The Euro currency and Swiss Franc had been artificially tied together since 2011. Eventually, as with all single markets tying themselves to a larger commonwealth, the single market eventually needs out. It can happen for a variety of reasons either the larger group’s or the individual country’s but eventually, the fluid movement of a single country’s needs will find itself at odds with the larger group’s stagnancy.
This morning’s unrevised Q4 GDP number at 2.2% on declining corporate profits provides just the right ambiance for a what has been a gloomy week. While we had a completely separate trade looking at multi-year lows in , “Time to Sweeten on Sugar,” most of our focus was on the financial markets.
I’ve posited several times that the commercial trader group in the Commodity Futures trading Commission’s weekly Commitment of Traders report are the best predictors of medium term moves in the market. Their models are better. Their information is better. Their access is better. These statements apply to everything from their weather models to the latest in artificial intelligence to having ears in all the right places. Before this is dismissed as a cynic “hating” the game, remember that we can put the commercial traders’ actions in the markets to use for our own benefit. That is the basis behind our research at COT Signals.
We’ve been discussing the turmoil in the financial markets for the last three weeks both literally and figuratively. We’ve discussed the massive flow of money headed into the short-term rates in, “Expected Turbulence in the Financial Markets.” We noted the rotation from industrial to precious metals in, “Re-shuffling the Metals Markets.” We’ve caught both sides of the equity market volatility between, “Equity Rally Waves a Caution Flag” and “Hidden Strength in the S&P 500.” The final piece of the confusion was addressed timely enough in, “Bottoming Action in the Euro Currency” which we wrote the night before the Dollar turned. The point of all this review is that today’s action in the copper market further reinforces the increasingly negative attitude that the commercial traders are taking towards global output. Taken in total, the signs are negative. Taken individually, they are good trading opportunities.
Is this the first failure of the coming weakness? We’ve been planning ahead in, “Equity Rally Waves a Caution Flag.”
The sugar futures market has been in a slow motion slide for nearly two years. This follows the market axiom that nothing beats low price like low prices and the expected surplus this year further adds to those concerns. That being said, the sugar market is trading at prices not seen since July of 2010. Furthermore, the sugar market’s seasonality should coincide with commercial long hedgers taking advantage of these multi-year low prices. Finally, the sugar market’s inherent volatility tends to reward forward thinking traders as this market can quickly leave its participants playing catch up.
This was a quiet week for our trading in spite of the explosive moves created by the Fed. Those brave souls willing to take currency positions ahead of the announcement based on our Discretionary COT Signals were handsomely rewarded as our COT Sell Signal in the U.S. Dollar Index was sent out before 10pm on the 17th.
Our focus took a macro view as we attempt to assimilate contradicting indicators into a general thesis upon which to base our long-term trading. We found, “Hidden Strength in the S&P 500,” in our piece for Equities.com. Once again, ahead of the Fed’s announcement.
I frequently talk about using the commercial traders as a proxy for fundamental information. Commercial traders’ pinpoint focus on the markets they trade takes into account the supply and demand structure within their individual markets, including stocks and bonds. Furthermore, their actions within the markets they trade literally, tell us what they expect to happen within their market going forward. Thus, our thesis that, “No one knows the markets they trade like those whose livelihood is based directly upon the correct forecasting of their market.” All things being equal, when my analysis of the fundamentals seems confounded, I defer to the respective experts within their markets. Finally, when the market sectors are analyzed in total, commercial traders’ actions can lead to a bigger picture. The recent shift in their positions within the financial markets leads me to believe Continue reading Expected Turbulence in the Financial Markets