Tag Archives: Dollar

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

28 Jan

Art Cashin – 28 January 2015

The Perfect Storm Shows Up Indoors On Wall Street – As traders monitored the expected Blizzard named Juno, the above noted concerns stormed into Wall Street.

The Dow opened down over 250 points as trapdoors opened under a score of blue chips.  Meanwhile, yields on treasuries plummeted on the stunning drop in Durable Goods and a Flight to Safety on renewed Greek worries.

The selling expanded through the morning, making what would be the day’s low (-390) near 11:00.

As Europe was getting ready to close, I sent this note to some friends:

Dow and Nasdaq Comp have been in virtual lockstep in leading on the downside today.

While the pundits zero in on dollar impact in earnings and depressing GDP, this selling is not America – centric.  As I noted in this mornings Comments (courtesy of Peter Boockvar), Tsipras has spooked markets by not moderating his speech or actions.

Here’s a bit from an email from my friend, Barry Habib, the mortgage maven, who has called the bond market to a tee.  He adds a good example on dollar influence:

The 10-year has just dipped beneath 1.78%.  If yields can hold below this important Fibonacci level, the next technical floor is at 1.62%, which goes back to the lows of early May 2013.  We think that it is highly likely that 1.62% will be tested and probably broken before too long.

And this morning’s data, along with earnings misses, show how Dollar strength along with lower oil prices are making a negative impact.

Here’s an interesting example that shows why US Multinationals are facing stiff headwinds from the strength of the Dollar:

Just 5 months ago a product selling for 1,000 US Dollars would of cost a European 745 Euros.  Today that same item would cost them 900 Euros.  That’s a 21% price hike in just 5 months!  Is it any wonder why there are slower sales for US Multinational corporations?

(Unfortunately, the 10 year was unable to hold below 1.78% so the game is still on the table.)

Stocks tried to get up off the canvas but they only got to one knee and took the mandatory 8 count.

They continued to struggle and shortly after noon, I sent this follow-up:

They are off day’s low but have not been able to mount a credible rebound, so far.  Oil continues to give hints of stability, which could help stock bulls.

Very active first 90 minutes stops dead as we shifted toward the European close.  Today’s action must be a topic on first day of FOMC meeting.

Run rate at 12:15 projects to an NYSE final volume of 710/790 million shares.

(The afternoon drift left volume at the lower end, with the final volume barely under 710 million shares.)

Around 1:00, the Dow managed to climb above the opening level and stocks drifted higher as they trimmed the morning lows by nearly 50% by 2:45.

In the early stages of the liftoff several members of the trading division of the FoF cited an unusual potential tailwind.  Here is a typical email from one:

Some tailwinds starting 2pmET —->  A 2011 NY Fed Staff paper shows that since 1994, more than 80 percent of the equity premium on U.S. stocks has been earned over the twenty-four hours preceding scheduled Federal Open Market Committee (FOMC) announcements (which occur only eight times a year)—a phenomenon they call the pre-FOMC announcement “drift.”

The “drift” was a bit underwhelming.  While we did reach the day’s highs 45 minutes after 2:00, we ultimately closed slightly lower than they were at 2:00.  So, the first two hours of the 24 hour FOMC upward “drift” was at best a wash.  We’ll see what the final 4.5 hours produce.

Greek Markets In Turmoil – Things in Athens continue borderline chaotic.  The Greek stock market is down the equivalent of 2500 Dow points since Friday.  Here’s a nice synopsis from my friend Peter Boockvar over at the Lindsey Group:

Any thought of pragmatism from the newly elected Greek government is quickly being thrown out the window. But, when you elect Marxists, this I guess is what you get. Greek capital markets are under major stress again today as they are losing faith that the negotiated process from here on with debts and budgets will go smoothly. The Athens stock market is down by another 8% and lower by 14% in just 3 days. Greek banks are down by 17-20% today alone. The 3 yr note yield is higher by 295 bps to 16.98% vs 10.1% as of Friday’s close. Greek 5 yr CDS is wider by 40 bps and has risen by 400 bps over the past three days. Alexis Tsipras held his first cabinet meeting today and pledged four priorities: 1)a return to dignity for the Greek people, 2)help the economy, 3)renegotiate Greek debt, 4)Get rid of corruption in government. He also wants to bring back a higher minimum wage just when the Greek economy needs to get more competitive. He wants to hire more government workers just as they have too many and he wants to freeze plans for privatizations just as the private sector is most needed. With respect to what everyone is most focused on, debt renegotiations, Tsipras today said “we do not want an extreme catastrophic clash…we do not want to go to mutually assured destruction but we won’t continue being subservient.”

Consensus – As noted above, there is an upward bias to FOMC days but favorable seasonals have not delivered for the bulls so far this year.  With no press conference, temptation is to make few or even no changes in the wording.  Hints of contagion in Europe may build a headwind.  No time to let your guard down.  Stay wary, alert and very, very, nimble.

12 Jan

Art Cashin says that…..

Whipsaw Week Ends In Another Leg Down – Equities got hit from a variety of fronts on Friday. There was the payroll data that looked terrific at the headline level but under further review had some deflationary undertones. Then there was the price of oil, whose continuing weakness suggests global slowing. Add in the carnage that showed up in European markets and you can see how the bulls faced an uphill fight that was nearly vertical.

The payroll numbers showed solid increases and last month’s jump in payrolls was even revised higher. The brief initial reaction in bonds seemed to buy into the concept that the higher payroll numbers meant the economy was kicking into high gear. In a few minutes, however, the boys in the bond pits began to see the drop in wages as possibly deflationary and yields went into negative territory.

Meanwhile in Europe, with the Parisian terror situation as backdrop, stock markets sold and then plunged. For purposes of comparison, let’s look at some of the European closes converted into Dow equivalent points: France -340; Germany-346; Italy -585; and Spain -700. Not a lot of help from our friends across the pond.

Millionaire club

Dow Jones Reaches 14000

11 Feb

Dow Jones Reaches 14000

Extract from Larry Pesavento Newsletter from 5th February 2013:

Dow Jones Index reaches 14000

The Dow Jones Industrials closed above 14,000 for the first time since 2007. Back then, shortly after making this high, it gave away over 60% of its value in the next 18 months. Nothing has changed since the last newsletter as all the patterns are complete, but they are extending past the ratios in some of the indices. The cash SP500 index and the NASDAQ and the New York Stock Exchange indices, are still in various modes based on the patterns that we follow. If the market is up strong this coming week, it will invalidate the Bradley Model data of February 4th, and it will suggest more to the upside. This happened in 1990 and 2000, but the patterns were a lot different then and the markets were a lot more volatile. The VIX index, the fear index, is still near historic lows and there is virtually no fear being long these markets for stocks on a global basis and domestically (US). The Trade of the Year lasted all of two weeks and it was stopped out on Friday. Personally I will be looking for a place to go short as these patterns are still suggestive of a vicious bear market right around the corner.

Dow Jones Reaches 14000

The Euro vs. the US Dollar is reaching the 138 level, which is the long-term 61% retracement from the highs of 2011. It also completes a bearish Gartley patter. This is suggesting that the US Dollar Index is going to the 79 level. Should the US Dollar Index go below 70, it sets up much lower levels. It appears the Federal Reserve is going to the the Dollar float lower. The Japanese Yen is a world of its own, and……
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Euro Dollar Weekly Chart

14 Jan

Euro Dollar Weekly Chart

Euro Dollar Weekly chart gives a very clear technical indication of where the market is headed. There are compelling reasons, technically, to argue that EURO DOLLAR will see 1.47 again in the coming months.

A massive head and shoulder pattern suggest that the EURO DOLLAR, which on the long term chart is range bound between $1.20 and 1.60, will have a target with 1.47. This coincides with another technical pattern. Watch the video to see why:

Euro Dollar Weekly Chart Video

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