Market Report: Bears Get a Glimmer of Hope - Nouf - May 6/12
Some crazy moves seen in the risk markets this past week, and potentially some important clues, but I suspect that not many traders are actually watching those clues, although they will do soon if those clues continue.
So what are these clues?
2 forex pairs I follow and have followed for a long time, especially over the past 3 years have been AUDUSD and NZDUSD, they imo are very important clues to where other risk markets will go.
We live in an age of margin, no more do we have a value market, what we have is a carry trade market. For those that have watched the markets for while already should know this, there are certain aspects of the markets that make up what we call "risk on" or "risk off", 2 key forex pairs being AUDUSD and NZDUSD.
If you look at this chart, you can see that US stocks have tried to go it alone, but I suspect have succumbed to or will eventually the weight of other markets puking lower.
Back in February/March 2012 I was following both the AUDUSD and NZDUSD and looking for a major top in those pairs, I actually nailed the highs in both those pairs virtually to the pip, I expected US stocks to break lower, the European stock markets broke lower, but the US markets held firm, so the US markets created a huge arbitrage between the European Stocks markets and the forex risk pairs.
That arbitrage has been going on for the past 3 months, and whilst the NZDUSD and AUDUSD have puked, as well as the European markets such as DAX, CAC and EURSTOXX 50. The US markets held firm but went sideways.
It then left me in a dilemma, were the US stock markets telling us the truth? Or the other markets telling the real truth, It is my belief that the FX markets lead and the stock markets follow, I have seen it so many times that when there is a huge arbitrage such as we have seen this past few months that eventually we see the other markets play catch up.
Usually its stocks that try to rally alone, but eventually they fail and follow the path of least resistance which is the direction of the forex markets such as AUDUSD and NZDUSD.
Last week I left readers with a chart showing how AUDUSD and Oil was still firm, and whilst those markets held support the bulls still had the edge.
Well fast forward a week and it's a totally different picture, both those markets broke support and suggest a severe decline is setting up, the angle and acceleration is a cause for concern for the bulls, as without the support from other risk markets, I suspect we are setting up for more downside in stocks.
If you look around, most of the markets that track the US stocks are already in down trends, and at best US stocks managed to tread water for the past 3 months, well that was until Friday when the whole lot came down together.
Why is this important? Well it's important to the extent that if these trends get going on the downside they are signally that "risk" is going to see a severe sell off, that means European stocks, US stocks, risk FX pairs like AUDUSD, NZDUSD, AUDJPY, and likely the US$ will get a bid, thus that should see EURUSD substantially lower.
This is a very real threat, and if your long stocks I strongly suggest locking in gains and moving stops up or getting yourself some protection.
Don't take my word for it, look at the charts above. Look what happened last year and every other time the markets puke together.
We made some huge gains this past week based off the weekend's ideas, and I think they are starting to get a lot better.
This week coming could be a very pivotal week although we still are working 2 ideas from the Oct 2011 lows in US stocks, the other markets appear to be giving the vital clues we want to see, thus giving the edge to one of our ideas.
If you're looking to navigate these markets successfully and profit from the gyrations, then I suggest you become a member and enjoy the spoils that this market is giving you.
FTSE
This market has been weaker than its counter parts in the US, and I suspect it is a leader, its failed to take out its 2011 highs and could be on the verge of a huge move lower now.
Before
I wrote this back in 13th March.
"I still think we need to retest the highs again between 5860-6000 again, to finish this idea I posted yesterday, so on a new high, I am actively looking for a reversal again"
The result speaks for itself.
After
This is actually one of the stronger markets, but still well down from its 2012 highs, a perfect reversal at the target. I suspect this is going far lower, and back to test the Oct 2011 lows again, in what could be a strong break lower. Yes 4800!
DAX
This has been far weaker than its US counter parts, and heavier looking, like the FTSE I suspect this has go far lower to come, especially now that we are seeing clues for other risk markets such as AUDUSD, NZDUSD & Oil etc.
Before
After
Whilst the US markets has drifted sideways, the 2 most important markets in European are puking.
As well as seeing other markets join the ranks over the past few weeks, eventually you are going to see the lot fall apart if these trends continue.
CAC
Before
I wrote this back in 31st March.
"Looks like a simple zig zag correction to me, so a bounce that fails around 3450-3475 looks like a great short against the highs at 3538 (key resistance)
Downside objective is 2700".
After
So seeing all that evidence, you have to ask yourselves the question; do you feel lucky being long US markets?
We have had a great few months; ideas after idea working well, those are just a tiny tiny selection, contained to just the European markets.
We have been consistently on the right side of the FX markets, major pairs like NZDUSD, AUDUSD and EURUSD.
I was very vocal about a major high on the NZDUSD and AUDUSD FX pairs, and have the charts to prove it, when most traders were looking for 1.14 when the AUDUSD was at 1.0800.
Here we are considerably lower.
We have been on the right side of the gold and silver moves since Dec 2011.
series of markets where I admittedly have struggled is the US markets, as they have gone nowhere but sideways and against what I originally thought in March 2012, but we simply traded markets where we understood what was going on and made $$$.
Why trade a market that is not giving you an edge, when you can find a market that is giving you an edge.
The bears in US stocks have been looking at the wrong markets the past few months, they needed to be selling AUDUSD, NZDUSD and the European markets as we have been doing, NOT get involved in chop such as the US markets.
Although it's only now I am really feeling very comfortable with some ideas on the US markets
So come and join us if you want to trade with professionals, give yourselves an edge and profit from these swings we are seeing.
Until next time
Have a profitable week ahead.
