No Reason


BarroMetrics Views: No Reason

One of the very valuable lessons I learned from Pete Steidlmayer is I should have a reason for every trade, every entry. And when that reason is no longer viable, I should exit.

Today, the USDCAD provided a classic example of his teaching as well as illustrating why the hours 4:30 am to 7:00 am HK (16:30 to 19:00 EST) has become a dangerous time.

Let’s first consider the rationale behind the ‘dangerous comment’.

I must admit that it’s more a suspicion than proven stats. But, the ‘suspicion’ has been serving me to good stead.

I first made mention of ‘pattern’ in “Slow, Very Slow“. I then brought it up again in “Defended Levels“.  Today, we saw it in the USDCAD.

So, what’s the pattern? It tends to differ from pair to pair. But, its essential conditions are:

  1. A strong directional move between 16:30 and 19:00 EST; and
  2. A range that in a few minutes (5 to 60) that equates to at least 80% of the mean.

I was looking to enter the USDCAD. Nowadays, I ask: “are there any DPs (danger patterns) I ought to be aware of?

Just as well I asked. Figure 1 shows the pattern. I have used the 290-min so as to be able to show the prior occurrences; but, the characteristics are best seen in a 30-min or lower timeframe.

Figure 1 shows the pattern. I have used the 290-min so as to be able to show the prior occurrences; but, the characteristics are best seen in a 30-min or lower timeframe.

There were two occasions when the USDCAD  had had a daily range of less than 50% of mean coming into the end of the day. One each occasion, the pair spiked to new highs and then…….

……….moved down to at least 80% of mean range. Then, over the next few days, the USDCAD rallied back to the breakdown.

There was one occasion (09-21) when the initial range was larger: 84 pips. I took that day to be the start of the ‘trial’ for those trading the pattern to see if it had a real-time edge.

Today I saw the pattern affect my trading. Going into 17:00 (EST), the range was 33 pips (mean is 120). The pair then pushed to new highs followed by a drop of 116 pips in 90 mins. (Figure 2). Today though, the rally came almost immediately.

The USDCAD is now back to where it was before the breakup and breakdown.

Turning to the ‘no reason’ aspect of this piece – tomorrow……





A Warning: US Stocks Topped?

Arrow graph going down

BarroMetrics Views: A Warning: US Stocks Topped?

Figure 1 shows the warning: The St Louis Fed Asset Monetary Base has broken below the previous low point. In the past, if we saw two consecutive closed below a significant low, it would suggest that the deposits, currently with the St Louis Fed, will flow into Main Street. (The next reading is due around Nov 4.)

Should that happens, we can expect to see inflationary pressures rise about three months after the flow began. So, inflationary pressures should be seen, say about February/March 2017. This date accords with my work: we’ll see a market top in the last quarter of 2016 to the first quarter of 2017.

Where are we then on the rate rise scenario?

We can expect to see a rate rise in December in 2016 with a FED promise of “measured rises in the future – depending on data.”

The markets seem to have taken the view that once the rate rise in Dec 2016 is out of the way, there will be only one more rise in 2017, if that. (see for example, “Fed Forecasts See Lower Rate Path In 2017, 2018.”

An unexpected increase in inflation projections will cause the US stock market to tumble and USD to start a strong rally because the projections will suggest a more rapid rate rise.

The questions raised will be:

  • What will the FED do if US stocks head south?
  • And, will its action, given the deficit, be able to stop the bear market from gathering a head of steam.

Let’s see.

2016-10-21-slfr-ambFIGURE 1 ABM

Defended Levels?


BarroMetrics Views: Defended Levels?

Figure 1 does not do justice to the move in the GBPUSD on October 7, but it gives you some idea. We saw 969 pips in 10-mins.

Let’s place the 969 into perspective. Ar the time, the average weekly range was around 250 to 320 pips; and the average monthly range was around 490 to 620 pips.

So, in 10-mins, we saw a range that would normally take over a month to attain!

Naturally, this caught the eye of the press and we saw ‘blame’ apportioned to a French comment about Brexit to an algo’s ‘fat finger’.

But, for me, an even more noteworthy event occurred yesterday – we saw a mini-October 7 move. There was a 155 pip move in about 30 mins. That’s a little more than the current average true range of 135 pips.

Apart from providing for a fab day trading opportunity, the price action is the preliminary confirmation of the need to change my idea for trading the GBPUSD. Until now, I have been shorting the GBPUSD at designated levels with a great deal of success.

October 7 and 12 suggest that it’s time to reassess. If my birthday celebrations don’t get in the way, I’ll discuss the new strategy tomorrow; if they do, I’ll blog Monday.


Figure 1 GBPUSD 10-min

Slow, Very Slow!


BarroMetrics Views: Slow, Very Slow!

My post this morning to the Ultimate Facebook Group (closed group) Page.

Too slow! I was way to slow!!!
I had 3 minutes to secure an exit at 1.1900 or lower for my GBPUSD short.

But failed to react in time to place the limit order – a market order would have ensured a poor fill.

The buy stops I was counting on to move the GBPUSD – in case of a bullish USD NFP – are now gone. I have just placed staggered orders to exit from 1.20810 to 1.17570, probably won’t be reached, but, I’ll leave them, in case NFP is favourable – but see last paragraph. Orders are good for today.

Stops now down to 1.26370.

The structure of the GBPUSD, short-term, has changed. The stops below the price action are gone, at least for the moment. Given this, to continue moving South, the GBPUSD needs follow-through news from the NFP. Even a neutral figure will probably send the pair North.

Starting at 6:00 PM HK time, I’ll be looking to exit 25% before NFP, if I can secure prices below 1.2150 i.e. I’ll be amending the limit orders I currently have in place from 6:00 PM HK

I attach a chart of the price action from my trading journal.




It’s That Time Again



BarrosMetrics Views: It’s That Time Again

It’s that time again, on Friday, October 7 at 8:30 a.m. EST, we have Non-Farm Payrolls. The consensus figure is around 168k to 170k with the consensus range being 155k to 200k.

Long time readers know that I view US Labour stats more of a political tool rather than an economic measurement. The question I ask is:

What number does the Fed need?

In this case, it needs a number that is not too bullish or bearish. To retain any credibility, it needs to raise rates in December, but it does not want to tank the stock market. So, the best number intervening number is one that does not cause too much euphoria and one that does not send US stocks strongly south.

Last month we had a number at the lower end of the consensus range. I expect this month will be at or slightly above consensus but within consensus range. Such a number should keep the US stock market steady.

By the way, the chart heading this blog suggests that the US job front has been improving under Obama.

I’ll let you make up your own mind.

Figure 1 is the ShadowStats estimate of the unemployed rate compared to the Labour Dept’s numbers. What is probably alarming the Fed (I choose to believe it does not subscribe to its own hype), is the divergence between the Labour figures (dropping unemployment) with the SS chart (steady at 23%).


FIGURE 1 ShadowStats

FOMC – Rate Rise?


BarroMetrics Views: FOMC – Rate Rise?

Well, folks, it’s here: Thursday morning 2:00 am (HK time, 2:00 PM EST), the FOMC rate decision will be in.

Figure 1 shows the S&P (cash, daily). Following some suggestions of a Fed hike in September, On September 9, the S&P moved down 41 points – up from the average ATR of 12.7 points since the breakout on July 7. But, on Monday, Sept 12, it rallied with a range of 44 points.

Since then it has been moving sideways, bounded by 2169 and 2119.

There are two reasons why I doubt we’ll see a rate rise.

Firstly, at this moment, the US stock market is totally divorced from what’s happening in the US economy. Take the job front.

Figure 2 shows ShadowStats’s Unemployment calculations. You’ll see that while the SS number is flat, the official numbers are declining. In this scenario, I see Yellen, aware of the true situation, unlikely to raise rates until after the US elections. And this brings me to the second point.

Historically, the FED has usually raised rates until after the election results. For example see: “September rate hike would break Fed tradition during election year“.

If the FED fails to raise rates, we should see a rally in the S&P. The nature of that rally will shed light on whether the bull market is likely to continue.


FIGURE 1 S&P Daily


FIGURE 2 ShadowStats Unemployment


Bengal tiger stalking, Panthera tigris tigris, Western Ghats, India
Stalking a trade, as a Bengal tiger would stalk its prey.

BarroMetrics Views: Stalking

Currently, I am stalking a short trade in the GBPUSD. The question at the back of my mind is whether the setup will complete before FOMC on September 21 (EST). The reason I have that question is: I doubt the FED will raise rates so there should be, at least, a knee-jerk rally for the GBP. Not a great scenario for shorts.

That said, I thought I’d share some of my thoughts on the subject.

Figure 1 is the cash futures for the GBPUSD going back to inception. We see that it recently broke out of a range that began in 1985. Currently, it appears to in a retest, consolidation phase. Is the retest complete?

Figure 02 seeks to answer that question. I am using the 290-min chart instead of the daily, to show the detail better. It shows that the GBP hit the Primary Sell Zone and sold off. Normally, I’d have been looking to sell in that zone. But not this time. Note:

Figure 3 shows why. You want to note:

  • The swing up began off 1.2864 on Aug 2015 as part of the congestion structure that began on July 16.
  • The sloping black and red lines are the linear regression bands I use to measure momentum.
  • The first red arrow shows that:
  1. The current high (to the top of the Primary Sell Zone) occurred on 09-06. It had at least equal momentum to the high marked by the blue arrow.
  2. For this reason, I chose not to short the pair because I am looking for a new high or at least a retest of Sept 6 high.
  • The black and red lines show my preferred price action before the retest of the high. Ideally, the GBP will drop to the Value Area High (Blue line and light green rectangle) before rallying.
  • The second red arrow shows the earliest date for the new high if we are to see momentum divergence.
  • The exercise shows that if I am to see momentum divergence, the new high needs to occur around Sept 13 or later.
  • However, unless I have at least 5 trading days before FOMC, I’ll wait for the decision before seeking to enter.


FIGURE 01 GBP (monthly)

Chart through the courtesy of Chart Store.


FIGURE 02 290-min GBPUSD

Chart through the courtesy of Market Analyst





Non-Farm and Rate Hike

BarroMetrics Views: Non-Farm and Rate Hike

Tonight we have Non-Farm at 8:30 EST. It has a direct bearing on whether the FED will raise rates in September. My view is it would prefer to raise them after the elections (Nov 8). For this reason, I expect the number tonight to be at the lower end of the consensus range. If I am correct

If I am correct, the FED can delay raising rates in September and pass the buck to the December meeting (Dec 13 & 14). The November meeting is schedules ahead of the elections (Nov 1 & 2).

What about economic reasons, rather than FED desires, for raising or not raising rates?

Attached are articles from Larry Levin, Seeking Alpha and Wealth Daily. Links to the sites are the bottom of the page. You’ll see some of the arguments for both sides.

Good luck tonight with Non-Farm trading!

2016-09-02 Why Fed Raise Rates Sept SeekingAlpha

2016-09-02 Levin Rate Hike

2016-09-02 Rate Hike


BarroMetrics Views: Brexit?

Today, the Markit/CIPS purchasing managers’ index for the sector moved up to 53.3 from July’s figure of 48.3. This data is on the back of previous stronger than expected employment and CPI.

Figure 1 shows the 15-min GBPUSD chart. Notice the gap that occurred just after the news.  Figure 2 shows the rally within the backdrop of the sideways price action since July 6. Notice that today’s action retraces the down move following Yellen’s August 27 comments.

For me, the price action sets up the GBPUSD for a high reward short. If we don’t see a retracement down tonight, we have weak longs in the market – any Non-Farm number better than consensus will cause nervous longs to exit and thus causing the current up move to reverse.

Of course, the reverse is also true. A Non-Farm number below consensus will be accompanied by more upside.

Tomorrow I’ll have supporting arguments and contra-rise for a rate rise. The next test on the horizon for the USD.

2016-09-01 GBPUSD 15-min


2016-09-01 GBPUSD 290-min


Raise or Not Raise?

BarroMetrics Views: Raise or Not Raise?

The USD spiked against the commonly traded pairs on Friday, August 26 after Yellen said:

“In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal-funds rate has strengthened in recent months.”

Note that she did not say that rates would rise in September. Indeed, reading her speech, I could not find one iota of new information on the timing of the rate rise. Essentially she said:

Rates will rise if warranted by the data. At this point, the data suggests it could be possible rates at some stage“.

And so, we come to Friday’s Non-Farm. Consensus expectations range is around the 175k to 180k with the range at 125K to 215K (last month 255K).

If the figure comes our around 200k or more, there will be pressure on the FED to raise rates in September (if only for the sake of its credibility). Such a number will probably lead to a sharp rise in the USD and fall in the US stock market.

It’s unlikely that the FED will welcome this sort of ‘rate-rise’ pressure. It wants to raise rates so as to be in a position to lower them when the next recession hits. Also, it probably does not want to raise rates ahead of the election results. The Nov 1-2 meeting would be the ideal time (There is no meeting in October).

Long-term readers know that I see the employment stats as tending to reflect FED preferences. For this reason, I see Non-Farm coming at the consensus or the lower range of the consensus range. Such a result would allow the FED to bypass a September rate rise.

How would a consensus number (or a number at the low end of the consensus range) impact the USD and S&P? I’d expect that for Friday, the effect would be for the USD to decline and S&P rally. We may see the USD give up all the gains it made post-Yellen Jackson Hole.

Will I position myself ahead of the number? Nope. But, I will look to trade the GBPUSD and AUDUSD if numbers come out at the extreme of the consensus range.