US Dollar may be our guide for the markets
Stock-Markets / Financial Markets 2017 Jan 24, 2017 - 04:29 PM GMT
In keeping our eyes on the USD, we can ascertain the moves of the rest of the market. USD futures declined to 99.88 in overnight trading, but
retraced to 100.40 at 6:00 am., a 28% retracement of its last decline. Since that decline was clearly impulsive while the others were not, I am labeling the first two thrusts down with an A, while the bounce was a B Wave. We may have just seen Wave [i] of C, while Wave [ii] appears to be in progress. It has retraced 28% of the decline thus far and is easing back down.
ZeroHedge reports, “US equity futures were flat, European stocks rose and Asia was mixed after the dollar posted a modest rebound overnight despite Mnuchin's "strong dollar" comments, while oil was flat and gold fell, as investors focused on President Donald Trump’s plans to boost growth. The pound fell after a U.K. court ruled that Parliament must vote on triggering Brexit.”
SPX retraced 53% of its decline in a clear zigzag motion. Wave c of (ii) appears to be in need of another thrust higher, possibly to match the top of Wave iv of (i) at 2271.78.
ZeroHedge reveals, “Regular readers remember how, when we first reported around the time of our launch eight years ago that central banks buy stocks, intervene and prop up markets, and generally manipulate equities in order to maintain confidence in a collapsing system, and avoid a liquidation panic and bank runs, it was branded "fake news" by the established financial "kommentariat." What a difference eight years makes, because today none other than the WSJ writes that "by keeping interest rates low and in some cases negative, central banks have prompted some of the most conservative investors to join the hunt for higher returns: Other central banks."
After nearly three years of a strong USD to sweeten the ownership of US assets, the weaker Dollar may put a damper on those plans.
TNX has made a 46% retracement of its decline thus far. It may extend that retracement to mid-Cycle resistance at 24.58, which is closer to a 61.8% retracement.
It appears that VIX may decline further. Whether it makes a new low is a hard question, but if the observations in the SPX are true, then it should not.
VIX ETFs are still making new lows while the VIX appears to be building a base from which to rally powerfully. Both VIX and its ETFs are entering a period of strength that may last for another week or more.
ZeroHedge shares these views from Artemis Capital Management, “Trump is a boost to volatility traders (but not traditional hedging or tail risk) because of his inherent unpredictability. Never before in history has a president been so able and willing to shift a policy debate with a tweet. In a world where we have gotten used to parsing Fed statements for methodically planned hints on policy shifts, Trump is a protectionist bull in a china shop. Trump will keep the price of uncertainty high, and high uncertainty is very good for the business of dynamic volatility trading, but oddly poses a challenge for traditional hedging and tail risk funds.
Uncertainty and volatility are not the same thing. 2016 was a year of low volatility but historically high uncertainty. For example, although the VIX index averaged only 15.82 in 2016 (36th percentile of observations) investor hedging drove the expectation of vol to historic highs as measured by skew, implied volatility premium, and volatility forward premium.”
We may be about to see uncertainty turn into higher volatility as time progresses.
Regards,
Tony
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