Adjusted Monetary Base

fed

BarroMetrics Views: Adjusted Monetary Base

Figure 1 shows the most recent Adjusted Monetary Base. The flat movement after forming the low at 3,600B suggests that the FED is easing but not in any great way. So, it’s difficult to assess from the AMB the next direction the interest rates will take.

Probably the Non-Farm on Friday, Dec 2 will be a better guide. (See Interest Rate Rise Dec 2017?)

11-28-16-04-14-18-amb-slfrFIGURE 1 AMB

S&P – Up or Down?

13w-sp

BarroMetrics Views: S&P – Up or Down?

A weekly bullish conviction close above the Maximum Extension (2186) will signal the start of new bull market. The problem is I am not seeing the range and volume I’d normally associate with the start of the a new bull.

Under the circumstances, I’ll resort to the 2007 view: ‘Long or out’. In other words, I am not prepared to short the indices until I see some sign that the sellers are back.

Interest Rate Rise Dec 2017?

rising-interest-rates

BarroMetrics Views: Interest Rate Rise Dec 2017?

I had rated a rate rise by the FOMC in December as close to a certainty as you can have in the uncertain game of trading. But the recent massive move up in interest rates  has changed my mind. (for an example of the move, click the link below to a chart for the 30-year US Bond cash rates).

The movement in the cash rates may have done the job for the FED. On the other hand, having signalled strongly for a Dec rise, if it doesn’t raise rates, its credibility will come into question.

So, what to do?

The answer is the Non-Farm Payrolls scheduled for release on Dec 2.

Normally, I guess at the figure by looking at what the FED may want the figure to be. This approach has served me to good stead. This time, I am reversing the approach:

  • If the number comes in near the bottom end (or worse) of the consensus range, I’ll take it that the FED won’t raise rates at the FOMC on Dec 14.
  • If the number comes in near the top end (or better) of the consensus range, I’ll take it that the FED will raise rates at its FOMC in Dec.

Why will a lower than expected jobs report provide the FED with wiggle room? Well, remember its ‘get out clause’: a rise is data dependent.   So, if the jobs data is poor, the FED need not raise rates.

If I can blog next week, I’ll post around Nov 30 on how I expect the markets to respond to the FED decision.

Note that I won’t be posting most of next week with a cataract op on Nov 28 and a hip replacement on Dec 2.

 

Perception of Reality – The Key

percep-vs-reality

BarroMetrics Views:  Perception of Reality – The Key

Before the blog, a comment on my schedule. I thought I’d have more free time this week. Nope! For example, tomorrow I have medical appointments lined up back to back from 8:00 am to 2:30 pm AEST

So, my blog posting will probably be inconsistent until I have recovered from the hip replacement.

Apologies.

Continuing from the last blog…..

One of the differences between successful traders and unsuccessful is the fact that successful traders align their perception with reality. You will recall that my view of the way we humans interact with reality is “out there as seen by the in here”.

There are three ways humans use their perception:

  • Contextual: the Freud approach…we have unconscious responses built upon previous experiences, especially those from our childhood.
  • Reframe: the NLP approach…..we reframe past experiences, so they provide empowering rather than limiting stimuli.
  • Acknowledge and Accept: the ACT approach….through attention and awareness we accept our feelings so as to prevent the 3Fs (flight, fight and fear) from overwhelming our cognitive faculties. By developing value-driven goals, we engage in value driven effective action – effective because the actions lead to goal attainment.

In a recent session of Ultimate III, I saw just how important is ‘attention & awareness’.

We were running through the process which FX pair we’d trade last week. During the review, the reasons why the USD should prove strong, the AUD, NZD, EUR and JPY weak. The rest I’d rate as neutral.

One student traded the AUDCAD because I recommended it – notwithstanding that I specifically said I’d leave the CAD alone because it was neutral.

It’s important to understand that the student believed that I had recommended the CAD as a possible pair. Luckily I video all sessions, so I was able to check.

Now that was a minor issue. More important is the way this approach when trading – we’d continually reinterpret events to suit our analysis. Then we’d wonder why we can’t make money.

Success is dependent in aligning our perception with reality. The tools we use are attention and awareness to our emotions and behaviour.

 

A Heads Up

Hi

I’m in Sydney for a cataract operation and to organise a date for my hip replacement.

I had forgotten how much time it takes to get to an appointment and to return. And since I arrived, all I seem to be doing is going from one doctor to another.

My last appointment is on Friday, November 18. So next week, I’ll again be posting regularly.

Apologies for the break in posting.

65%…IF

perception-and-reality

BarroMetrics Views: 65%…IF

The stats based on 20 or so years of teaching are unequivocal – of those who begin their journey to trading success:

  • 15% will succeed no matter what. They possess the tenacity and skill sets to pursue their dream, overcoming all hurdles.
  • 18% to 20% will drop out no matter what. They lack the necessary commitment to make the grade.
  • Of the remaining, 67% to 65%, the course and instructor can be one determining in their quest.

So what do the 65% have to do to succeed?

Success is predicated on acquiring the necessary knowledge and skill set. Both require a commitment to do whatever it takes. Not what the trader would like to do, but to do whatever is necessary.

Assuming that commitment is present, what bridge does she need to create between knowledge and skill-set, between theory and practice?

One of the essential factors, and one of the most difficult subjects to communicate, is the need for a probability mindset: to understand emotionally and intellectually that on a trade by trade basis, trading results are random. It’s over a large sample size that our edge manifests.

The easiest way to acquire a probability mindset is to under, emotionally and intellectually, that reality is not just the objective reality but a construct of ‘what’s out there as seen by the in here’.

How to use this idea to attain our trading goals, I deal with next week (no blog tomorrow en route to Sydney; and on Wednesday and Thursday, I want to address the US elections).

 

 

Markets, Non-Farm and US Elections

us-presidential-election-2016

BarroMetrics Views: Markets, Non-Farm and US Elections

USD and stock market weakness continued in November 3rd’s trading.

Today, 8:30 (EST) we have a possible driver of direction – Non-Farm Payrolls. The consensus range is 155,000  to 200,000 with consensus being around 175,000 to 178,000.

Regular readers know that I have been employing a theory which has served me to good stead: Non-Farm has been in recent times a tool to shape desired FED sentiment rather than a statistical model.

Today, the FED is clearly not keen on tanking the stock market. The problem is any number greatly above or below consensus leads to an unknown effect.

Until recently, we could count on a below consensus being as interpreted: “Poor number, bad for economy, no interest rate hike, good for stock market.

But, then we started to see the ‘normal’ response: “Poor number, bad for economy,  bad for stock market.

Given that a figure beyond consensus is an unknown quantity, I expect the number to come in at the 175k to 178k range +/- 2K. That should provide a stable stock market reaction until the election results.

What if I am wrong and the figure is outside consensus range? For the USD, a lower than expected number will be bearish and a larger than expected, bullish. For US stocks, we’ll need to watch the early (first 15-minutes) price action to make an assessment.

And this brings me to the US Elections. RealClearPolitics published a ‘swing state heat map’showing the States in balance. I’ll update the list around 19:00 (HK time) on Monday.

I wrote about the swing states impact yesterday and why I’d take a small bet on  Clinton winning – if the USD and US Stock Market continue to tumble into November 8. RealClearPolitics published a ‘swing state heat map’showing the States in balance. I’ll update the list around 19:00 (HK time) on Monday.

RealClearPolitics published a ‘swing state heat map’showing the States in the balance. I’ll update the list around 19:00 (HK time) on Monday.

http://www.realclearpolitics.com/epolls/2016/president/2016_elections_electoral_college_map.html

Let’s see what happens.

 

Trump and the Markets

usd-freefall

BarroMetrics Views: Trump and the Markets

The way some stock markets, and some USD crosses, are behaving, you’d think a Trump win is a near certainty – reminds me of the situation surrounding Brexit – where the markets were saying that ‘Britain Remaining In Europe’ was a foregone conclusion.

Let’s have a look at the facts:

  1. The hoopla surrounding the Clinton Foundation and her server has led to a Trump resurgence.
  2. Early voting shows that the Democrat black vote is down from Obama’s election. Unless the Latino and female votes recover the slack, she is in trouble.
  3. That said: Trump must win Florida, Ohio, Arizona, Texas and North Carolina,
  4. If he loses North Carolina (Clinton appears to be leading in the polls), he needs to win one of the swing or blue states. Nevada (swing) and Pennsylvania (blue).
  5. Pennsylvania seems out of reach, so he’ll need something like Colorado (swing), Nevada (swing), New Hampshire  (swing) and Minnesota (Blue).
  6. Failing to achieve the above means he won’t get the 270 electoral votes to win.

Trump definitely has more to do, while Clinton’s momentum is waning: that’s why I rate the contest too close to call.

However, the way the markets (especially the USDJPY, Clinton is “overs” i.e. she is good value. Think of it this way; my logic says her chances of winning are 50-50, but the USDJPY is rating her chance 30-70. So, my Clinton win bet has a 20% overlay.

If Clinton wins, we’ll see a strong stock and USD rally.

A bet anyone? Well, let’s see what the markets and odds look like on November 7 (EST). I may have a bet.

For those unfamiliar with the Electoral College see: “Electoral College

I have attached from the WSJ, ‘A Field Guide to Red and Bue America‘.

11-03-a-field-guide-to-red-and-blue-america-wsj

At the Precipice

precipice

BarroMetrics Views: At the Precipice

Am I talking about the FOMC rate decision due out at 14:00 EST? Nope. That’s am almost foregone conclusion: “No rate rise (we’ll see that in December 2016).”

Am I talking about the Non-Farm due out at 20:30, Friday, November 4? Nope. I believe we’ll see a better than consensus – perhaps outside the consensus range – to lay the foundation for the December rise.

What I’m talking about are the US Elections on November 8. Here’s the point – the US stock markets and US dollar will sell off if Trump wins. BUT,  there is a good chance that a definitive winner will not be known for days – it’ll be that close. 

The question I have been asked is whether I’ll be taking a position ahead of the elections – like I did with Brexit.

Nope – I don’t have a feel for the result. Let’s see what happens.

 

Boundless 2 – Structure

structure

BarroMetrics Views: Boundless 2 – Structure

Success in any endeavour requires a structure, a repeatable process that over time garners the results we week. In endeavours other than trading, some or all of the structure is externally driven. Trading is the only activity I know of where the structure is solely internally driven.

So what does this structure look like?

The best one I know of, at least at this stage, is the ACT model (Figure 1). Yes, I have written about it on more than one occasion – just search for ACT, and you’ll see the various entries. So, I won’t go into the model here. What I’d like to do is to consider the question: why is it that although we know the model helps us achieve our trading goals, we fail to execute its practices?

Among the participants of UIII, almost all have completed the left-brain aspects – they have completed the value elicitation exercise, they have formulated their SMARTER goals.

Where I see resistance is in the daily revision of their goals, and in the ‘right-brain’ aspects:

  • Daily mindfulness exercises or meditation.
  • Applying tools to ensure conscious awareness of when diffusion is required.
  • Learning to accept (intellectually and emotionally) the realities of the market –
  1. To win, we need to have a probability mindset.
  2. That risk and loss are an integral part of the game.
  3. The degree our trade preparation and trade management are effective is the degree to which we will be successful.
  4. To be aware of and manage our Default Futures
  5. Finally to prevent our hard-wired fight, flight and fear responses from taking control and sabotaging our decision-making process.

It’s important to note that I use words the ‘3Fs’ and not ’emotions’. The distinction is intentional and necessary.

The works of Antonio Damasio and others have clearly established that emotions are necessary for optimal decision-making. It’s not our emotions but the 3Fs that are the enemy.

And the best way to do that? My solution: accepting a state which I call ‘being comfortable with discomfort’ – with the key word being ‘accepting’. We can feel the discomfort, but our actions need not be guided by it.

So, if you feel your results could be better, have you looked into ACT? And if you have read or talked about it, to what extent have you put its ideas into action?

act-hexagon-10

 

FIGURE 1 ACT MODEL