KRUGER INSIGHTS MONDAY, JANUARY 27, 2014

By: Joel Kruger

The Perfect Storm - So this week should really be an interesting week. We have quite a bit of economic data, end of month flows, and some key central bank event risk in the form of the Fed and RBNZ rate decisions. Throw in the previous weekly technical reversals in USD/JPY and US equities, and then add another layer of ongoing emerging market underperformance, China uncertainty, and geopolitics, and we have a real recipe for some major volatility. Each and every one of these themes could on their own inspire a surge in vol, so the prospect of contending with all of them at once is rather intense. Technically, it seems we could be headed for another round of weakness in risk assets. I have been focused on the S&P, and for me the key level to watch comes in at 1760, which represents the December low. Should we take out this level this week, it would set up a bearish outside month formation off of record highs and open the door for fresh weakness into the upper 1600's. I know this sounds like a real stretch at this point, but I wouldn't be so quick to discount the possibility.

Off To A Great Start - Meanwhile, USD/JPY has finally rolled over, and looks like it could now correct all the way back down into the desired 99.00-100.00 area. I have been talking about buying USD/JPY on a dip into this area for some time, and it looks like we may just get there. Overall, things have been playing out really nicely for me, and I would never have expected to be off to an even better start in 2014 than the one I had in 2013. I was able to book some nice profits on Friday, after exiting S&P and NZD/USD shorts, and am now flat at the time of this report. I will be looking to sell rallies in both of these markets, and will also look to see if we can't get another dip below 1.0500 in AUD/NZD. I really like the idea of buying this market and holding for a few months, as the price looks to carve out a cyclical bottom. As I outlined on Friday, EUR/USD is less interesting at the moment, but I suspect we could soon see the market stall out and reverse lower. Ultimately, only back above 1.3900 would negate the bearish outlook. Finally, GOLD is making some waves, and has managed a break back over $1270. While this still does nothing to compromise the underlying bearish structure (selling rallies still preferred), it does take some of the more immediate pressure off of the downside.