- Chart of interest - AUD/EUR (the sleeper trade of 2013?)
- Chart of Interest - Sugar
- Chart of interest - Kiwi about to explode north?
- Chart of interest - gold, technically perfect?
- Charts of Interest - Copper & the USD Index
- Japan Stocks and Mr Abe - an Opportunity?
- US Equities - don't fight the FED
- Hopeful for Gold and Silver
- The USD Super Cycle
- Important theme - Loving that EUR v the rest
- View archive...
This is one of my dead set favourite trades.
Since the onset of the GFC the Australian dollar has appreciated against the EUR, almost doubling in value as the market sought refuge from the beleaguered EuroZone and finding haven in the high yield, proxy to China growth, AAA rated Australian dollar. What an incredible run.
However late last year things began to change with the Troika providing enough funds, and therefore time, for the EuroZone politicians to make the required fiscal changes i.e. labour market, pension reform etc. Meanwhile the RBA forecast an earlier peak in mining investment and resumed cutting rates.
It is my belief that the NZD and AUD currencies are vulnerable to their own success of the last few years (the cure for a high currency is a high currency – eventually it’ll hurt). I think too that Eurozone data will surprise to the topside in as much as it surely can’t get worse.
Technically the picture looks intriguing. We had the ‘head and shoulders’ break down below the neckline and then, as so often happens the retest. Now we look likely to resume the move that should head towards 0.7000
I’ve been stalking this one for a while now. Wedge formations are notoriously long lasting so patience has been required.
Interestingly I cannot find a lot of buzz on the wires (which I like!) about the latest move apart from expectations thatChina’s imports will rise in Q1
1) Long term picture – The price of Sugar has halved over the last 2 years
2) A closer look. The suggestion here is that Sugar broke below the long term support line but quickly reversed and then days later has bounded higher again. Could this be a very significant and long term low in place now?
I’ll be watching the news wires to see if there is a developing Sugar story over coming days and weeks.
The 1 month range of 0.8300 to 0.8450 has bought the Bollinger Bands in to a ‘trend ready’ state. The bout of USD weakness (my primary, and long held expectation, on U.S. QE activities) has seen the NZD/USD respect the 9 month uptrend (yet again) after breaking over the nearly 2 year trend line resistance back in December.
1) Big picture
2) A closer look – Held the 9 month uptrend, Bollinger’s are trend ready.
Two nights ago Gold dropped sharply, stopping out many of my ‘long Gold’ clients. The move through the previous low of US$1,651.00 was particularly sharp with stop losses at that level done with significant ‘slippage’ at $1,647.00. That slippage tells me, quite clearly, that my clients were not alone and the market on the whole was caught out on the drop (caught long).
This is classic market behaviour. If market participants are all sitting long then they are sellers on their next transactions, thus inhibiting moves higher. Now a large amount of those longs have been forced out. Clearly the implication to me is that the market is now free to move higher…….
With that in mind take a look at the chart.
1) The move down from the US$1797 high to the $1625 low was a prefect ‘Fibonacci’ 61.8% of the previous rally ($1527 to $1797).
2) The latest 3 week pull back is again a perfect ‘Fibonacci’ number, this time a 76.4% move (my favourite ratio which I have observed often occurs before big moves – the depth of the move often confounding the most ardent bull – as is my base case here).
3) Yesterday’s low stopped on the rising trend line from the aforementioned lows.
A closer look
No doubt this analysis is all a bit over the top for most of you but the end result could be a good buying opportunity with clear trading parameters if you are a gold bull (USD bear) like me.
In the wake of the FED’s FOMC announcement this morning these charts bear close scrutiny.
The FED have pledged to keep the money spigots wide open, to pay for their US$85 bio per month of various securities purchases, until the labour market improves to 6.5% unemployed goal. i.e. the song remains the same.
We know that the majority of data from around the world, last night’s U.S. GDP excepted, has been strongly on the improve lately so is Dr. Copper (recall Gartman says it has a PHD in economics), ready to break higher just as the USD Index drops below support?
With the EUR/USD rampaging higher, Gold and Silver again looking strong I suspect these support/resistance areas will be broken in due course and create very tradable moves.
I have profiled (ad nauseam) the potential for JPY weakness over the last 6 months of last year with good effect as the USD/JPY rose from 77.00 to 90.00 and the NZD/JPY from 58.00 to 75.00 in the same period.
What I haven’t done is document the opportunity for very large rises in Japanese stocks.
The real speed of the JPY move has come as the market came to understand that former PM Abe would once again hold power, pledging to learn from his previous mistakes as PM and essentially do the opposite (monetary policy wise) to his last tenure. Mr Abe says that in 2006 he mistakenly backed the BOJ when they raised interest rates. Following that decision the Nikkei stock index fell by half and the JPY appreciated by 40% against the USD.
Now Mr Abe is back at the helm and with his pledge to enforce a 2.0% inflation target on the BOJ, and the measures they’ll need to implement to achieve that will have to be nothing short of extraordinary. Indeed, one analyst I have come to respect, says Abe’s program will be like Bernanke’s but ‘on steroids’ !
Now to understand the potential for Japanese stocks we need to look back a bit in history. In 1989 the Nikkei Index was close to 40,000 and only this month the Nikkei was languishing below 10,000…………………incredible that the valuation of Japan’s corporate sector is currently worth ¼ of what it was more the 20 years ago. Now that’s a bear market huh? Here is a chart back to 1963 (great year that by the way!)
Now the other chart that screams that Japanese stocks are absurdly cheap is the Price to Book ratio that shows that in 2011 (I couldn’t find a more up to date chart but I understand that ratio hasn’t changed much) the index as a whole was trading BELOW is net asset backing at 0.9 !
So here’s the nib. Japan has a stock market that is super cheap (ridiculously so?) and now they have a government hell bent on cutting interest rates and printing money forcing investors back into stocks. That and the weakening JPY, which significantly helps the blue chip exporters, should see Japanese stocks much higher this year.
I’ll be spending the rest of this week looking for the best vehicles (financial instruments) to express this trade and will revert. For now I’ll buy a small amount of Nikkei and look to add a bigger amount on any dip.
U.S equities are looking very strong in my opinion. And why not?
The FED have the monetary policy taps open and are pumping hard (at an increased rate in recent months with QE till 6.5% unemployed achieved), the Fed tells us that U.S companies are lean and mean (no excess staff, costs cut back to a minimum and sitting on huge piles of cash) and with no yield available anywhere investors are being pushed back into shares.
And this is the kicker, the FED wants asset prices higher! If stocks (and houses) appreciate then the debt burden (which created the GFC) dissipates i.e. they inflate their way out of trouble.
Today the Dow Jones Transports Index rose to ALL TIME HIGHS ! The transport index is seen as an advance indicator because transport companies move goods around before the sales of those goods are recorded in official figures. Thus their share prices are highly sensitive to early swings in business cycles.
Fig 1 – Dow Jones Transports weekly chart back 10 years– Breaking to all-time highs, blue sky ahead.
Fig 2 – Dow Jones Index. Market tried lower first last night only to end higher within the context of an established uptrend.
If you’re buying into this idea call me to tailor the position size to an appropriate risk on your account.
DON’T FIGHT THE FED.
Recently Gold and Silver have been bucking the trend of a weaker USD, failing to rise despite the moves up in NZD, AUD, EUR and Copper etc.
I find this action rather strange given the background of the FED’s supportive action but you never know if, say for example, the IMF are selling Gold to send bailout money somewhere or if a large gold miner has to put on a hedge due to their treasury policy.
So with the above situation I have been stalking a reason to resume being long Gold and Silver. The action overnight hints that the precious metals may be worth a buy here with stop loss orders below the overnight lows.
1) Gold daily – recall the big picture. Gold has been in a brilliant uptrend since 2001 and in August broke higher out of a multi-year consolidation triangle
A closer look at Gold – support apparent now at the overnight low
2) Silver has a number of similar technical attributes including stopping at the important Fibonacci number, 61.8% decline of the last rise. Also Silver probed below, but closed above, the 4 month major trend line support.
The USD Index has fallen from 121 in 2001 to currently sit at 80 (has been as low as 71 at the height of the GFC 2008).
Essentially the FED’s policies since the GFC have been aimed at devaluing their way to prosperity. Remember when they had a ‘strong dollar policy’ that was quoted by officials at every chance ? That’s right, we haven’t heard that one for a very long time!
I have long maintained that this super cycle won’t end until the rest of the world cries out “Hey, you can’t devalue your way to prosperity at the expense of the rest of us”.
That will likely require an accord of some sort like we’ve seen in the past, see ‘Louvre Accord’ 1987 – halting the decline of the USD http://en.wikipedia.org/wiki/Louvre_Accord and the ‘Plaza Accord’ also 1987 – http://en.wikipedia.org/wiki/Plaza_Accord .
Already we have heard increasingly strained complaints from the likes of the outgoing RBNZ Gov. Bollard, the RBA and the BoE. This I’d suspect is only the beginning and the howls of anguish are only likely to get louder before this super cycle is finished. Unfortunately for our little export orientated economy that probably means coping with a much higher NZD/USD, and worryingly a higher NZD/AUD which recently has served as a bit of a circuit breaker for us.
Looking at the USD Index, the price action since the onset of the GFC simply looks like a consolidation and today’s FED announcement has every chance of propelling the USD down and out of the multi-year triangle consolidation.
NZD/USD at 0.9500 anyone ?
There is definitely a building of EUR positive sentiment among the ‘professional’ part of the market.
Understand that when Italian and Spanish debt interest rates fall is that because parties are buying the bonds and if those parties reside out of the Eurozone then they have to buy the currency.
To that end more stressed EZ debt buying was seen last night after the generous Greek bond buyback (mentioned in my OPI’s this morning). Risk-seeking hedge funds are hoovering these things up because a) they have great yields in a world starved of decent interest rate returns and b) they feel the biggest default risks have passed.
Now add to that all the short covering EUR buying that will be forced upon the EUR perma–bears (short and caught!). You know I could count on my hand the number of EUR longs we have on our books. Our client base just will not buy EUR…………………..which says it all to me.