Kruger Insights Wednesday – January 15, 2014 by FirstMacro

BinaryOptionsNow | Published on January 15, 2014 at 11:00 am

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By: Joel Kruger

All Bark, No Bite – I was definitely a little surprised (but not shocked) to see the recovery in US equities on Tuesday. It is truly amazing just how well this market has been supported on any form of a dip. While Monday’s setbacks were only marginal in the grand scheme, the bearish reversal formation from record highs, certainly generated a good deal of attention and concern that the bottom could finally fall out. But as has been the case again and again, the idea of any extended declines was quickly rejected, with the market rallying back quite sharply Tuesday. I have been trading the S&P in and out this year with success, and was able to catch most of the move from Monday. I exited into the Monday close and watched the Tuesday rally not thinking I would get another chance to sell at such an attractive level. But with the hourly chart trading overbought ahead of the Tuesday close, the opportunity to get back into the short could not be ignored. I am not sure how this newly established position will play out, but as highlighted the other day, I do not believe this market will be able to establish any meaningful and sustainable gains above 1850, without some form of a more significant correction. It seems the recovery was attributed by some to the better than expected retail sales data out of the US on Tuesday. Yet, I am not so sure I buy into this.

kruger insights january 15, 2014

What’s Changed? – While the solid economic data is a positive for the real economy, it should not necessarily be taken so easily as a net positive for financial markets. After all, a healthy retail sales print should only translate into the need for a less accommodative Fed. Less accommodation = less incentive to be buying stocks = increased chance of profit taking (if you believe Fed policy has been supporting the stock market). Over the years I have said that when I am fading a trend, I actually like seeing these sharp (scary) moves back in the direction of the trend, as it only makes the counter-trend play that much more compelling when the market stalls out again and reverses (in this case Tuesday’s rally stalls and the market breaks back below Monday’s low). So as we head into the meat of Wednesday trade, I see no less of a reason to be wanting to sell equities than there has been over the past several days. The fundamentals of Tuesday did nothing to change the picture, and if anything, as per above, there is arguably even more of a reason to be wanting to sell equities. I would say that if this reversal is going to play out, we would probably need to see a break back below Monday’s low before the end of the week. As for currencies, USD/JPY is still very well tied to US equities, while the rest of FX is expected to on the whole continue to be well offered against the buck on any rallies. The whole shift in Fed monetary policy theme and anticipated narrowing of yield differentials in favor of the buck, should be what drives FX for much of 2014.

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