. Today for example, all of the risk correlated currencies are tracking lower, while the Euro is clearly doing its own thing. The Yen is higher as well, but this is a completely different story and is actually quite supportive of my analysis. We are in a risk off environment right now, and the renewed demand for Yen is something that would confirm this shift in risk sentiment. Though I have said repeatedly that I do not believe there is any true redeeming attraction to Yen in flight to safety markets, this does not change the fact that we are sill seeing remnants of this familiar correlation. Moreover, I have also been highlighting the movement in EUR/CHF over the past few weeks, with the relative weakness warning of danger ahead. At this point, the last piece of the puzzle will need to come from the US equity market, where a correction is long overdue. All of this comes down to a market that is in denial that Fed policy has had anything to do with the recovery in risk assets, but is now slowly waking up to this reality and on the verge of heading for the exits. So forget about the direction in EUR/USD right now and pay attention to everything else that is going on.
Tuesday, December 10, 2013
KRUGER INSIGHTS TUESDAY, DECEMBER 10, 2013
Joel Kruger
Entering Tricky Waters - Although USD/JPY remains very well bid and will probably break to fresh yearly highs (beyond the 103.70 May peak) over the coming sessions, I would still recommend proceeding with caution at current levels. Medium and longer-term, I remain aggressively bullish this major pair, but short-term, I still would not rule out the possibility for a sharp pullback to test previous triangle resistance now turned support in the 99.00-100.00 area. With this in mind, I would consider taking a shot at fading a move towards 104.00 in the hours ahead, but can't offer a specific recommendation just yet. If we do in fact stall out and reverse in the short-term, this would also set up a pretty double top on the daily chart exposing a retest of the already mentioned previous resistance in the 99.00-100.00 region. While I do not believe the Yen to be a safe haven currency by any means, at the same time, the Yen still has the ability to find bids in risk off market environments. Given the expected capitulation in risk assets at any moment, this would support the idea that the Yen could once again find some bids (ie USD/JPY lower), at least in the short-term.
No Better Time Than The Present - Elsewhere, continue to keep an eye on EUR/CHF. Another drop that takes us into the 1.2100's should really get the SNB sweating and open the door to a lot of questions about the effectiveness (or lack thereof) of intervention as a longer-term stability measure. These questions will extend well beyond Switzerland and could very well manipulate sentiment towards other central banks, namely the Fed. I would also recommend watching EUR/USD today. I highlighted the 1.3720 fib resistance and the possibility that this level could be slightly exceeded. This has all played out now, and if we are going to reverse lower, it will need to happen today. Otherwise, the market is likely to break to fresh yearly highs beyond the October peak at 1.3835. Look for a break back below 1.3695 today to alleviate topside pressure and confirm exhaustion. Finally, I will be looking for an opportunity to take a third shot at selling the S&P. I was unsuccessful in two attempts over the past six months, but still believe strongly that a major corrective pullback looms. I will either sell on a rally to 1820 or on a break back below 1805. I will be looking for a correction of 10% at a minimum.
Entering Tricky Waters - Although USD/JPY remains very well bid and will probably break to fresh yearly highs (beyond the 103.70 May peak) over the coming sessions, I would still recommend proceeding with caution at current levels. Medium and longer-term, I remain aggressively bullish this major pair, but short-term, I still would not rule out the possibility for a sharp pullback to test previous triangle resistance now turned support in the 99.00-100.00 area. With this in mind, I would consider taking a shot at fading a move towards 104.00 in the hours ahead, but can't offer a specific recommendation just yet. If we do in fact stall out and reverse in the short-term, this would also set up a pretty double top on the daily chart exposing a retest of the already mentioned previous resistance in the 99.00-100.00 region. While I do not believe the Yen to be a safe haven currency by any means, at the same time, the Yen still has the ability to find bids in risk off market environments. Given the expected capitulation in risk assets at any moment, this would support the idea that the Yen could once again find some bids (ie USD/JPY lower), at least in the short-term.
No Better Time Than The Present - Elsewhere, continue to keep an eye on EUR/CHF. Another drop that takes us into the 1.2100's should really get the SNB sweating and open the door to a lot of questions about the effectiveness (or lack thereof) of intervention as a longer-term stability measure. These questions will extend well beyond Switzerland and could very well manipulate sentiment towards other central banks, namely the Fed. I would also recommend watching EUR/USD today. I highlighted the 1.3720 fib resistance and the possibility that this level could be slightly exceeded. This has all played out now, and if we are going to reverse lower, it will need to happen today. Otherwise, the market is likely to break to fresh yearly highs beyond the October peak at 1.3835. Look for a break back below 1.3695 today to alleviate topside pressure and confirm exhaustion. Finally, I will be looking for an opportunity to take a third shot at selling the S&P. I was unsuccessful in two attempts over the past six months, but still believe strongly that a major corrective pullback looms. I will either sell on a rally to 1820 or on a break back below 1805. I will be looking for a correction of 10% at a minimum.
Sunday, December 8, 2013
KRUGER INSIGHTS MONDAY, DECEMBER 09, 2013
Joel Kruger
Who Cares About A Fed Taper Anyway? - What a day this past Friday! I am simply amazed. If you would have told me the result of the monthly US employment report ahead of the release, it would have done nothing to help. The idea that a solid NFP print and drop in the unemployment rate would put pressure on the equity markets on a solidification of Fed taper prospects, is completely foreign at this point, and has gone out the window. It is rather scary in my view. Now there are no longer any bears out there, and everyone is certain the stock market will only continue higher. It seems market participants either feel this latest bout of healthy data out of the US will still do nothing to accelerate a Fed taper, or market participants just don't care about a Fed taper and believe the impact of such a move will be insignificant. So now it is all about stronger, healthier data out of the US, and perpetual free money. Personally, I continue to find deep discomfort in the fact that we have seen such a disconnect between the real economy and financial markets.
Last Man Standing - Although the real economy is recovering, this recovery has been nothing like the boom seen in the financial markets. I still contend this rally in stock markets will soon fizzle out in spectacular fashion as the move is entirely artificial and has been supported on nothing more than Fed incentive. I also believe this capitulation and liquidation is stocks will happen sooner than later and am not in the camp that has defected to the bullish side. Now everyone is talking about S&P 1850, 1900, and 2000, while the risk for a break back below even 1775 is considered to be remote. Technically, the performance in the stock market has been most unhealthy and the inability to undergo any form of a legitimate corrective retreat should be more than disconcerting. Finally this past week we got some legitimate signs that the Fed should start to reverse, with solid GDP and employment data, and yet, market participants no longer want to recognize this data should discourage additional investment in risk assets.
A Light In The Darkness - Fortunately, currency markets have been telling a different story and I believe are proceeding with the necessary caution required. Look no further than the EUR/CHF cross rate, which I have highlighted many times in recent weeks. The drop to fresh multi-day lows in this market is telling a different story and shows that the currency market is more worried about the impact of a Fed taper and the implication for risk assets. While the Fed intervention is the most well known intervention out there right now, we should not forget about the SNB intervention at 1.2000 EUR/CHF. If this level is threatened over the coming days, it will likely trigger a credibility crisis for the SNB, which in turn could very realistically extend to a credibility crisis for any central bank that has chosen to use intervention as a strategy to artificially support the economy. If 1.2000 is broken, it will remind investors that no intervention can ultimately last forever, and at the end of the day, whether you push off for one year or 5 years, eventually, nature will take its normal course. The time has come for the global economy to once again stand on its own two feet. The process may be painful, but we desperately need to get back on the path to normal recovery.
Last Man Standing - Although the real economy is recovering, this recovery has been nothing like the boom seen in the financial markets. I still contend this rally in stock markets will soon fizzle out in spectacular fashion as the move is entirely artificial and has been supported on nothing more than Fed incentive. I also believe this capitulation and liquidation is stocks will happen sooner than later and am not in the camp that has defected to the bullish side. Now everyone is talking about S&P 1850, 1900, and 2000, while the risk for a break back below even 1775 is considered to be remote. Technically, the performance in the stock market has been most unhealthy and the inability to undergo any form of a legitimate corrective retreat should be more than disconcerting. Finally this past week we got some legitimate signs that the Fed should start to reverse, with solid GDP and employment data, and yet, market participants no longer want to recognize this data should discourage additional investment in risk assets.
A Light In The Darkness - Fortunately, currency markets have been telling a different story and I believe are proceeding with the necessary caution required. Look no further than the EUR/CHF cross rate, which I have highlighted many times in recent weeks. The drop to fresh multi-day lows in this market is telling a different story and shows that the currency market is more worried about the impact of a Fed taper and the implication for risk assets. While the Fed intervention is the most well known intervention out there right now, we should not forget about the SNB intervention at 1.2000 EUR/CHF. If this level is threatened over the coming days, it will likely trigger a credibility crisis for the SNB, which in turn could very realistically extend to a credibility crisis for any central bank that has chosen to use intervention as a strategy to artificially support the economy. If 1.2000 is broken, it will remind investors that no intervention can ultimately last forever, and at the end of the day, whether you push off for one year or 5 years, eventually, nature will take its normal course. The time has come for the global economy to once again stand on its own two feet. The process may be painful, but we desperately need to get back on the path to normal recovery.
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