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.

 

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.

 

Is the US Stock Market Topping 2?


stocks-topping_2

Is the US Stock Market Topping 2?

I don’t normally post on Fridays, but the ABM was just released, and I figured that some readers may want an update.

In “A Warning: US Stocks Topped?”, I wrote that the St Louis Fed Asset Monetary Base could give us an advanced warning of a US stock market decline. I said we needed to see two ‘consecutive declines in the AMB’.

I have placed ‘consecutive’ in parentheses because I discount small one-period rises – like the one in Figure 2. If at the next reading, I see another strong move down, I’ll treat the two declines as ‘consecutive’ despite the intervening small rally.

Let’s see if the next release throws light on the picture.

2016-10-28_07-56-31-amb

FIGURE 1 St Louis Fed AMB 2016-10-26

No Reason

noreason

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……

2016-10-25_09-16-38-usdcad-290-min

FIGURE 1 USDCAD 290-min

2016-10-25_09-08-03-usdcad-30-min

FIGURE 2 USDCAD 30-min

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?

support

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.

2016-10-13_08-01-10-gbpusd10min

Figure 1 GBPUSD 10-min