The beginning of the month warrants a review of the seasonal patterns that have influenced forex markets over the past several years. For November, as we have done for all months in 2016, we have expanded our focus on the period of 1996 to 2015 in recognition of the evolving relationship between economic data, central banks, and financial markets. The longer observation period captures several crisis events/periods that traders may find analogous to events unfolding today, even as the ramifications from Brexit are unclear: the Asian crisis; the US tech bubble; the US housing bubble; the global commodity bubble; and previous rate hiking and r...
EUR/USD 4 hour The EUR/USD bullish bounce at the support zone (green lines) could see a continuation higher once price completes a wave B (purple) at one of the Fibonacci levels. The bullish zigzag should price towards the Fib levels of wave 2 (green) without breaking above the 100% level (invalidation). 1 hour The EUR/USD failed to break the top and built a larger ABC (blue) correction instead within wave B (purple). Price needs to break above resistance (red) before a wave C (purple) is confirmed. Price could have completed the wave B (purple) at the 38.2% Fib but could also retrace deeper towards the 50% Fib, which will depend on the price...
News flash: Investors who assumed their investments in conservative bonds and bond funds (LSBRX) were safe from losses are learning otherwise. Since mid-2016, the performance for U.S. bonds (BND) with top credit grades have sunk almost 4%. For perspective, the 12-month yield on ETFs tracking the Barclays U.S. Aggregate Bond Index is just 2.40%. Put another way, bond investors have already seen more than one-year’s worth of income wiped out by falling bond prices. Bonds, like other securities, fluctuate in price and can lose value. This is even true for tax-exempt municipal bonds (VWAHX) who have seen their market value fall around 5.5% ove...
Australia’s economy shrank by 0.5% in Q3 2016, worse than a growth rate of 0.2% that was expected. Australia has seen very quarters of contraction since it last had a recession 25 years ago. The economy of the land down under previously squeezed in 2008 but that bout, as well as others, never lasted more than one quarter. The read is the worst since early 2011. Year over year, the economy is still growing: 1.8%, yet this is lower than expected as well. Basically most GDP components dragged it down. The silver lining is that this Q3 contraction came on top of an upwards revised Q2: the economy grew by 0.6% back then. Is this a one-off blip...
The Fed’s balance sheet needs to be studied extensively because of the unique policies the Fed has put in place in the past few years. The difference between what’s likely to happen and what’s expected to happen is getting larger as we approach Trump’s presidency. It’s going to be interesting to see when this difference plays itself out. The economic data worsening, the quarter point rate hike in December, or one of Trump’s initial policies may be the catalyst for the market to realize the situation at hand. The differentiation I’m referring to is the market’s assumption the Fed can raise interest rates and sell the $4.5 trill...
Since the ECB began the Public Sector Purchase Program (QE) in the middle of March 2015, it has purchased (through the end of November 2016) almost €1.2 trillion in securities from the financial sector. In addition to that, the central bank has bought €46.2 billion in corporate bonds, and €148 billion of covered bonds in a third iteration in that class. The whole transaction total is about €1.4 trillion of those three programs. We do have to consider the residual runoffs of prior balance sheet efforts, including the SMP and the prior two covered bond programs. Those are a net decline of €56.7 billion, bringing the total asset side t...
The Nasty Habits of Reality People never intend to bring disasters upon themselves. But they sometimes put themselves in situations in which disaster is the only way out. The War Between the States was supposed to be quick and decisive. The glorious histories of the war were already written – at least in the minds of the combatants – by the time of the First Battle of Bull Run. General Thomas “Stonewall” Jackson inspects the action at the First Battle of Bull Run. Confederate observers were suitably impressed. We’ve got this in the bag, they said to themselves. Let’s start writing the history books! There would be a few heroic cha...
A solid session as small caps stock lead the overall market higher. Nasdaq volume was higher on the session with NYSE volume falling just short of Monday’s level. We continue to see positive action from this market, yet we still do not see any blow off type moves. Sure, there have been plenty of stocks popping off from an intraday point of view. We are talking big exponential moves where leading stocks make tremendous gains. Steady as she goes with this uptrend. No need to over complicate matters as many will try to do. Keep it simple and do not try and force trades. Stick with the trend. Looking back at 2016 it has been an interesting year...
Podcast: Play in new window | Play in new window (Duration: 13:16 — 6.1MB) DOW + 35 = 19,251 SPX + 7 = 2212 NAS + 24 = 5333 RUT + 14 = 1352 10 Y + .01 = 2.40% OIL – .95 = 51.88 GOLD – .80 = 1170.20 Another record high for the Dow industrial average. This is starting to be old hat. Also, a record high for the Russell 2000 – close but no cigar for the S&P. Still, it looks like the stock market, at least the US stock market loves the idea of Trumponomics, at least for now. The rest of the financial world – not so much. The bond market certainly has not been happy. Government bond prices have unraveled. The yield on the benchmark 10...
The stock market looks like it is making a distribution top into the FED meeting. We may see a small pull back into late week and then higher prices into the 14th. We could see a sharp drop into the 5 week cycle low due around the 19th of December. Overall, the market should be lower into March/April 2017 (Minor Wave Wave X of Intermediate Wave Z of Primary Wave 4) next year due to a FED rate hike. I believe from top to bottom, 14% could be taken out of the market into the Spring. The recent pattern begs for a summer top and more selling into the fall of 2017 that could be a lot worse than the one in the spring. The final wave up before the...