I guess it makes sense to quickly pull this apart, break it down and get squared on where I’m heading next, as the Fed’s tapering announcement yesterday has certainly raised some questions.
It’s obviously still a bit early to be making any “rash decisions” (as a single day of market movement is that and only that) but it is interesting to take a quick look at how a number of asset classes have “initially reacted” to the news.
Gold has been crushed, moving lower a full 30 bucks.
- But wouldn’t “tapering” be viewed as “less stimulus for markets”? Shouldn’t gold have shot for the moon on the news?
U.S stocks shoot higher, as Dow gains 300 points.
- But isn’t the idea of “tapering” going to lead to higher interest rates? Shouldn’t stocks be falling as the Fed pulls back on its POMO and market liquidity injections?
The U.S Dollar has moved higher, but is still well under strong areas of resistance. The U.S Dollar has stalled already.
- But shouldn’t the U.S Dollar “break out” on news of “tapering”? Isn’t the idea of “tapering” supposed to be good for the currency?
Bonds as seen via TLT haven’t even budged. U.S Bonds are still very much under pressure as selling continues.
The media spin is clear – that the U.S is indeed “rebounding” and that the recovery is well under way. This now “confirmed” via the Fed’s decision to taper. The Fed was doing the right thing while adding stimulus, and now will be perceived as doing the right thing in pulling back right?
The puppet show continues, as for the most part “none” of the above “initial reactions” made any immediate sense. It’s unfortunate having things pushed back a day or two but as it stands……everything is “still” very much on track.
I’m expecting to see the U.S Dollar roll over here quickly – (early next week) and will continue with the same framework I’ve been working within these past several months. The Nikkei hit my 16,000 mark for a second last night as well so…..that too will provide some valuable information moving forward.
Sitting out yesterday in near 100% cash was one of the single best trade decisions I’ve made in the past few months, now allowing me to deploy “big guns” at an instance – when “real opportunity” presents itself.
You where warned. You may have gambled. You likely lost.
Yes, again guilty, I was one of the sheep that got slaughtered there yesterday 🙁
Man, who would expect that kind of reaction? Spike up, spike down, spike up….then down…So what did Ben say? Taper yes, no, then yes….just make up your mind Ben!!! 🙂
You know better Franky!! Especially with gold these days as its not a trade, and likely won’t be a trade for some time to come.
Sitting out the risk events takes discipline for sure, but the rewards are ALWAYS worth it.
Kong, if you still believe in USD weakness, don’t you think gold will go back up soon? Maybe forming a double bottom…?
Yes all the miners / GDX had gone double bottom / then “past”….as I expect Gold to do about the same.
I’m looking at both EXK as well GPL in silver, both with producing mines here in Mexico.
It’s an absolutely “unreal” situation with the PM’s, as I chose 2013 to pick up and really start following them – what a grind.
The pot calling the kettle black? You need to make up your mind as a trader instead of flipping back and forth. Real change is slow. The taper is meaningless. The Fed has no control, no power. If you are paying attention to what the Fed does and says, you are watching the wrong hand. Pick a side and stick to it until you realize you picked wrong, don’t just get lead back and forth like a lemming.
Who are you talking to Andre?
I’m doing exactly that. I formulate my own trade ideas / plans and put them in motion – to play out as I envision, or not.
I’m sticking short USD until the time comes when I’m “not”.
Of course the taper is meaningless.
I was talking to Franky.
So basically nothing changed? It’s still the same old bad news = good news and good news = better news market?
I haven’t seen anything change no.
Do you consider yourself a macro trader that understands the big picture and trades longer term moves or do you trade more momentum and trends on a shorter term horizon?
I’m a “macro enthusiast” as I love to study “all things Earthly”. Economics / Forex being one of many interests.
I’m also a complete puzzle nut – love math/numbers/problem solving etc so…..the “techncial application” of trading is also fun for me.
I understand / study long term moves – but trade / pull profits ( these days ) on an extremely short term horizon.
I don’t feel that you can have one – without the other.
This is my first time writing, I have been trading fx for a few years now, and learning discipline the hard way. I have one question for you; Do you maintain two or more forex accounts to hedge your bets? I am considering doing this.
Thanks for your posts!
No I don’t maintain multiple accounts for that reason no.
I don’t really believe in “hedging” as for the most part, it suggests you’re going to throw more money into the market, after likely making a mistake / holding a trade too long.
Now you’ve got double exposure and the need to effectively manage “multiple trades” moving in “opposite directions”…….timing then becomes a factor as – If you got the first one wrong – what makes you think you’ll now time “both”?
Not for me.
Thank you for the wisdom.
Eventually we all find “something that works” – as it can be much different for every individual.
With millions of trades a day, and any number of ways of approaching it – the key is to just find something that works for you.
If you’ve already been at it a couple years, you are likely getting closer. Perhaps another year or so…….
Sorry i was anonymous…name is bill
Nice having you aboard.
I have a quick question for you. What major resistance (in whatever currency pair(s)) would have to fall for you to change your tune on the US dollar? I’m not saying it will happen, but at what point would you reconsider broad dollar strength as more of a longer term bet, even though I know you trade shorter term. Personally, I’m all about dollar strength (except for in the USD/JPY during a market crash) because I see it as the easy trade because it is currently benefiting from taper talk and rising yields, and it’s a great hedge in case equities take a tumble (something I’m preparing for). I know you are calling for a divergence of this risk-off flow, but until it happens, I’ll feel pretty confident that the dollar will still soar in case of an equity crash, until it doesn’t 😉
I always appreciate your thoughts.
Excellent…excellent..EXCELLENT QUESTION! As yes! One day you will tune in here at Pot Stock Watch and find that I am craaazy long USD!
He he he…well it’s already happened at least once in the last six months, but I can’t remember the exact post – something about “face ripper”.
I’m of the mind set that we’ve got one more solid leg down in the buck, and “then” I would look to re-evaluate.
There is no question that “the safe haven play of the past” could surface again as the option has been explored here a number of times.
I’ll truly need to see this play out in real time, as we’ve got the easing in JPY creating an additional variable this time around, as well an unusual situation with gold.
I’d be hard pressed to “ever get long USD” if only for a short / mid term move as I see the currency facing significant headwinds moving forward BUT will certainly be riding it either way.
A shot across the bow – would have USD push back over the 81.50 type area.
For example – if something like that where to occur over the next few days ( considering the “supposed” USD strength ) I’d likley perk up, and take notice.
🙂 it’s good to know that we’re looking at the same number in the short-term. In the longer term, do you also see a move above $USD 85 (where a decade-long falling trend-line resides) as having the potential to start a massive move higher in the mid to long-term?
The thing is……we’re really contemplating a “fundamental shift in policy” as opposed to any specific number or level so…..its certainly in the realm of speculation.
It’s my feeling that with QE still on track ( and my expectation of more QE also still standing ) we will see USD start making its zigs n zags in a continued “lower” fashion.
A move to 85!? WoW!
No…..I don’t see that happening in the following years no.
…fair enough. I’ll admit, it’s difficult to be a dollar bull from a logical point of view when considering QE (barring printing in a deflationary environment), but I’ve been burned way too many times in the past for not accepting the fact that the market doesn’t always follow the seemingly logical path. I prefer charts over logic at almost every turn. Plus, it’s extremely difficult to figure out the fundamental value when considering the plethora of variables at play in the currency world, especially with the US dollar. Yes there is massive QE printing, but let’s face it, the dollar has been artificially propped up for years (and this can continue for a long long time) because of it’s superpower (safe-haven), liquidity (largest market), and exclusivity (petro-dollar), etc etc status. Don’t get me wrong though, you make some valid arguments for its continued decline.
Let me ask you this: what fundamental shift in policy are you looking for? IMO (and this is a large leap), I see the looming disaster in Japan as being a warning for all central banks with large amounts of debt. If Japan fails with its QE and loses control of rates and inflation, wouldn’t you expect the US to also abandon its own version, especially “if” (big if) the entire world blames Japan’s disaster on QE and debt? Just imagine a deflationary environment without both QE because CBs are terrified of its repercussions and debt spending because the world is terrified of inflation. All it takes is one disaster for people to change their minds…similar to how the world rejected nuclear power after Japan’s meltdown. I’m a large macro (and cycle) guy myself so I’m always thinking about these things. 😉 Interested to hear your viewpoint.
I too think it’s very likely we see the “unraveling” start with japan, and also consider that it might all happen too quickly for many.
We are going to experience a complete currency re set if u ask me, where things will need to completely come apart first……….then rebuilt.
It’s been a long day and frankly – I’ve not been able to really address your questions / posts Pecuniae…or at least the degree I’d like.
There is so much to get to as clearly – you’ve got your head wrapped around all of this and raise a number of great points.
At times I think I’m actually “too macro” as I feel I’ve got an idea as to where things are going but……the timeline itself – always difficult to nail down.
I’m of the mind set that global markets are already well into “life support” mode, with projections moving forward suggesting “slowing” not “expansion”. This being said I can only conclude that the past 5 years of “easing” has done very little to stimulate any “new growth” but rather…plaster over the larger problems at hand, and in turn…..further contributing to them.
I feel that it’s “print or die” time in a very absolute sense, and that the U.S recovery story has been that AND ONLY THAT….a story on the news. I don’t feel there has been a recovery, I don’t feel things in the U.S are getting better but actually worse.
What I’d be looking for as to “fundamentally change my view”?
I would need to see some type of revolutionary industry / growth engine ( possibly in space, bio med etc.. ) representing massive job growth and development. Something like the Internet or the Industrial Revolution.
Short of that……it’s “hanging by the seat of their pants” as far as I’m concerned. I find it very hard to imagine that they will be able to “kick the can” long enough for this to occur, and that the chances of a “black swan” (Japan’s Fukushima, War in Asia, Collapse of Japan’s Economy, Collapse of U.S Economy etc… ) far outweigh.
We will see the printing pressed kick into high gear loooooong before we’ll see those unemployment benefit lines in the U.S shrink to nothing.
I’d just like you to know Kong that ANDRE isn’t me.
I have the DXY looking bullish here & on the verge of a positive squeeze fire on the Daily – depending on the MM of this move the weekly & even the monthly could fire off Positive taking us back to the $83-84 levels again in a short period of time…..
Right now I am very focused on the daily set-up which could spark a larger move – oh pairs will react is another story – we shall see….. This will put even more downward pressure on the PM sector as if we need it but it is what it is – I would think another raid on the metals will work in tandem with the DXY’s rise – 2am sounds just about right taking out the June lows in Gold should this play out – on DXY strength!!!