KRUGER INSIGHTS FRIDAY, FEBRUARY 07, 2014

By: Joel Kruger

Forget About NFPs - I am not going to focus on todays monthly employment report out of the US, as I really don't believe it will have any influence on the trajectory of the market. While the data could very well inspire a good deal of intraday volatility, this volatility should only be used as an opportunity to take advantage of attractive entry points for new trades. At the moment, what it all comes down to is whether this latest bounce in risk correlated markets is for real or for not. Is the intense bullish risk asset trend of the past few years still well intact, or are we now on the verge of a more significant corrective decline. To answer this question, I think we need to focus on the key markets and take a look at what the charts are telling us. For this exercise, I am going to highlight USD/JPY and the S&P 500. While we have seen a bounce from the weekly lows in both of these markets, if you take a look at the weekly chart, the price action is still showing weekly lower highs and lows. In reality, so long as USD/JPY remains below 103.50 and the S&P holds below 1805, there is still a good deal of risk for deeper setbacks and the formation of lower tops. It is also worth noting that both of these monthly charts are just now rolling over from overbought, and this leaves plenty of room for additional weakness without even close to compromising the longer-term uptrends. If this is true, it also implies additional headwinds for the emerging markets. 

Here Are Your Levels - So as we close out the week, I would be looking for this latest rally in risk assets to stall out very soon, in favor of the next downside extension. Though I try to stay away from making recommendations on Fridays, my recommendation for today would be to wait for an extreme intraday rally in USD/JPY and the S&P, and if, and only if this plays out, look to take a shot and fade the moves. I will even go as far as to give you actual levels I think could be attractive today as fresh sell opportunities. For USD/JPY I would look to sell a rally to 102.90, and for the S&P, I would look to sell a rally to 1792. If these levels are hit on Friday, I think you should feel good about taking a shot at some shorts in anticipation of a bearish resumption. Don't trade both markets. Just pick whichever you are more comfortable with, and go with it. I still think USD/JPY tests 100.00 and the S&P visits 1700 in the sessions ahead. Should we manage a break and daily close back over USD/JPY 103.50 and S&P 1805, I will reassess. At the time of writing this report, I only have one open position, short NZD/USD from 0.8276 (open position tracker below). I took a little profit and the stop is now at cost on the remaining portion. I really like this market lower over the medium-term and believe we will soon gravitate back into the 0.7700 area. Have a great weekend!