Kruger Insights Tuesday – January 14, 2014 by FirstMacro

BinaryOptionsNow | Published on January 14, 2014 at 11:00 am

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By: Joel Kruger

Timing Is Everything – Although it was only one day of US equity weakness, it is hard to ignore the fact that something bigger could be going on. For much of the second half of 2013, I exhausted the idea that US equities were exposed on the expectation the Fed was going to start to move away from emergency super extended policy and towards a path of tightening (initially via Taperville). But like all things in markets, timing is the hard part and in this case, it is no different. Despite warning signs there would need to be some form of rotation out of equities back in the Fall, the market either chose to ignore these signs, or felt like this was the last hurrah and wanted to push as hard as it could before the party came to a screeching halt. So this was the story in those final months of 2o13, resulting in a rally to fresh record highs right into the closing hours of the year. But now at last, it seems like the party is over and market participants are digesting the reality that free money incentives to buy equities will no longer be there in the same way. Technically, US equities have been tracking in overbought territory on the longer-term chart for several months now, and the idea of a 10-20% correction would be completely healthy. I would not even go as far as to say I am so bearish stocks, despite my outlook over the past several months. I simply believe that price action has gotten out of control, with the stock market having leaned far too hard and far too long on the Fed.

kruger insights december 14, 2014

You Know Something’s Wrong When.. – There has been a very clear departure from the underlying market drivers, and we need to see the focus shift back towards the real fundamentals. Once we get a nice pullback, you may even see me recommending a buy into the dip. At the end of the day you know something is wrong when you get a pullback like we saw Monday, which was only a little more than 1%, and everyone is panicking that something needs to be done to support this crisis. The truth is, how confident can we really be in a market that inspires such uneasiness with only the smallest of pullbacks? Not much in my view. This is precisely why there needs to be a more pronounced period of weakness before we can comfortably start talking about compelling buy opportunities. Technically, a double top was triggered in the S&P on Monday, and this now opens the door for a measured move extension back into the 1790 area over the coming sessions. From there, the previous monthly low around 1760 will come back into focus, with a break of this level to set up a more serious monthly reversal. While anything is possible of course, and the market could still decide to race to another fresh record high, it is becoming increasingly apparent that the risks for any sustained strength above 1850 should be quite limited, until we at least first see the anticipated correction play out. The Fed was there to fuel equity market gains for 5 years, and at a minimum, even the smallest of monetary policy adjustments (as we are now seeing), should have some sort of weighing influence.

And What About FX? – So what does this all mean for currencies? Well, the currency market has already done a good job of starting to price in the shift in Fed policy and favorable impact this will have on yield differentials. The US Dollar has enjoyed substantial gains against many of the major currencies in recent months as a result. I believe this trend will continue going forward, and the recommendation is to look to be buying the USD across the board into dips. However, there are some currencies that I think are still highly exposed, that have yet to really respond to the changing environment. For me, it is the New Zealand Dollar and Israeli Shekel that really stand out. I know there are others as well, but these two currencies have managed to retain a relative bid tone, despite some very striking weakness in normally well correlated currencies. Yet while the respective local economies have performed well, my contention is these currencies have perhaps relied a little too heavily on the domestic picture, and have ignored the impact of external fundamentals. As such, I will be looking for this outperformance to transform into some underperformance in 2014, as these currencies start to play a game of catchup (catchdown more appropriate). I would also recommend keeping a close eye on the Yen over the coming days. USD/JPY has started to carve out a nice little top, which ultimately should end up being a lower high within the context of a broader, intense uptrend. The market is now looking for the next meaningful higher low, and I really like the idea of buying USD/JPY on a dip into the 99.00-100.00 area (should we get there) over the coming days.

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