Author Archives: admin

31 May

This weeks analysis

I have enjoyed a rare Monday off work. The UK had one its dozen or so bank holidays today, and the US markets were closed for Memorial Day.

It meant an opportunity to sleep a little longer and take a long walk along the beach and reflect on life in general.

I grabbed my phone and called as many UK friends as I could get hold of. The mission was simple. What are you going to vote on the 23rd June?

My phone reveals I called 17 friends (I thank them for letting me disturb them on their Bank Holiday Monday – a very sacred day in the British calendar – a day where you can with justifiable reason get pissed on a Sunday night without remorse).

Of the 17 people I called, who predominately are financial professionals, there were not a single one of them who would vote to stay in the EU. I was quite surprised, so when I pressed for a reason, I got the same answer over and over:

  1. Emigration Concerns
  2. Bureaucracy

Most of them felt there was something very disconcerting about the whole campaign. “It feels like scaremongering rather than a democratic debate”, one said.

Amen. I am not allowed to vote naturally, so I can stand aside and observe my poor friends attempting to sort shit from channel. AND there is a lot of the former.

Those two points above don’t actually have much to do with the original plan for a Common Union. The Union was intended to increase trade flow and thereby also competition and it did. The emigration concern is a another point altogether, one that reflects a growing concern of democratic impotence, as a super power beyond reach decides from afar what is right and what is wrong.

The Brits are individuals. They always have been. Someone should remind them in what dire straits they were in during the 1970’s despite their membership of the union, and how they sorted themselves out in the 1980’s under a certain Iron Lady. That had nothing to do with the EU, and everything to do with the spirit of a United Kingdom.

In the Financial Times I found a quote from Nifco’s Mr Matthews: why would Britain even contemplate leaving the EU. You have enough challenges in business as it is. Why would you put yourself in a more difficult position?

Yes, indeed. Why would you? May I offer an answer? Because life is more than just business, and the EU has moved from being just about business, to being about what you can and can’t buy, what you have to wear and what you can’t wear:

http://www.dailymail.co.uk/health/article-186684/EU-outlaw-popular-vitamins.html

https://fullfact.org/europe/eu-banning-high-heels-hairdressers/

and then there was the one about the bent bananas:

http://www.telegraph.co.uk/news/worldnews/europe/2453204/Bent-banana-and-curved-cucumber-rules-dropped-by-EU.html

I was asked what I would vote. I said I had not made up my mind. However, for those Brits who are reading this blog (the reason I write it in English is so both the super intelligent Danes with their amazing language abilities (!) and the “why would I need to learn another language – you all speak English” Brits – can read it) I would like to take this opportunity to remind you of a few things:

  1. You were great before the EU. You joined in 1973 with Denmark and Ireland. If you vote to stay, you may just risk that you will slowly and surely be stripped of your ability to self-regulate. Did you see this one: http://www.dailysquib.co.uk/business/19041-eu-wide-tax-id-numbers-planned-keeping-track-of-every-citizen-in-europe.html
  2. Do you ever wonder how Norway and Switzerland have managed to stay so wealthy? Norway is the 6th richest country in the world (oil), and Switzerland is number 10. Denmark is number 21 while Britain is number 27.Norway and the Swiss refuse to be part of the EU. They are doing fine!

Enough said. It is not that I don’t see the argument for a union. It is the argument that I am unable to decide what I do in my own house, because I have signed up for a union which is SO MUCH MORE than just a trade union. It is a union on how to live my life.

This week will be explosive. We have the end of the month coming up. We have a banking sector which is beginning to move in anticipation of a rate hiking cycle in the US. Deutsche Bank has rallied 20% in the last week!!!

We have a Non-Farm Payroll release on Friday; one of the most eagerly anticipated numbers all year, now that the rhetoric from the central bankers of the US is heating up, agitating for a rate hike.

You also have the ECB talking on Wednesday.

How do I stand? After the strong rally off the lows in the DAX index, I think we will see higher prices going into June. I think the market is ready to begin a protracted rally into September, as long as the fundamentals (Friday!) can substantiate it.

31 May

Trump presidency mean for Mexico

I got this from Mauldin Economics. It’s quite to the point, and it highlights how little power the president of the US in reality has:

Mauldin Economics: What would a Trump presidency mean for Mexico?

George Friedman: Very little. Mexico is the primary export target for California and for the entire American Southwest. If you disrupt that flow, you’re going to have a revolt from the western states like you’ve never seen.

ME: So the wall is not going to be built.

GF: The wall can be built, but what is it going to accomplish? The trucks had better come through. And this is really the problem.

You can read the rest here. It is short and to the point, well worth 3 minutes of your time…

http://www.mauldineconomics.com/this-week-in-geopolitics

Donald Trump

03 May

Looking ahead

Apologies for the lack of update yesterday. It was a holiday here in Spain, and I decided to take advantage of a break from the screen and soak up some sunshine.

We have an interesting week ahead of us, mainly because you have holidays in many places. Denmark for example will be off Thursday and Friday. Japan is off Wednesday and Thursday, and Germany and France and Swiss have a bank holiday Thursday.

3 maj 2016 2

RED FLAG EVENTS THIS WEEK

 

The all-important event – well take your pick – but I will be looking ahead to the Non-Farm Payroll out of the US on Friday. I will discuss this later in the week. For now – let’s look ahead to today:

Sometimes you get an indication of what is going to happen in Europe by looking at Asia. Today it is quite a mixed bag:

3 maj 2016

The DAX charts below show the DAX without volume and then with volume. Why are there two charts? I wanted to demonstrate to you that volume can be a great additional tool to your analysis, BUT it doesn’t have to be included if you can interpret the price action instead.

Chart number one, below, shows the DAX on a 30min chart for the last 6 days. It does take a wise man to see the DAX is trending lower, and you should be selling rallies, as long as we trade below 10,150.

3rd May 2016 3

DAX is trending lower, and has failed to hold on to 10,400

The second chart looks at the volume pattern for the last 6 days. There is something in particular that I want you to be aware of, which happened during the timeframe I am zooming in on.

3rd May 2016 4

DAX with volume figures – notice the volume increases on the sell-offs, and remain flat on the rallies.

If you zoom in on the middle part of the chart (see below), you will see a favourite pattern of mine. I call it the Trap Door. Notice how the DAX makes a great recovery, and price goes above the morning high. Notice also how volume doesn’t confirm this, because it is running at a lower high. This in itself is only cause for concern – not an all-out sell signal, but then notice the market selling off BELOW that last price spike bar. This is a Trap Door sell, and it means I will remain bearish as long as DAX is trading below 10,300.

dax fake volume

DAX Fake Move = Trap Door

3rd May 2016 5

Dow lost and regained 17800 very quickly

The next chart is the Dow – above. I betted heavily on the Dow falling last week and I won big. Now I have to contend with the fact that the Dow has regained what it lost, and it did it the day after. So it changes the playing field today. So far the DAX is relatively flat, but I am watching for signs of strength or weakness in the early going. It is the beginning of a new month, and the way the Dow traded yesterday will have me alert to abandoning my bearish stance. So far I will still hold on to my bearish view. One rally will not have me change my mind.

Have a nice day.

Tom Hougaard
Tom Hougaard

26 Apr

Handling movements intra-day and looking ahead to FOMC and BOJ

Good morning,

The indices fell out of bed yesterday morning. The writing was on the wall after the first 10 minutes with a huge reversal in the DAX. It’s one of those things that you simply can’t predict in your morning analysis. You have to be ready for it.

The first chart is sort of a bible to me. I did some statistical analysis of all the closes in the Dow Jones index over the last 30 years. I wanted to know if there was a statistical bias towards a positive close in the Dow. There was, but not by as much as you would have expected. The chart below shows the distribution of positive and negative closes in percentage terms. There are 7400 observations, and 54% of those close in positive territory, while 46% close in negative territory.

What can you take away from this chart? You should accept that no matter how bullish or bearish you are on the market, you should at least accept that anything can happen and the chances of a positive close is only marginally higher than the odds of a negative close.

distribution of closes

Distribution of Dow Jones index closes in %

Today is Tuesday, and we can look forward to an FOMC report Wednesday night. Shortly after we have Bank of Japan with their outlook report. It could be an explosive 24 hours into the weekend. Therefore it is important to be prepared.

economic reports

Let us start with the Dollar Yen. I have annotated the charts in the caption below the chart:

charts 11

Dollar Yen Price Action before and after the 18 December announcement

charts 10

Dollar Yen Price Action before and after the 29 January announcement

charts 9

Dollar Yen Price Action before and after the 15 March announcement

What do I take away from these 3 charts – a very narrow picture of historical price action after a BOJ statement: There tends to be a good follow-on move past the announcement. While I will not be able to predict the direction ahead of the news, I will be able to gauge the news impact after the news and enter the market.

Before BOJ, a few hours before, we have FOMC in the US. I thought I would show you what has happened in the last few FOMC days.

charts 8

Dow Jones before and after the FOMC statement on 16 December 2015

charts 7

Dow Index Price Action before and after the 27 January announcement (huge reversal)

charts 6

Dow Index Price Action before and after the 16 March announcement

Do you see a really clear pattern? I don’t. I see one with a big follow-through move into the close, and I see one with a big reversal. That doesn’t mean I won’t trade it, but I will have to consider my strategy on the spot at the time.

Finally, let’s take a look at Euro Dollar, which tends to be brilliant to trade after news announcements:

charts 3

Euro Dollar Price Action before and after the 16 March announcement

charts 5

Euro Dollar Price Action before and after the 16 December announcement

I do this to prepare for what might happen on the day.

Final word: it seems to me that our job as traders is rapidly disappearing.

Bloomberg’s Richard Breslow, former FX trader and fund manager who now comments on markets, has been on a roll lately. One week ago, he officially lost it, going on an epic rant how central banks have devastated “markets” with their constant intervention (proven yet again with today’s report that the BOJ now is a Top 10 owner of 90% of Japanese stocks): “You don’t need to be a Taleb or Mandelbrot to calculate that we have been having once in a hundred year events on a regular basis for the last thirty years” he raged.

Today, his post-weekend anger has crystallized in another aptly titled note, “You Have to Go With the Central Bank Flow”, in which he writes that “for traders, just when they were promised an end was in sight, policy divergences would become tradable and correlations would weaken, the nightmares keep coming.”

The solution: “investors must live with the reality of having to make their living front-running the central banks or be distorted out of existence.”

Well, such is life under central planning: any original thought or fundamental analysis is crushed and the only thing that matters is anticipating what Janet Yellen will have for dinner next. Traders – and the general public – had a chance to restore normalcy when the entire system crashed, by averting bailouts and allowing a reset; now it’s too late.

Here is Richard Breslow on the verge of losing it again:

The whole story here: http://www.zerohedge.com/news/2016-04-25/why-traders-nightmares-just-keep-coming

Tom Hougaard

Tom Hougaard

25 Apr

Dow DAX and Yen

Monday 25 April 2016

I will start with the Dollar Yen. After the surprise attack by the central bank to weaken the yen last week, I thought it would be good to look at the chart. Naturally I am long dollar yen, after the chart pattern I posted last week (http://tomhougaard.dk/dollar-yen-alert-too-late-but-for-next-time/), but the chart doesn’t look at all so rosy. So there is conflict.

  1. I have a 61% fib resistance at the top (negative)
  2. I have a surge higher (positive)
  3. I have no obvious sell signals but overall the trend looks negative (negative)
  4. The market has made it back into the trading range. Anyone who has been short from this range will see profits evaporate now. The central bank has flexed its muscles (positive).
  5. The retracements have been more or less harmonious, but this can be interpreted both as positive and negative. The moves since last week has been orderly after the impulse up, and it has paid off to buy dips (positive), but the really big picture shows exactly the same pattern of big rallies before big declines in a big down-trend, so I have to accept that the bears are not dead (negative).

So what do you do? You take your bet. I will put most emphasis on the most recent developments, and I am therefore a buyer of Dollar Yen around this level of 111.10.

dollar yen 25 april 2016

Dollar Yen 240 min chart

The Dow is interesting. I have a SELL signal using a mechanical method on the daily chart. This coincides with my time cycle chart too. Nevertheless I am not rushing out to sell short the Dow in big quantities. I have to be patient because I haven’t seen any damaging weakness yet. Maybe it will come this week, but what is more interesting for me is to discuss what I will have to see to be PROVEN WRONG.

I will need to see the Dow close above the highs of last week, preferably at the end of the week (or any weekly close above last week’s highs). Until I see that I will remain negative, but I will naturally be flexible in my trading during the week.

dow 25 april 2016
Dow Jones index Daily Chart

 

You can’t have Dow and not discuss the DAX. The DAX index still looks good. The first chart is the hourly chart, and it shows how well DAX is holding 10350. On the second chart you see the big picture. The big picture is bullish.

How do I trade this? I need to accept that the Dax looks better than the Dow, and until I see weakness in either index, I will have to accept that I am bullish from the charts, but I am quite bearish from a time cycle and a fundamental perspective. As always I will trade WHAT I SEE, and NOT WHAT I THINK.

dax 25 april 2016 small time frame

DAX 1 hour chart – notice how it is holding on to gains from the rally. This is positive

dax 25 april 2016

The Daily chart is most certainly also positive, so you have a conflict between the DAX and the Dow.

Tom Hougaard
Tom Hougaard