KRUGER INSIGHTS MONDAY, FEBRUARY 03, 2014

By: Joel Kruger

A Month In Review - At the end of 2012, there were some amazing setups ripe for the taking. I had a very strong feeling that I would get a nice start to 2013, with both the Yen and Australian Dollar on the verge of collapse. And just as expected, both currencies came under intensified pressure and the rewards were there. At the end of 2013, I had a similar feeling, with US equities so extended and closing out the year at record highs. I had been selling US equities in the second half of 2013 with little success, but was careful about exactly how I was selling and exactly how much much I was selling. I definitely took some losses there, but was ready and able to keep taking shots as I knew the moment would come. And in that final week of December, with the S&P tracking around 1850 and showing no room for any additional gains, I took my first shot of the year (technically end of December) and it paid off handsomely. This gave me some good momentum early on, and from there, fresh opportunities kept presenting. January is now over and the books are closed for the month. As I look back, I must say, I never would have expected to put in a performance like this (the portfolio is leveraged at 5X). My expectations were exceeded more than quite a bit, and I ended up putting in a much stronger result that January 2013 (See Performance Here). But I think the key takeaway is that we never really know when the best opportunities might come, and if we are patient and wait, usually good things will happen. We just need to make sure we are always keeping ourselves in the game, and are never forcing anything. It's more than ok to take your shots, but always be ready to walk away and take another shot another day. It is also important to make sure we never get too high or low in this game, and so the time for looking back is over. Now it's time to stay focused and look ahead. I will do my best to keep my head down and continue to look for good opportunities.

Where Should We Be Looking? - Now onto markets. Where do we stand? Well, I think we should be expecting more pressure on risk correlated assets. I'm not too sure whether we head lower in the early week, or whether we get a bit more consolidation first. But look for more downside in US equities and emerging market FX, and upside in the US Dollar and Yen. I would say the more important FX markets to watch right now are USD/JPY and EUR/CHF. A break and daily close below 101.75 USD/JPY will open the door for a test of major psychological support at 100.00, while a drop back under 1.2165 EUR/CHF, will certainly turn some heads and get people talking about a possible assault on that widely publicized and seemingly impenetrable 1.2000 SNB defence barrier. Downside pressure in both of these markets has risk off implications and would likely result in fresh downside for US equities and emerging market FX. However, I do believe there will be some good buy opportunities for USD/JPY and EUR/CHF, and while we could still see US equities and emerging market FX pressured, once USD/JPY gets down below 100.00 and EUR/CHF towards 1.2000, these two markets will become very attractive as longer-term buys (fundamentally and technically). But for now, I will just sit back and wait for the market to come to me. At current levels, there really isn't anything jumping out. I know many of you are focused on EUR/USD, and this latest break below 1.3500 opens the door for a retest of the November base at 1.3295. Still, while the outlook is bearish, I do not feel comfortable recommending a Euro short here, as we could see a nice little corrective bounce before heading lower. Wait for intraday rallies and then look to sell.