This is why the next 4-weeks should be volatile
FX:
Its the end of the month and dollar bulls should
expect a fair amount of volatility in December. The first reason is that
liquidity dries up in December. The second is that seasonal trends remain mildly
bearish until the New Year. That mean the volatility we saw this week could
reappear in the coming weeks. But as readers know we have been anticipating a
sharp burst higher from Jan-July 2006 to cap the dollar’s rally.
Meanwhile, the ECB is expected to raise rates
this week so a little back tracking in the dollar should be expected as traders
position to buy the rumor. Then we expect the euro to weaken again (dollar rise)
after the ECB’s rate hike.
The previous whipsaw was quit exhilarating and we
played it correctly by buying USD/CHF at 1.3050 and 1.3010 on Tuesday. We’d
expect another selloff ahead of the announcement that might give traders another
opportunity to position or add to their longs.
Gold pulled back hard yesterday in line with our
view. We’d recommend moving stops down to $498 from $502 considering the
pullback looks like an “ABC” correction so far which could mean another rally
leg lies in store until the $491 level is taken out.
The dollar index is little changed from
yesterday. We think Tuesday’s decline was “wave C” of the typical “ABC” type
correction and we have called the inflection points over the past 8 weeks
perfectly.
We think that was the end of the correction and
have labeled it as such. But only a move above 92.50 in the dollar index would
suggest we are now targeting the 95 level.
Stocks:
By our wave counts we see one more “down up”
sequence in stocks before calling a top. Recall that three weeks ago we warned
that a move in the Dow Industrials through key resistance at 10,600 would “put
the wind at the bulls’ backs as the end of the year is seasonally bullish.” But
as we also said, the internals of the uptrend is weakening as fewer stocks are
participating. This is the hallmark sign of a top and and as we showed for three
weeks in a row, the smart money is definitely not participating. As stocks rise
on narrowing breadth will look to go short around 11,000 if the opportunity
looks compelling.
Bonds:
The pullback in yields appears to have ended
yesterday after we warned that bonds were due for a bounce after a clear ‘five
wave’ move up in yields (down in bonds). But the “five wave” up advance saw a
choppy correction which means the next big move should be up. We’ll have to wait
and see a “five wave” advance developing, but the overall trend remains up and
our key support at 4.4% has not yet been violated.
Regards,
Jes Black
FX Money Trends
613 4th St Suite 505
Hoboken, NJ 07030
Tel: 646.229.5401
Jes
Black is the fund manager at Black Flag Capital Partners and Chairman of
the firm’s Investment Committee, which oversees research, investment and
trading strategies. You can find out more about Jes at
BlackFlagForex.com.
Prior
to organizing the hedge fund he was hired by MG Financial Group to help
run their flagship news and analysis department,
Forexnews.com. After four
years as a senior currency strategist he went on to found
FxMoneyTrends.com – a research firm catering to professional traders.
Jes
Black’s opinions are often featured in the Wall Street Journal, Barrons,
Financial Times and Reuters. He has also written numerous strategy pieces
for Futures magazine and regularly attends industry conferences to speak
about the currency markets.