"When the fist of fundamentals meets the face of technicals, the patient usually falls down," I announced in my typically hyperbolic fashion as were trading live in our chat room on Friday. The US Retail Sales numbers had printed much hotter than forecast and the market moved sharply higher taking USD/JPY up by 30 points in the first five minutes of post news trade.
The key question facing the traders in the room was - trade it or fade it? I had already taken out a quick 10 points out of the trade in the first few minutes of action, but the discussion turned as to whether the position traders should hold on for further gains. Some in the room stated that price had hit technical resistance and was unlikely to go much higher. I took the opposite point of view believing that USD/JPY could rally more as the day progressed given the nature of the news. In the end I turned out to be right as the pair tacked on another 60 points before finally petering out and ironically enough retracing almost all the gains.
I share this little vignette not to gloat about my forecasting skills, but rather to point out a trading truth I've learned the hard way - price is not everything. In a world of charts and indicators and support and resistance levels we tend to venerate price activity above all else. But price is often not the master, but rather the slave to news.
Technicians love to point out the multitude of times when news fails to move the price in the expected direction , but when you look at those examples on a case by case basis rarely do they happen when the news produces a major surprise. Certainly news well anticipated will have minimal impact on price, as market will often adjust ahead of time to the data. However, when the news is unexpected it tends to have a meaningful impact on price action that does not get captured in the first five minutes of trade.
Financial markets are vast and it takes some time to change people's attitudes. As speculators that's all we do - we trade perception. Ironically enough there are plenty of intelligent, well reasoned voices that argue that today's Retail Sales statistics were suspect. And they may ultimately they may be proven correct. But, as snarkily pointed out in the chat room, "If reality was the standard of behavior, Sarah Palin would never be considered to be a serious candidate for the office of the Presidency."
In FX we trade perception and perception is driven by newflows and priceflow. That's why as traders we must be complete mercenaries, holding allegiance to neither techncals nor fundamentals and only act when we see an alignment in both.
Boris Schlossberg and Kathy Lien
BKForex Advisor
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Frictions between the United States and China continue to escalate in what looks to be an inevitable all out trade war. Over the past year or so, China has continually signaled their displeasure with the US and their weak dollar policy. China holds trillions of US dollars and has hinted that it may look to dump dollars on the open market causing the probable collapse of the dollar if the US government continues to weaken their currency.
The latest saga is in regards to continued disputes over trade. China is threatening to tack as much as 25% tariffs on imported steel from US and Russian producers. This is a result of Washington having imposed anti-dumping duties of up to 100% on Chinese-made imports of steel pipe for use in the oil and gas industry. This occurred after allegations by U.S. Steel Corp. (NYSE: X) and other producers that the products are being dumped at unfair prices. Other US companies affected by the tariffs would be AK Steel Holding Corp. (NYSE: AKS).
While these new tariffs of up to 25% may hurt US steel producers, they very likely will be a great benefit to Chinese steel producers. Demand should increase sharply and stock price appreciation is likely.
In addition to an increase of demand for China steel companies based on these tariffs, analysts have also increased the expected demand for steel in China for 2010. Just this morning, news out of China on industrial output on a monthly basis showed a powerful increase of 19.2% from just one year ago. This no doubt will keep pressure on China buying steel and iron ore.
The combination of these factors will likely cause a run of hedge funds and money managers into stocks like China Precision Steel, Inc. (NasdaqCM: CPSL) and Sutor Technology Group Limited (NasdaqCM: SUTR). These both sit at the lows of their charts and look extremely attractive based on current stock and commodity valuations. Most commodity stocks have doubled if not tripled, note U.S. Steel Corp. (NYSE: X) and AK Steel Holding Corp. (NYSE: AKS). These tariffs and analysts signals will likely lead to a run on these stocks and as much as 25% increase in share price near term.
Gareth Soloway
Chief Market Strategist
InTheMoneyStocks.com
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not sure why this wasnt posted up as it seems a good map. Just reposting from chat, all credit to original owner
http://img46.imageshack.us/img46/8375/madness.jpgSee below for a chart of Lloyds adjusted price retrospectively for present rights issue and previous (including hbos presumably) and so accounts for the massive dilution they had, makes any TA on these things much easier I think
Since almost all the banks have done rights, I'll publish 2 year charts in the relevant thread to give some perspective on this part of the FTSE index (13.2% )
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WILL RETAIL SALES HELP THE DOLLAR?
The mixed performance of the U.S. dollar today reflects the consolidative mode in the forex market. Traders are waiting for Friday’s retail sales report to see if the turn in the labor market has been accompanied by a turn in consumer spending - because fewer job losses mean nothing if they do not encourage American consumers to part with their dollars. Although the greenback retreated against the commodity currencies, it rose against the euro and Japanese Yen while the British pound remained virtually unchanged. This performance suggests that most traders still want to sell dollars on the hopes that the unambiguously strong non-farm payrolls report last month truly reflects the state of the economy. There is also round of heavy economic data from China this evening. As we have seen in the past, Chinese economic data moves not only the currency markets but also equity markets. With industrial production, retail sales, CPI/PPI and trade numbers are for release, expect a busy night.
Will Consumers Step Up?
The U.S. retail sales report is traditionally one of the most important event risks for the U.S. dollar because consumer spending is the backbone of the U.S. economy and constitutes more than 70 percent of GDP. However this month’s report is even more significant because November is usually a big month for spending because of the holidays. Also, the sharp improvement in the non-farm payrolls report has turned the dollar around but there has been a lot of speculation about the sustainability of those numbers and the recent warning from Ben Bernanke certainly does not provide a vote of confidence for the dollar. Therefore everyone will be looking to the retail sales numbers to see if consumers stepped up in the month of November. Based upon current market forecasts, retail sales are expected to rise for the second month in a row, albeit at a slower pace. Spending on Black Friday and Cyber Monday were stronger than the previous year but consumers are definitely clicking the mouse more often than they are walking into the stores. Black Friday sales increased 0.5 percent while Cyber Monday sales increased 5.0 percent. However despite these healthier numbers, there have been disappointments. Luxury retailer Saks Fifth Ave reported a 26 percent drop in sales while teen retailer Abercrombie and Fitch reported a 17 percent drop. Macy’s and JC Penny both reported monthly sales declines of approximately 6 percent. Based upon the 6 percent rise in sales of Costco and the 3 percent rise in sales at Kohl’s, American consumers are definitely trading down. Therefore we believe that the risks lie with a weaker retail sales report and a disappointing consumer spending report should be dollar bearish. The primary reasons why retail sales are expected to increase at all aside from holiday spending are gas prices and auto sales. A gallon of gasoline averaged above $2.60 the entire month of November, about 10 cents higher than the previous month and even though the cash for clunkers program ran out, car sales are expected to remain steady. If retail sales surprises to the upside like the non-farm payrolls report, the dollar could incur some new upside momentum.
Currency Traders Not Impressed by Stronger Trade Data
After 3 days of little to no U.S. economic reports, the market's focus finally returns to the U.S. economy with the release of trade numbers and jobless claims. The latest trade numbers finally reflect the positive implications of a weaker dollar but unfortunately currency traders were not impressed. In the month of October, the trade deficit fell 7.6 percent to $32.9 billion as exports reached the highest level in more than a year (Nov 2008). Trade with China was particularly strong with exports reaching a record $6.9B which tells us that the U.S. has also been a beneficiary of the recovery in China. Imports increased by only a modest 0.4 percent on demand for computers and autos. The number of barrels of crude oil that was imported in October was the fewest since January 2000. Traders were also disappointed by the rise in jobless claims and the drop in continuing claims. The number of Americans filing for first time unemployment benefits increased 17k to 474k last week. We are not worried about the rise in weekly claims because they can be cyclical and remain at healthy levels. However we are a bit worried by continuing claims which dropped from 5.46M to 5.157M because they reflect expiring benefits.
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Many of the raging bulls in the media are talking about how well the market is doing. They are talking about how close we are to business as usual and the strong corporate profits that have been reported. I even heard one talking head today say that it was good that banks are not lending because it is showing that they are doing their due diligence before making a loan. I almost fell off my seat when I heard that one. In other words they have not done their job since 2000.
Wall Street is the ultimate spin machine. Some can only hope to make money cheering the market up. It is still shocking how people believe that a weak dollar is good for the American citizen. What is good about it? Is it good that the stock market is rising as the dollar falls? How can that be good or beneficial? What happens to the retiree that is on a fixed income? The dollar (DXY) is obviously losing purchasing power. What ever happened to those so called baby-boomers that are due to retire in the next few years? Perhaps they must simply put retirement on hold and work the rest of their lives. After all they say most people that retire drop dead a year later anyway.
How about those booming corporate profits that we hear so much about. Almost every report that we hear or read is making money on cost cutting. Whether it is a based on corporate layoffs or slashing inventories and spending it is still cost cutting. This economy is based on consumer spending and where is this spending going to come from?
So while the markets rallies and the dollar declines let Wall Street get out the party hats. Eventually someone will have to pay for the falling dollar. Until then people can rejoice over the lift in the 401k statements while the dollar deteriorates. When it's time to cash in the retirement plans what will the cash be worth? Until then it's simply a stock market love story.
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HIGHER LOWS & LOWER HIGHS in oil remain the prevailing pattern but oil shorts must be careful in avoiding a potential reversal after the 8-week downtrend, which proves similar to the prior 2 slides (as warned in the Nov 19 article). As long no rebound occurs above $74.50, crude may run the risk of calling $67 as the next target. We long warned used oil as the LEADING SIGNAL for the downturn in risk appetite, therefore remain alert of any stabilization that could signal a rebound of global appetite. For now, the DAILY downtrend remains intact. Stronger than expected Australian job figures and a hawkish RBNZ policy statement fuelled both currencies against the USD and JPY, but the lower highs continue to dominate, The DUBAI FALLOUT has yet to unfold as stakes are being increasingly sold by the various entities of Dubai World.
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One has to be impressed and slightly scared as the global powers one by one fall. Wars, famine, disease...these countries have been through it all but the one thing that cannot be fought is financial crisis. A simple lowering of a rating on a countries credit and panic sets in, borrowing costs soar for that country and they can literally be brought to their knees. Who said the atomic or hydrogen bomb was the biggest destructive force on earth? I say it is money and credit in today’s day and age. Bottom line is this; the dollar continues to rule the roost when it comes to safety. As much money as the US is printing and trust me, it is trillions and trillions, the United States for now is still the safest place to house the worlds money. That is exactly why the dollar seems to rally every time we see a little big of financial crisis hitting the global markets and countries. It was originally Iceland then Dubai, Greece and now Spain. Who is next? When will it be the US's turn?
The other thing I wanted to discuss today was this 200 billion in Tarp funds the government was getting back from financial institutions. The government is championing that this is amazing but why? The fact that we are getting some of our tax money back is a great thing? I thought we were supposed to! I am somewhat being sarcastic here because the government continues to be a joke when it comes to pulling the wool over the eyes of the common US citizen. They are making it out to seem like this is a bonus yet in fact the tax payer will lose money as AIG, GM, Chrysler...etc will never be able to repay the money they borrowed. In addition, Freddie and Fannie...just a total mess. And please, let's not get into the balance sheet of the Federal Reserve and the junk they are taking on! What is even scarier is that the government now feels like they have a surplus of money and you know the government, the policy is, NOT ONE DOLLAR SHALL BE SAVED. They want to spend this money immediately to "stimulate jobs". Oh, by the way, great job on that with the last stimulus package my dear government! If I heard correctly, it costs over 100k just to create a job paying 50k. Well that math makes sense! Note the sarcasm again folks. In any case, that is our money folks and you should be outraged it was used in the beginning to bail out the wealthy banks after they screwed up an even more outraged it is not going back into your pockets by paying down the deficit.
For now I leave you with one final thought. Listen, learn and truly keep the government and Wall Street hype away from your ears and eyes. Always do your due diligence and never trust what is just plainly said to you. I will continue to bring you my views in future posts.
Gareth Soloway
Chief Market Strategist
InTheMoneyStocks.com
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Cable has broken 16270 level and held. Resistance was met 16167 level which is clustered with the 61.8% fib level. I would be looking to short back off the 16270 level if we retest. I expect today to be rangebound between the levels.
In the latest book I am reading (The Flaw of Averages: Why We Underestimate Risk in the Face of Uncertainty by Sam Savage) the author briefly takes the reader on a trip back in time to World War Ii and the work done at Princeton University by a group of a mathematicians and statisticians to help with the war effort.
In an almost throw away passage, Mr. Savage writes, "Ted Anderson currently an emeritus professor of statistics and economics at Stanford university, was a research associate there. One of their projects involved the evaluation of long-range weather forecasts. ' We found that there was very little accuracy beyond two days,' Ted recalls . (Things haven't changed much)."
I stared at this paragraph in the book for a long time wondering why it resonated with me so and then I finally remembered a meeting I had with a Russian hedge fund a few years back that had its offices in a very tony Fifth avenue building and housed more computer power than the Pentagon. The Russians had done an enormous amount of research on price behavior across almost all asset markets and concluded that at any given point of time directionality completely degraded within 72 hours from the start of observation.
Essentially, market forecasts and weather forecasts have something in common - our ability to predict either beyond the next 48 hours is no better than a guess. That's the reason that whenever I am on Squawk and Joe or Carl try to get me to forecast the value of the dollar in the next twelve months I squirm in my seat and protest that I am only good for the next day or two.
Chaotic systems such as markets and weather patterns are notoriously volatile and projecting their direction far out in time can be exercise in futility. But does that mean that all long term investing is not possible? Not necessarily. Warren Buffet is a testament to the fact that the turtle can sometimes decimate the hare in the race to generate alpha. They key with the long view is that investors must vastly expand their margin of error. Portfolio managers who trade stocks will rarely allocate more than 2% of their equity to one idea. This way even a 50% decline in price of the security only results in a 1% loss to their overall holdings.
Contrast that approach with what we do in FX where we regularly trade at 10 times leverage. Under those conditions an adverse move of just 1% in our position results in a 10% haircut to our account. Both ways are perfectly legitimate forms of investing as long as we acknowledge what we are doing upfront. Too often short term traders become "investors" as price moves against them. If you are trading for the short term and your are holding the position for more than 72 hours you may as well buy a lottery ticket. Your chance of success will probably be better.
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Gold breaks below the Dubai Low of $1,137/oz low reached on Nov 27 in reaction to the Dubai Debt news had taken place 2 days after the $1,194 record high. The fact that gold broke below $1,137 from a higher record ($1,226), could indicate a looming close below $1,090. Having broken well below $1.4770, EURUSD is now vulnerable to calling up $1.42, which could be realized on fresh revelations of selling property and equity stakes by Dubai-based entities in UK and US. The Greek sovereign debt downgrade helped accelerate selling momentum in the euro as it raises fears of similar action in Spanish and Portuguese sovereign debt after these were placed on credit watch earlier this year. The EIA crude oil inventory data could be key in oil's hold of $70.00 and USDCAD's testing of 1.07.
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It is pretty obvious that the entire stock market rally from from March 09 has been caused by the declining U.S. Dollar. Therefore, stocks have gone higher while the dollar has gone lower. Is this a positive for the U.S. citizens? Those that are on fixed incomes such as the elderly or retired have much less purchasing power in the nation. They also cannot travel abroad to visit other countries because the exchange rate is terrible. Then we have a new flood of baby boomers that are hoping to retire and will be facing the same thing. I just don't see how a majority of the American people can think that a weak dollar is good for the nation.
The positives for the weak dollar are strong exports for the U.S. and increased tourism and spending by foreigners. However, the U.S. is not a big manufacturing country anymore. It is a service nation now. Most manufacturers have left the U.S. soil a long time ago. This country has to get it's house in order and a weak dollar policy is just not the answer.
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