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.

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.

Technical Update - Friday, December 20

Technical Update - Thursday, December 19

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.

Technical Update - Wednesday, December 18

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