Metals are approaching serious support levels

18. November 2015 · Write a comment · Categories: Uncategorized · Tags: , , ,

I personally don’t trade precious metals like gold or silver, or industrial metals like copper. As a currency trader I watch them very carefully since currencies like the AUD, NZD, NOK and CAD tend to be very sensitive to them.

As you know, gold, silver and copper have been under tremendous pressure as of late. The Strong USD as of late has been an added thorn to their side as well in the last year. Frankly, I am not too sure how much lower they can go, or when they will bottom. But the charts you see here, could argue we are at levels that may provoke a bounce.

Take a look:

11-18-15bloggold

As you can see with gold, we are trading very close to a 50% retracement near the 1070 level. We have probing above and below this level the last couple weeks.

11-18-15blogsilver

Silver shows we are sitting on a multiyear trend line, which suggests that the $14 level is a very big support.

11-18-15blogcopper

Copper is also trading at a multiyear trend line. However, one could argue that we connect the tip of the candle back in 2008 and you could take support closer to 1.95 which is also the 78% retracement. Take a quick look at the MONTHLY RSI oversold conditions!

Regardless of how you feel about the commodity markets and precious metals in particular, one could argue that they are getting close to a bounce. It may not be the ultimate low, but I think value players will be looking soon at these commodities.

The next question is how the AUD, NZD, NOK and CAD react to some of these commodities if they do bounce soon. I suspect they could also see a bounce higher as well. If you take a look at the AUD below (which has a strong correlation to copper and gold) has not been following the metals market lower the last couple months. We could be setting the stage for a bounce here too.

11-18-15blogAUD

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Disclaimer: I have been long the AUD/USD for the last 2 days, and I am looking to add to current exposure.

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Technically, the EUR Currency Looks Very Weak

21. June 2015 · Write a comment · Categories: Uncategorized · Tags: , , , ,

Many people believe that a Greek compromise between the EU and Greece is right around the corner, and it very well may be. Whether one is going to be finalized in the coming week or not, the EUR looks very vulnerable technically, and is probably going to be a good short regardless of the outcome.

If Greece eventually defaults and is shown the exit, or stays in the European Union with a parallel currency, or even stays in the EU with a new set of reforms and possible concessions, it really doesn’t matter. If you think about every one of those scenarios, the European Central Bank will probably have to stay defensive to promote price stability and confidence with ultra-low rates and extremely loose monetary policy for the foreseeable future. Ultimately, that will drive price action in the currency market and keep the EUR single currency pressured.

Below, we will take a longer term technical look at the EUR against most major currencies on the weekly charts:

6-21-15EURAUD

EUR/AUD – Although the pair has seen some recent upside the last few weeks, the pair is trending lower.

6-21-15EURCAD

EUR/CAD – The pair has been attempting to complete an inverted H&S pattern but has fallen short of the objective the last couple weeks. The downtrend line comes in near 1.4000 and is keeping a lid on price.

6-21-15EURCHF

EUR/CHF – This currency pair is one of the more vulnerable currencies in the near term, in my opinion. If Greece and the EU can’t put some sort of “deal” together, a Greek default could lead to a massive rush into Swiss Francs for safety. Despite the hefty negative interest charged on deposits with the Swiss National Bank, most institutions, risk managers, banks, etc. won’t care about that in the near term to ensure the safety of their deposits.

6-21-15EURGBP

EUR/GBP – With renewed beliefs that the BOE will be the central bank shortly after the FOMC to raise rates, the EUR/GBP looks as if we can push levels not seen since 2004 if the EUR continues to weaken.

6-21-15EURJPY

EUR/JPY – The last couple weeks the EUR/JPY has stalled at the Golden Fibonacci ratio (61.8%) and has failed to rally past it (140.75) on a sustained basis. The pair looks vulnerable to a correction now.

6-21-15EURNZD

EUR/NZD – The EUR/NZD sharp correction from 1.4000 has led a test of resistance at 1.6400 in just a couple of months! Mostly this was due to the RBNZ’s surprise rate cut. We can’t rule out further strength here and really is the one currency the EUR has had a lot of strength against recently. After a sharp rally like we have seen here, a likelihood of a correction is building.

6-21-15EURUSD

EUR/USD – The pair has been bouncing in recent weeks as the positioning of USD longs and EUR shorts have been at extremes in recent months. As Marc Chandler of BBH noted this week, the EUR long positions “was the largest accumulation in a year, which itself was the biggest since January 2011.” The EUR looks like we could reach as high as 1.1640 (2005 lows) before turning lower. The setup would be similar to that of the EUR/GBP (flag pattern) which is a continuation pattern of the recent predominant trend.

So, in other words, if a Greek/EU deal does materialize in the coming week(s) I will be looking for the EUR to turn lower after a knee-jerk initial move higher.

There has been speculation recently that if Greece is forced out of the European Union, that the EUR would ultimately rally, The thought process would be if you remove the weakest country (Greece) the Union itself would be stronger as a whole and the EUR would turn higher as a result. Although long time listeners of my daily webinars knew this was an idea I had also subscribed to years ago when the EZ periphery first showed signs of trouble, I still think the “unknown” or fear of the potential fallout or contagion to other Eurozone countries would keep the EUR downside pressure initially before that could take place. Investors loathe fear and the unknown, so I suspect the EUR would stay under pressure until the market was absolutely sure the potential for contagion was contained.

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Disclaimer: I do not have any exposure in the EUR. I will be looking to initiate EUR shorts in the coming sessions.

 

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Hang Seng Stock Market Poised to Pullback?

21. May 2015 · 1 comment · Categories: Uncategorized · Tags: , , , ,

In recent months all the rage has been talk about the Chinese stock market and how aggressively it has rallied, but probably more concerning on how many “retail trading accounts” have been opened. Which to me, is probably the scariest part of the analysis that you will see below.

When I say “scary” what I mean by that is when everyone (I mean everyone) is buying stocks, and especially people that typically don’t (and probably don’t even have the means to dabble in the markets) invest in the markets, it becomes very concerning. In today’s market I think the term “bubble” is grossly overused. But in terms of the Chinese stock markets, I think it may be appropriate. Here is Wikipedia’s definition of “Stock Market Bubble”

A stock market bubble is a type of economic bubble taking place in stock markets when market participants drive stock prices above their value in relation to some system of stock valuation.

Behavioral finance theory attributes stock market bubbles to cognitive biases that lead to groupthink and herd behavior. Bubbles occur not only in real-world markets, with their inherent uncertainty and noise, but also in highly predictable experimental markets.[1] In the laboratory, uncertainty is eliminated and calculating the expected returns should be a simple mathematical exercise, because participants are endowed with assets that are defined to have a finite lifespan and a known probability distribution of dividends. Other theoretical explanations of stock market bubbles have suggested that they are rational,[2] intrinsic,[3] and contagious.[4]

Emphasis on behavioral finance theory is mine.

Below, I take a look at the Shanghai Class A shares and I want to show you the weekly chart since 2007:

5-21-15Shang1

We have a cluster of Fibonacci (Golden, mind you…) levels with a 68.8% retracement from the 2007 highs to the 2008 lows. But also a 161.8% extension from the 2009 highs to the 2013 lows. That massive cluster comes in approximately at 4700.

Since many traders here stateside trade the Hang Seng, I started to wonder what those charts looked like. First, the monthly chart:

5-21-15HangSang1

You will notice that we had slightly over-shot the 78.6% retracement level as we exploded higher out of the wedge pattern last month. Here is the daily:

5-21-15HangSang2

After reports about the explosion of retail accounts opening in late March, the first couple weeks of trading in April caused price inefficiencies (aka gaps). As traders, most of us believe those “gaps” will eventually be filled as prices come back down. Also, you may notice that there is a head and shoulder’s technical formation with a neckline at about 27,000.

If you are long the Chinese stock market, or Chinese equities, I think you should pay close attention to what’s happening in Asia. We have rallied pretty sharply in recent months. And if you ask me, it seems like everyone is on the same side of the market. And when that happens, usually the opposite will occur.

overloaded bus

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Disclaimer: I have no position in any Chinese markets or currencies.

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My US Dollar (DXY) Trading Plan in the Coming Weeks

09. April 2015 · Write a comment · Categories: Uncategorized · Tags: , ,

I have always learned (in trading) to “plan your work, then work your plan.” If you listen to my daily webinars, I spend 3.5 hours a day talking strategy on how I would like things to shape up in the markets before I take action. Does that mean that all my plans come to fruition? No, not at all. However, if I have some sort of template or plan of what I am trying to do, it helps me forge my intraday and swing trading strategies in the currency market.

Today, I talked about my trading plan the next couple weeks for the USD index. I am hoping the market plays out this way and helps guide me in my FX trades. Funny thing is I don’t even trade the DXY. I trade FX crosses like the EUR/USD, AUD/USD, USD/JPY, etc. But understanding the basic trajectory of the USD index can help shape my decisions in the crosses. By the way, the USD/JPY makes up about 13.6% of the USD index, however never is factored into my equation when trading USD pairs since the USD/JPY tends to be more sensitive to yields and risk trends than the USD index.

The DXY index broke higher following the FOMC minutes yesterday. This created a double bottom in the USD index, broke a “bearish wedge” (should have broke lower but instead broke higher) and looks to be on the way to testing range highs. However, the double bottom has a projected target above the recent trend highs. If we break higher, I am looking for a target of about 101.50 which is a 127% extension of the recent range:

4-9-15DXY1

If this rally does happen, it is likely to be viewed as a squeeze as there have been so many traders trying to call a “top” in the USD as of late. That type of behavior is very common when you see very explosive and strong trend like the one in the USD index in recent months. Frankly (I have to admit) I agree with that thesis, however have had a difficult time trading it lately. So, I have been buying the USD (mostly) on dips as of late instead of trying to short the USD.

If the DXY does move higher as planned and makes a brief new high, the monthly 61.8 retracement level is at about 102.00. I have felt the last couple weeks that the 61.8% Fibonacci level at 102.00 has been “unfinished business” for the USD bulls anyway.

4-9-15DXY2

If we hit the 101.50-102.00 I would be looking for a longer term reversal (or bigger consolidation) of the US Dollar Index.

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

 

 

 

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AUD/JPY may be signaling something for the S&P 500

31. March 2015 · Write a comment · Categories: Uncategorized · Tags: ,

The AUD/JPY has always been a great correlation for the US equity market. The very popular “Carry Trade” has always been a great way to see strong correlation between stocks and the Forex market. Typically, the carry trade is a popular trade (for individuals or institutions looking to capture the difference in yield) in a rising market, but when risk aversion picks up (unwillingness to own assets) the carry trade tends to unwind and they fall precipitously.

Some traders or economists would argue that with so many central banks yielding such low rates, the carry trade is not as popular anymore. However, I disagree. If we are in a world where everyone is seeking yield, no matter how small. I think there is a good amount of money hiding out in carry trades these days. A great example is the AUD/JPY where the RBA has rates at 2.25% and the BOJ who is at .10%.

The first chart I would like to look at is the AUD/JPY weekly chart, which as you can see below, is approaching some critical trend line support. Also, please note we have made a “lower high” in 2014 vs the high in 2013:

 

3-31-15AUDJPY

 

 

Next is the SPX (yellow line) and the AUD/JPY:

 

3-31-15AUDJPYSPX

 

If you notice back in 2012 the AUD/JPY rallied sharply, that was when PM Abe was elected and implemented his three arrow approach of fiscal stimulus to the economy, dubbed “Abenomics.” That created a divergence between the SPX and the AUD/JPY (Nikkei followed a lot closer to the AUD/JPY at that time).

If you closely at the AUD/JPY now, we are developing a bear flag formation, which has targets set (technical) much lower. The question that one who owns stocks at current levels will be “will the SPX follow the AUD/JPY if it falls?”

 

3-31-15AUDJPYSPX2

 

The last couple days the AUD/JPY has been pointed lower, even when the stock market rallied 1.5% yesterday. Tonight we have Chinese Manufacturing PMI’s which could affect the AUD/JPY in the very near term.

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Disclaimer: I do own JPY, and have been long JPY against many currencies for many weeks including the AUD/JPY

 

 

 

 

 

 

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ECB is doing QE! Should I still buy stocks?

26. February 2015 · 2 comments · Categories: Uncategorized · Tags: , , , , ,

As my colleague Steve B just said it best today “The best trade over the last 5+ years have been buying the indexes when their respective Central Banks unleashes Quantitative Easing.”

I can’t argue that. Here is the proof:

2-26-15SPX

In November 2008 the Fed started to buy mortgage backed securities with QE1. Since then, QE2, Operation Twist and QE3 have been implemented. Obviously, going long the SPX late 2008 was the right trade.

2-26-15Nikkei

In October 2010 the BOJ announced that they too would implement QE. However it was “Abenomics” three pronged approach that really moved the market higher following QE. Once PM Abe was elected the Nikkei took off. Also, keep in mind the BOJ also did QE back in the early 2000’s but concluded at the time that it did not work. Anyway, since October 2010, buying the Nikkei was definitely the right thing to do. It took some time, but still worked well.

2-26-15DAX

On January 22, 2015 Mario Draghi of the ECB finally announced that they too would finally (long awaited) start QE. The DAX would arguably be one of the biggest beneficiaries of ECB QE and the DAX has responded accordingly.

At this stage in the game we have to ask are stocks are well priced as they were back when the FOMC and BOJ first announced QE? The SPX was falling as a result of the GFC (Great Financial Crisis) and had lost close to 60% of its value from the highs. The Nikkei had been suppressed for years and buying stocks at those levels made sense to most investors from a risk/reward scenario.

Take a good look at the DAX. Following the GFC that had crippled the world’s economies, the DAX Is up over 200%. Is the DAX (or other European markets) that well priced currently? I may not be the guy to answer that question, but I do know the DAX is closing in on a multi-year 161% extension. That’s a number known as a “Golden Fibonacci” level to technicians, and a level I always pay close attention to for reversals (Don’t mind the SPX is at the 161% now, that is for another blog). In the DAX, we trade a few hundred points from there now. I think there could be more upside, but how much more?

2-26-15DAX2

Why do I as a currency trader care? I care a lot because currencies are very sensitive to equity flows. “Risk on” and “risk off” carry a lot of weight in my market from what I trade to what currencies I get long or short. I am sensing we may be closing in on a pivotal high for stocks, it could potentially change my game plan in the currency market. I may be buying more USD’s and JPY in the near term.

When I was a kid, I remember at the age of 5 playing a game called musical chairs. In the financial markets, we play musical chairs all the time when a large move ends. If you don’t have a chair, or have not sold and locked in profits, when the music stops the reversals can by nasty. When you get caught in those reversals its as if the music stopped and you are frantically looking for a chair that is simply not available.

I have a feeling we are nearing the end of the song, and there are not many chairs left. Whenever the music stops, whenever that may be…my opinion is make sure you have a chair. Since the DAX has been outperforming the SPX and Nikkei recently, the chairs in the US and Japan may be taken when the music stops in Germany.

Blake Morrow

Chief Currency Strategist, Wizetrade

@pipczar

 

Disclaimer: I am currently long some USD’s and do have marginal long JPY exposure already.

 

 

 

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Is the USD rally over?

18. February 2015 · Write a comment · Categories: Uncategorized · Tags: ,

You have probably heard most of the fundamental arguments by now about why you should own US Dollars. The FOMC is within months to raise rates for the first time in years, yet most other central banks are either lowering rates, imposing negative deposit rates, or perhaps unleashing their own versions of quantitative easing. Perhaps you have heard that monies are coming back to the USD because the US economy is faring much better than the rest of the world. Perhaps you have heard that the Chinese, Indian and other emerging market economies growth surges of the last couple decades have started to slow. The argument points are valid. Frankly, I agree with them. The questions that many are asking is “Has the US Dollar rallied too far, too fast? Is all the good news priced in? Is the USD rally over?”

When asked these questions I have to look at the pair technically, and see if there is any historical evidence that the USD (or better known as the DXY) is ready to reverse?

Months ago we looked at the DXY as it tested a 29 year trend line, and since then it recently stopped at its 50% Fibonacci retracement. This is important since we have seen it also stopped at a 50% retracement level back in 2001 from the 1985 highs to 1992 lows.

Over the last week, it has been brought to my attention that the USD index was (again) hitting the 29 year trend line. I was perplexed at the time, but realized that chart that those people were referencing were logarithmic style price charts on the DXY. Normally, that makes sense when looking at a longer term history of a security (let’s say like MSFT, the DOW, or maybe the NASDAQ) that has been through many splits or massive percentage gains over the years. The USD index which has not seen multipliers of gains or losses over the years is best viewed from a linear (arithmetic) price chart. That is a personal preference but here is the logarithmic chart traders are looking at:

2-18-15DXYLog

(log chart showing we are touching 29 year trend line, also testing the 50% Fibonacci level)

Here is the linear chart I have been looking at:

2-18-15DXYMonth

(linear chart showing we broke the 29 year trend line in November 2014)

Regardless of which chart you prefer to use, I think we could all agree on the fact that the USD is at a major inflection point. So the next question we have to ask is if the USD index will continue to rally or not. Looking at the daily chart I was able to find some answers.

2-18-15DXYDaily

(continuation patterns on the daily chart as RSI is back to mid point)

The last 3 legs higher (see below) have been met with an overbought Relative Strength Index (RSI) reading of above 70. When that happens, the DXY tends to consolidate as the overbought readings subside and the RSI comes back towards the midpoint (as it is now). At that point, the USD seems to make another push higher.

If the USD makes another push higher, it may be a big one. I suspect many in the trading community may be trying to fade a USD move since the consensus is that the USD long position has become overly crowded. On a breakout, that may just add fuel to the fire to the current USD rally. If the USD does push into new highs, we may breach that 50% retracement (just below 96.00) and push towards the 61.8% (or golden fib level) which is past 101.00 on the US Dollar index.

Sentiment change can be a huge shift in the market. The 29 year trend line has been broken. That’s longer than most of you have been participating in the markets, including me!

 

Blake Morrow

Chief Currency Strategist, Wizetrade

@pipczar

 

Disclaimer: I am currently long some USD’s against the AUD, NZD and CAD. I am currently seeking to add to my long USD exposure in the coming week(s)

 

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Is Deflation Bad?

22. January 2015 · 2 comments · Categories: Uncategorized · Tags: , , ,

Personally, I don’t have the answer to that question. I like to say it is “beyond my pay grade.” However, if you read articles like this, it doesn’t seem so bad. But then again, if you read an article like this, or a speech like this, you may be a little worried if it knocking on our doorstep. Why would we be worried? Today, I read this Bloomberg article on “Draghi Commits to Trillion-Euro QE in Deflation Fight.” And, I know that following central bankers for the better part of 20 years, there is one word they will be wary of using. Yes, the D-word. If you search most “FOMC word clouds” you will notice in recent years “inflation” was used quite a bit. But as you know, especially in the Bernanke era, inflation was used a lot as “lack of inflation” rather than any other way. Looking back, it was obvious, and for years was my reasoning for falling gold prices.

So, back to the original question: Is deflation bad? My experience with deflation is minimal, but my lack of knowledge also provoked me to tweet a chart of the Nikkei, Japan’s stock market. Here is the chart and tweet:

1-22-15Nikkei

Many refer to the period of 1991-2001 as the “lost decade.” That was the period that Japan realized they were in a deflationary spiral and stocks market bubble popped (obviously) and they fell precipitously from there. Let me stop you now…you can go ahead and comment that I am drawing parallels between us, them, the world then and now. But I am not. Different country, different demographics, different political and immigration issues, etc. What I am showing you is how Japan’s stock market performed during the time of their deflationary period. I recall it well. In 1991, I was stationed in Guam. I was a Marine, guarding nuclear weapons post Iraq invasion. I recall all the Japanese who built massive hotels in Tumon Bay, Guam. And the building (at that time) slowly came to a halt. I noticed less Japanese visiting. What I didn’t know at the time was that Japan was entering the “lost decade.”

MarineBarracksGuam

Marine Barracks, Guam. Circa 1991 (my picture, and base closed 1992)

I understand why some would say deflation is “not that bad.” But, I also understand the mentality of a consumer in a deflationary environment I also understand I live in a consumer driven society (in the USA). I also understand that Ben Bernanke understood the risks of deflation since he knew that Japan could not turn the tide. It’s a mental state of an economy more than anything, and one that is not easily reversed (ask Japan).

I live in this world, just like you. I have kids that will be in college 10 years from now, and frankly, I can’t afford a lost decade and a 70-80% haircut in equities, can you?

I sure as hell hope Mario Draghi, Janet Yellen and everyone else enjoying Davos (at the WEF) this year can help the world avoid it.

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

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I hate buying gold

09. January 2015 · 2 comments · Categories: Uncategorized · Tags: , ,

I am not sure if it is the fact that I see no reason to actually own a metal that serves really no purpose other than looking good around Mr. T’s neck. Or, the fact that if I own gold I know I am probably on the same side of the trade as Peter Schiff. Whatever the reason, over the last 20 years I have had a difficult time wrapping my head around the idea. I know, I know….as an investor there is a right time and place to put some gold in your portfolio, and in an inflationary period I could see the case. But, as you know, that is not the case, hasn’t been the case, and probably won’t be the case for the foreseeable future.

But one can’t deny that despite the massive rally in the USD over the last few months, that gold should have continued its decline. See chart below:

1-8-15DXYGC

In addition to the fact that gold stopped falling, it is testing a downtrend line that has been in existence for the last couple years. Read my tweet yesterday here (quite a few comments on this chart).

And if you read here, you would know that the USD over the last couple days has rejected a key level of resistance. So, the question I am asking myself is “if the USD is to decline, pullback, or consolidate in the near term, will gold rally? And if it does, is it for any other reason that a squeeze or poor short positioning?”

If Gold decides to stage a rally from here, I am not sure I can get myself to actually buy it. However, I would like to participate “somehow” and a trader (JessieMacguire) today reminded me of a conversation we had yesterday on my daily webinar about Gold and the JPY. Take a look at the following “strong” correlation between the JPY (6J) and Gold:

1-9-156JGC

Looking at this chart, one would think if gold rallies, the JPY should rally. The 6J is the JPY futures contract, that chart is the “candlestick” chart.

I can argue that this is a tough trade. You would be fighting the BOJ, Mark Cuban, Kyle Bass and every other asset manager from here to Timbuctoo. But for me, that boat (long JPY) could be a little lopsided as well. With a whiff of risk aversion or volatility due to the possibility of the FOMC raising rates sometime this year, perhaps that is the trade I go with.

Go ahead, leave your comments on “why” we all should own gold. You won’t be able to convince me. But that’s okay, I have the JPY!

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Disclaimer: I have been long some JPY against the AUD, NZD and CHF for the last couple weeks. I am looking to add to my JPY exposure in the future.

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Copper Breakdown Suggests a Lower AUD/USD Rate

28. November 2014 · Write a comment · Categories: Uncategorized · Tags: , ,

One of the stronger correlations (over time) between currencies and commodities is the strong Australia Dollar and Copper correlation:

11-28-14AUDHG

Today, copper made a significant surge lower breaking key technical support at 2.88. At minimum, copper looks set to test the 2.50 (Fibo) support:

11-28-14HGweekly

If you take a good look at the AUD/USD weekly chart, it looks set to test below .8000:

11-28-14AUDWeekly

For the last couple years I have been looking forward to getting on the long side of the AUD/USD below .8000, and it looks like this time it could actually happen. However, one has to wonder….If the Dr. (Copper) has a PHD in economics, what is this current move suggesting? Some would think that the good doctor has either failed a few classes on the way to getting the PHD or royally screwed up his/her dissertation. But with China continuing sluggish growth (relatively speaking) and global deflationary pressures mounting, perhaps we should pay a little closer attention to what the doctor is telling us.

 

Blake Morrow

Chief Currency Strategist, Wizetrade

 

Disclaimer: I am short the AUD/USD from 2+ weeks ago.

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