Obviously, China has dominated the news this week. There has been rampant speculation regarding the, “first roach” philosophy which suggests there’s much more to come in the way of Chinese Yuan/Renmimbi devaluation. I’m not very good at projecting political developments along an investment front. However, I do know enough to hunt down the information no one is talking about amid the hyperbole. What follows are a few actionable ideas based on the historical context of recent US economic developments and the transference of these principles to the Chinese economy’s cyclicality.
Tough week in the markets as we generally got continuation where we were looking for rebounds. This led to a a pair of losers in gold and the Canadian Dollar against a winning trade in the stock indices due to their rebound.
It is time to look at alternative ways to hedge against rising interest rates. Unfortunately, with the huge increase in volatility due to so many headline issues from Greece to trading halts on the NYSE, that it makes it tough to hold onto positions. Fortunately, the most liquid interest rate market is structured in such a way that hedging against inflation can be done with a reasonably fixed amount of risk.
As Greece defaults, we think it’s time to take a step back and look at the big picture emerging horizontally as China and Russia move towards political and economic objectives that will define a new trading block across Europe and Asia.
The Commodity Futures Trading Commission(CFTC) publishes a weekly report entitled, “Commitments of Traders.” This report classifies the markets’ largest positions by trading groups – speculators, managed money, index traders and commercial traders. Our research focuses on the commercial trader group. We’ve been able to quantify correlated movement between the commercial traders’ net position and commercial trader momentum with the underlying market movement accurately enough to use this as the first screen in our trade selection process. We hypothesize that their accuracy is due to the laser focus necessary when one’s livelihood is derived solely from the movement of an individual market.
We focused on two main themes this week. First, we looked at selling the Euro currency for TraderPlanet and followed it right up with a look at the Dollar Index on Tuesday for Equities.com. Meanwhile, our main piece focused on the grain markets ahead of Tuesday’s USDA Acreage Report.
The Dollar Index made an interim high when the market appreciated Janet Yellen’s dovish statement following the March FOMC meeting. The market has consolidated over the last couple of months between the recent highs and the support that has built up around 93 in the Index. The Dollar’s decline over the last couple of weeks has been bought by commercial traders. We sent a COT buy signal last night. It was based on these factors and triggered by an upturn in our proprietary short-term market momentum indicator.
Indecision, fear and uncertainty continue to strengthen their grip on the markets as we head towards the Federal Open Market Committee’s FOMC meeting beginning today as well as a possible Greek default by the end of the month. Faced with the possibility of correctly forecasting the actual events of the FOMC and the Greeks versus trading the reality of the markets’ collective reactions, investors are taking chips off the table. Here’s a brief look at why chips are stacked a bit differently than they have been since the ’08 economic collapse and the one pocket of the interest rate sector that could benefit substantially should indecision, turmoil and volatility be the effects of this month’s economic announcements.
Currency destruction usually usually places a sovereign national bank at the pointed ends of its citizens’ collective swords. The country’s citizens watch helplessly as they wake up each morning less financially secure than they went to bed the previous night. This general sentiment is why the Japanese Prime Minister, Shinzo Abe’s popularity is counter intuitive. His political platform has been based on the public destruction of the Japanese Yen in a last ditch effort to end 25+ years of secular deflation. As a result of Shinzo Abe’s platform and with the help of the Bank of Japan’s Governor Harihuko Kuroda, they’ve driven the Yen down approximately 20% versus the U.S. Dollar in the last year. Commercial traders are making a strong case that we may be nearing the end of this decline.