Traders' Library Blog

Depressed on Puckle Street

A pleasant day here on Puckle Street in Moonee Ponds. This is a suburb of Melbourne Australia. Eggs Benedict and a sunny sky. Beautiful!

Aussies are depressed. I have spoken to dozens over the last week that I have been in or near Melbourne. From senior business professionals to the man on the street. Every single one was depressed. Why?

Under the sunny skies, Australia is in deep trouble. Prices are far too high and unsustainable. Nobody can afford anything. The same Coke Zero in the US at a 7-11 costs $2.50. Here: $4.50.

Taxes are brutal. Corporate tax and capital gains are about the same as the US but income taxes and VAT are much much higher than the US and heading higher.

Perhaps even more important is the current collapse in China. The government says that the economy is growing by 7.5% but private measures of the Chinese economy suggest it is only 2.5%. That is a significant recession by Chinese standards.

But it is a near disaster for the Australian economy. Australia has become a major provider of commodities, particularly iron ore and copper to China. Slower Chinese growth means really slow growth in Australia.

But the biggest depression in Australia is the depression of the people. You see, when people are depressed they tend to hunker down. They don't invest or hire new people. The economy stagnates as a result.

That is exactly what I am looking for in the future.

As a result, I'm bearish on Aussie assets such as the stock market and the Aussie dollar.

Stocata S&P 500 Analysis: July 27, 2013.

Last week I wrote: 
"Last week I wrote "Breaking the previous top or not, I do expect only a limited further move up as I believe we are in an exhaustion phase". The limited move the past week did exactly that making a new top wave 3.5. The index may still move up a fraction higher towards the R2 monthly pivot resistance at 1700 up to 1730 on the weekly chart. With the holiday season you never know, but I do expect the start of a correction soon. And I am still holding on to our short position for now!".

As expected, the index moved a fraction higher towards the R2 pivot level, the upper side of the up moving pitchfork and  the upper side of the volatility band, closing the week a fraction lower. I do expect a move down towards the median line of the up moving pitchfork, the R1 pivot level and the 50 day average. In this holiday season that move may be rather flat in a trading range. I am still holding the open short position.

Sylvain Vervoort   http://stocata.org/

South Africa: Sunrise or Sunset?

I watched the brilliant red orb of the sun set in the distance from my
22nd floor hotel room in Johannesburg, South Africa. The next morning
the sun rose but was obscured by light air pollution.

Which of these sights best represents the future of South Africa?

The sunset argument centers around an incompetent government beset by
internal strife, corruption, and bad policies. The ruling ANC party has
fallen greatly from the glory years after the ending of apartheid.

The truly great moral authority of Nelson Mandela controlled tribal
rivalries and allowed all sectors of society to grow and receive many of
the fruits of the hard won freedom. His moral authority stopped the
vicious authoritarianism that has ruined Zimbabwe. He is perhaps the
greatest moral authority of any leader in the post WWII era.

But stepping down from power has allowed the sectarianism that underlies
much of South Africa to burgeon again.

Politics in SA is both about policy and tribal rivalry.

One of the key problems in SA is that there is a strong strain of
Communism in running the country. One of the three most powerful forces
in the country is Cosuto which is an avowed communist organization.
Their influence stabs the forces of progress and freedom in the back on
a daily basis.

The sunrise argument has some strong support as well.

One main argument centers around the unbelievable natural resources of
the country. We all hear about precious metals mining but the country
has many other resource such as natural gas and oil that could be
released through fracking and an abundant agricutural sector.

I heard Robert Kiyosaki speak at the National Achievers Congress in
Johannesburg where I was also a speaker. He half jokingly said that SA
was the richest country in the world. Why else did the white man come
down and steal all the natural resources? (Unfortunately, he doesn’t
realize that the whites were in SA first, not the current tribes of blacks!)

There is also a tremendous well of human capital waiting to be unlocked.
Good government policies would help further this development.
Unfortunately there is little going on here.

Finally, the monetary policies of the central bank have been pretty
good, better than most other countries. That has produced the best
monetary background of any African country.

In sum, the country can go either way. As long as it does not break down
into sectarian or tribal violence, I think that SA will continue to be
the best country in Africa.

While I was in SA, I met with two true South African insiders. One was
in business and the other a powerful, well connected finance executive.
Unfortunately, this description doesn’t really give the extent of his
power. I spoke to a local South African and he said that there are 4000
people in a queue waiting to see him and I jumped to the head of the queue.

They were working on projects to unleash the human capital and improve
education. I have high faith in these gentlemen to succeed. This will
have an important impact on the future of SA.

I was told about a woman who was a high level consultant. She decided to
move to SA when she could have gone anywhere. She was asked why she
chose SA. She said that it was a country where she could actually see
real progress caused by her consulting whereas the same consultation
would be a drop in the water if done in developed countries.

I was also struck with the incredible opportunities available for people
to make money in SA. There is a rising middle class and a very good
financial infrastructure.

I personally plan to set up a company in the next couple of months to
take advantage of many of these opportunities.

I have spoken highly of the opportunities in Indonesia in the past. The
opportunities are probably less than in Indonesia but still very high.
This would be a great place for a young person to really make their
mark. It is also a great place to invest for a more mature person who
has some skills to really maximize the value of those skills. It is far
possible to dominate an industry in SA than in the developed world.

Top 10 Forex Events Outlook: Jul. 22-26

Jul. 21, 2013 (Allthingsforex.com) – After several days of trying to gauge the odds of tightening of the Fed’s monetary policy, in the week ahead traders will be back to watching a combination of economic data that will offer more details on the state  of the world’s largest economies.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1.    USD- U.S. Existing Home Sales, the main gauge of the condition of the U.S. housing market measuring the number of closed sales of previously constructed homes, condominiums and co-ops, Mon., Jul. 22, 10:00 am, ET.

The report could confirm that the housing market recovery is still on the right track with sales of existing homes forecast to increase to 5.27 million in June, compared with 5.18 million in May.

2.    JPY- Japan Trade Balance, an important gauge of economic activity measuring the difference between imports and exports, Tues., Jul. 23, 7:50 pm, ET.

Voters in Japan gave their support to Abenomics this weekend and the weaker yen should contribute to the trend of improvement in the Japanese economy, including the balance of trade which is forecast to show a shrinking deficit of 150 billion yen in June compared with 996 billion yen trade deficit in May. Signs that the economy is getting better could lend some support to the yen on reduced expectations that the government and the Bank of Japan would step up their efforts to devalue the currency and to spur economic growth.

3.    EUR- Euro-zone Manufacturing and Services PMI- Purchasing Managers Index, a leading indicator of economic conditions measuring activity in the manufacturing and services sectors, Wed., Jul. 24, 4:00 am, ET.

Although the indexes have been inching higher in recent months, the chronic contraction in the euro-zone’s manufacturing and services sectors is expected to continue. The Manufacturing PMI is forecast to stay in contraction territory below the 50 boom/bust line for another month with a reading of 49.1 in July from 48.8 in June, while the Services PMI also heads a bit higher but still below 50 with a preliminary estimate of 48.9 in July from 48.3 in the previous month. A weaker than expected data should weigh on the EUR by confirming expectations that the European Central Bank will remain stuck in an easing mode.

4.    USD- U.S. New Home Sales, an important gauge of housing market conditions measuring sales of newly-constructed homes, Wed., Jul. 24, 10:00 pm, ET.

In line with the existing home sales, new home purchases in the U.S. are also expected to increase to 482K in June from 476K in May.

5.    NZD- Reserve Bank of New Zealand Interest Rate Announcement, Wed., Jul. 24, 5:00 pm, ET.

With the kiwi dollar pushed lower in recent months and all other central banks assuring the markets that monetary policy will stay accommodative, the Reserve Bank of New Zealand would not be likely to deviate from the current course. The NZD could weaken further if the Reserve Bank of New Zealand still sees its currency as too strong and hints that tightening policy will not be in the cards for the foreseeable future.

6.    EUR- Germany IFO Business Climate Index, a leading indicator of economic conditions measuring the outlook of businesses, Thurs., Jul. 25, 4:00 am, ET.

The business outlook in the euro-zone’s largest economy is forecast to be more optimistic as the Ifo index rises to 106.3 in July, compared with the reading of 105.9 in the previous month.

7.     GBP- U.K. GDP- Gross Domestic Product, the main measure of economic activity and growth, Thurs., Jul. 25, 4:30 am, ET.

Three consecutive quarters of contraction in the U.K. were followed by a quarter of growth in Q3 2012 only to see the economy contracting again by 0.3% q/q in the final quarter of last year. As a result, fears of unprecedented triple-dip recession in the U.K. escalated. Fortunately, in the first quarter of the year, the U.K. economy managed to avoid another recession expanding by 0.3% q/q and is expected to grow even stronger by 0.6% q/q in Q2 2013. The GBP could stage a rally as a result of a better GDP report which coupled with the 9-0 vote against more QE should reduce significantly the odds of more easing by the Bank of England.

8.    USD- U.S. Jobless Claims, an important gauge of labor market conditions measuring first-time claims for unemployment benefits, Thurs., Jul. 25, 8:30 am, ET.

The U.S. jobless claims are forecast to reach 339K, staying close to last week’s new record low of 334K. Another positive report from the U.S. labor market should keep the USD supported on expectations of a Fed tightening sooner rather than later.

9.    JPY- Japan CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of Japan, Thurs., Jul. 25, 7:30 pm, ET.

Two months of rising inflationary pressures could push the Japanese national core inflation gauge to 0.3% y/y in June from 0% y/y in May and -0.4% y/y in April. With the index exiting deflation territory and heading towards the Bank of Japan’s 2% inflation target, the report could reduce expectations that the Japanese central bank will need to step up its QE campaign, which could mean less pressure on the yen.

10.     USD- U.S. Consumer Sentiment, the University of Michigan’s monthly survey of 500 households on their financial conditions and outlook of the economy, Fri., Jul. 26, 9:55 am, ET.

The U.S. consumer sentiment index is forecast to be revised slightly higher to 84.0 in July from a preliminary estimate of 83.9. Another week of decent U.S. economic data could keep the markets pricing the start of the Fed tapering of monthly asset purchases in September/October.

Stocata S&P 500 Analysis: July 20, 2013.

Last week I wrote: 
"One of the possibilities last week was continuing up and probably test the high of wave 3.4. Already on Monday the index moved above the downward trendline and channel. On Friday we are reaching the upper side of the up moving pitchfork, very close to the previous high of top 3.4, close to the volatility band and the R2 pivot resistance. Wednesday the correction wave 2 was no longer valid and changed to a wave 1. Looking at the weekly chart I would expect a break of the top 3.4, but maybe the index will just make a double top. Breaking the previous top or not, I do expect only a limited further move up as I believe we are in an exhaustion phase. I am still holding on to our short position for now.".

Last week I wrote "Breaking the previous top or not, I do expect only a limited further move up as I believe we are in an exhaustion phase". The limited move the past week did exactly that making a new top wave 3.5. The index may still move up a fraction higher towards the R2 monthly pivot resistance at 1700 up to 1730 on the weekly chart. With the holiday season you never know, but I do expect the start of a correction soon. And I am still holding on to our short position for now!

Sylvain Vervoort  http://stocata.org/

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Top 10 Forex Events Outlook: Jul. 15-19

Jul. 14, 2013 (Allthingsforex.com) – Two testimonies on Capitol Hill by the Fed Chairman Ben Bernanke will come to the forefront of the market’s attention in the week ahead as traders look for clarity on the future direction of the U.S. central bank’s monetary policy.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1.    USD- U.S. Retail Sales, an important gauge of consumer spending measuring sales at retail establishments, Mon., Jul. 15, 8:30 am, ET.

Consumer spending in the U.S. is forecast to keep the momentum going with another month of increase by 0.7% m/m in June compared with 0.6% in the previous month.

2.    GBP- U.K. CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of England, Tues., Jul. 16, 4:30 am, ET.

Inflationary pressures in the U.K. are expected to rise by 3.0% y/y in June, up from the 2.7% y/y reading in May. If economic conditions deteriorate, inflation will not be an obstacle for the Bank of England to ease monetary policy further in upcoming months, but for the time being a jump in inflation should reduce the odds of more easing and could lend some support to the GBP.

3.    EUR- Euro-zone ZEW Economic Sentiment Index, a leading indicator of economic conditions measuring the outlook of financial experts, Tues., Jul. 16, 5:00 am, ET.

The forward-looking indicator has registered a few months of improvement in economic outlook and this trend is expected to continue with the ZEW index forecast to show a reading of 40.0 in July compared with 38.5 in the previous month. A more optimistic outlook on economic conditions in the euro-area could become euro-supportive but not for too long as the market still sees the European Central Bank stuck firmly in an easing mode.

4.    USD- U.S. CPI- Consumer Price Index, the main measure of inflation in the world’s largest economy, Tues., Jul. 16, 8:30 am, ET.

The U.S. inflation gauge is forecast to inch higher to 1.6% y/y in June from 1.4% y/y in May. Although still far from the Fed’s 2.5% threshold, the USD could draw strength from rising inflationary pressures on expectations that the Fed could start to tighten monetary policy sooner rather than later.

5.    USD- U.S. Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Tues., Jul. 16, 9:15 am, ET.

Industrial production is forecast to pick up the pace with a 0.3% m/m increase in June, after staying flat in the previous month.

6.     GBP- Bank of England Meeting Minutes, a detailed report of the bank’s latest meeting containing an outlook on monetary policy and the economy, Wed., Jul. 17, 4:30 am, ET.

Bank of England sat on the sidelines at the first meeting with Mark Carney as the bank’s new Governor. The expected 7-2 majority vote against more QE will make it clear that policy makers are not in a hurry to do more easing at this point. On the other hand, the Bank of England’s leader also stated that there will be no tightening in the near future. The GBP could see pressures rising if the minutes reveal that more Monetary Policy Committee members, including the new Governor Carney, voted for an increase of the Asset Purchase Program from 375 billion to 400 billion pounds, and if the option of additional QE was once again placed on the table.

7.    USD- U.S. Housing Starts, an important gauge of housing market activity measuring new home construction, Wed., Jul. 17, 8:30 am, ET.

Housing starts for the month of June are expected to regain their upward momentum with an increase to 950K from 910K in May, while building permits reach the one million mark in June. The report could confirm that the housing market recovery is still intact, despite of the drop in mortgage applications because of higher rates.

8.    CAD- Bank of Canada Interest Rate Announcement, Wed., Jul. 17, 10:00 am, ET.

With all other major central banks not ready to call the end of the easy policy cycle, the Bank of Canada might not be too adventurous and will more than likely leave the benchmark rate at the current 1.0% level. Compared with the rest of the major central banks, the Bank of Canada still remains as the most likely candidate to tighten monetary policy. However, such decision would probably be pushed further into 2014/2015.

9.    USD- U.S. Federal Reserve Chairman Testimony, Wed. and Thurs., Jul. 17 and 18, 10:00 am, ET.

All eyes will focus on the Fed Chairman Ben Bernanke’s testimonies in front of the House Financial Services Committee and the Senate Banking Committee after last week he reassured the markets that the U.S. central bank’s policy will remain “highly accommodative for the foreseeable future”. As a result, the USD has come under pressure, but the greenback could see its positive trend continuing if the Fed Chairman signals that tapering of the monthly asset purchases is only a matter of time, despite of the Fed’s lack of urgency to end the QE program completely.

10.    GBP- U.K. Retail Sales, an important gauge of consumer spending measuring sales at retail establishments, Thurs., Jul. 18, 4:30 am, ET.

U.K. consumers may have spent less last month with retail sales forecast to register a smaller increase by 0.4% m/m in June compared with the 2.1% m/m jump in May. A weak retail sales report could increase the odds of more easing by the Bank of England and could weigh on the GBP.

Stocata S&P 500 Analysis: July 13, 2013.

Last week I wrote: 
"Wave 2 was not completed. In the short trading week there was mainly a small trading range (PP pivot and 50% retracement level) except on Friday when there was a move up to above the 50 day average. On the weekly chart price moves in a trading range. Here on the daily chart price is moving in a downward channel, reaching the upper side of the channel. On the daily chart I would expect a turn down back into the channel. But on the weekly chart the upper side of the trading range is the top of wave 3.4. So, both an up or down move is possible. Turning down now will normally be the start of wave 3.3 down. Continuing up will probably test the high of wave 3.4 up. Next week will show the way!".

One of the possibilities last week was continuing up and probably test the high of wave 3.4. Already on Monday the index moved above the downward trendline and channel. On Friday we are reaching the upper side of the up moving pitchfork, very close to the previous high of top 3.4, close to the volatility band and the R2 pivot resistance. Wednesday the correction wave 2 was no longer valid and changed to a wave 1. Looking at the weekly chart I would expect a break of the top 3.4, but maybe the index will just make a double top. Breaking the previous top or not, I do expect only a limited further move up as I believe we are in an exhaustion phase. I am still holding on to our short position for now. The total closed profit trading the index is 128.3% from the start in March  2009. We have an open short position. The expert is green.

Sylvain Vervoort  http://stocata.org/

 

Top 10 Forex Events Outlook: Jul. 8-12

Jul. 7, 2013 (Allthingsforex.com) – Following a better than expected employment report from the world’s largest economy, in the week ahead traders will compare economic conditions on both sides of the Atlantic, as a sequence of notable economic data from the U.S., the U.K., and the euro-zone hits the newswires.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1.    JPY- Japan Current Account, an important measure of foreign trade, Sun., Jul. 7, 7:50 pm, ET.

Compared with a year earlier, the current account surplus in Japan doubled in April to 750 billion yen and is expected to stay in range with 650 billion surplus in May. Further improvement in Japanese economic data could lend temporary support to the yen on reduced odds that the Bank of Japan will need to implement even more aggressive measures to weaken the currency and to stimulate the economy.

2.    EUR- Germany Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Mon., Jul. 8, 6:00 am, ET.

After rising by 1.8% m/m in May, industrial activity in the euro-zone’s largest economy is forecast to slow with a drop by 0.5% m/m in June. The report could deliver a warning sign that the industrial sector of the largest economy in the euro-zone may be losing momentum.

3.    GBP- U.K. Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Tues., Jul. 9, 4:30 am, ET.

Recent data from the U.K. has shown signs of improvement and this trend could continue with industrial activity picking up by 0.3% m/m in June, compared with 0.1% m/m in the previous month. The GBP could attract more bids if the U.K. economic data continues to boost optimism and reduces the odds of additional easing by the Bank of England.

4.    USD- U.S. FOMC Meeting Minutes, a detailed report of the Fed’s latest meeting containing an outlook on monetary policy and the economy, Wed., Jul. 10, 2:00 pm, ET.

This is the minutes of the Fed’s meeting that shook the markets as the U.S. central bank made it clear that it is considering taking the first step towards monetary policy tightening by reducing the size of its monthly asset purchases. Series of stronger than expected reports from the U.S., including last Friday’s non-farm payrolls, have raised the odds that the Fed might tighten even earlier and by a larger amount than initially estimated. The bullish USD trend could accelerate if the minutes confirm such expectations.

5.    AUD- Australia Employment and Unemployment Rate, the two main gauges of labor market conditions measuring job creation and unemployment, Wed., Jul. 10, 9:30 pm, ET.

Last month’s job report showed a smaller job creation of 1,100 new jobs in May and the Australian economy is expected to add only 300 jobs in June, while the unemployment rate inches higher to 5.6% from 5.5%. A weak employment report could raise the odds of another rate cut by the Reserve Bank of Australia and could weigh on the Australian dollar.

6.    JPY- Bank of Japan Interest Rate Announcement, Thurs., Jul. 11, around 12:00 am, ET.

With economic conditions beginning to improve, the Bank of Japan will not need to get more aggressive at this point but will be likely to reaffirm its commitment to open-ended QE until the 2% inflation target is in sight. As the monetary policies of the Fed and the Bank of Japan continue to diverge, the yen losses could extend further.

7.    EUR- Italy 10-year Bond Auction, Thurs., Jul. 11, around 2:00 am, ET.

The Italian Treasury will sell its benchmark 10-year government bonds and traders will watch the auction results closely in order to find out if investors will demand higher premiums to hold the debt of the third-largest economy in the euro area. Rising borrowing costs and weak demand could weigh on the euro.

8.    USD- U.S. Jobless Claims, an important gauge of labor market conditions measuring first-time claims for unemployment benefits, Thurs., Jul. 11, 8:30 am, ET.

The U.S. jobless claims are forecast to head even lower to 335K compared with last week’s decline to 343K. Another positive report from the U.S. labor market should keep the USD supported on expectations of a Fed tightening sooner rather than later.

9.     EUR- Euro-zone Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Fri., Jul. 12, 5:00 am, ET.

Identical to the German data, industrial activity in the Euro-zone is forecast to slow with a 0.2% m/m drop in June after rising by 0.4% m/m in the previous month. The EUR could stay under pressure if the report sparks concerns that the region’s economic recovery is fading.

10.    USD- U.S. Consumer Sentiment, the University of Michigan’s monthly survey of 500 households on their financial conditions and outlook of the economy, Fri., Jul. 12, 9:55 am, ET.

The preliminary estimate of the U.S. consumer sentiment index is forecast to show a more optimistic outlook with a reading of 85.3 in July from 84.1 in June. A weekly sequence of upbeat U.S. economic data should keep the bullish USD trend intact.

Stocata S&P 500 Analysis: July 6, 2013.

Last week I wrote: 
"Last week I wrote: "We have a valid wave 3.2 down. The Fibonacci target for the wave 3.2 down is 1563". The index reached 1560.3 already on Monday. This was the end of wave 3.2. Followed by an up reaction wave 2 towards the 50 day average, the upper side of the down moving pitchfork and the upper side of the small BBS band. On Friday we see the start of a pullback. I think correction wave 2 is completed and do expect that wave 3.3 down is started for a move below wave 3.2. The expert is still black. We still have an open short position".

Wave 2 was not completed. In the short trading week there was mainly a small trading range (PP pivot and 50% retracement level) except on Friday when there was a move up to above the 50 day average. On the weekly chart price moves in a trading range. Here on the daily chart price is moving in a downward channel, reaching the upper side of the channel. On the daily chart I would expect a turn down back into the channel. But on the weekly chart the upper side of the trading range is the top of wave 3.4. So, both an up or down move is possible. Turning down now will normally be the start of wave 3.3 down. Continuing up will probably test the high of wave 3.4 up. Next week will show the way!

Sylvain Vervoort  http://stocata.org/