The name of the game this week was volatility. There was plenty of action that helped make trades for both the bulls and the bears profitable. The bears had to love the start to the week, the bulls the end. Currency volatility was on par with 2008 financial crisis levels. The US dollar had its worst week versus the Japanese Yen since October of 2008, ending -4.5% on the week. Speaking of the Japanese Yen, we talked in previous editions of the weekly calendar about how the Yen's fluctuations against the dollar and other global currencies not only had the potential to cause large amounts of volatility in global markets, specifically the Nikkei, but that it was a direct cause of the volatility. Since May 22, the Nikkei is down 18% as it appears the Yen has lost the steam behind its meteoric rise against global currencies. I think at this point this is one of the three major risks to the entire financial system and will continue to be something I watch very closely. You can take a look at my article titled, "The Goldilocks Market And The 3 Bears", for a more in depth breakdown of the three major risks to the US markets and the financial system in general.
So how did we do? Well our calendar for the most part had the data points in line with the results, but we did miss the most important print of the week, the Non-Farm Payroll number, and that hurt. Bad. It's as simple as garbage in, garbage out, and when your weekly trading strategy is based on a catalyst like the NFP and you miss? It's all about damage control. I had been short the SPY for a few weeks from 1666 and closed my short at the close on Friday. I'll take the final results but had I closed at 1600 just one day earlier I could have saved myself 40 handles to the upside. It's the inches that make all the difference in this game. One final note on the NFP number before we move on to data on tap for this week, consider this - we're creating 165k new jobs a month, the same number as in 1985, the only problem is that the current population is 100 million larger. It's important to keep things in context when the market had its second best day of the year on this number and roared back to near all time highs.
If you were to take a quick scroll through the calendar for this week you would see many more positive predictions than negative. You would think this is indicative of an extremely bullish week and that this might be signaling a change in the trends back to positive. This isn't exactly accurate.
Monday is an extremely important data day for China and Japan, the two major Asian economies and markets that matter to us in the US. I always expect the Chinese data to be either positive or at least not too far negative based on the idea that I think all or most of their data is made up. I'm expecting all of the Japanese data, lagging from Q1, to be positive as they were at that point making great strides in their efforts to stimulate and devalue their Yen. Monday should be a good day for the Asian markets, and a flat to good day for the US markets. No volatility is a good thing.
Tuesday will be more of the same. We'll hear from the Bank of Japan, everything will be extremely positive in tone and will further expand on their commitment to aggressively devalue the Yen, and we'll get important data from the UK. I am of the belief that the UK's economy is slowly but surely getting better and that they should have positive prints across the board. Two days of low volatility and good data should have the sentiment improving globally and domestically.
Wednesday will be a continuation of good data out of the UK but will be the first day that we see any negative data. I am expecting misses from both the Euro Zone Industrial Production and the US Mortgage Apps. Both will further continue the negative trend that both are already in. I think this could raise hard to answer questions about the recovery taking place in the Euro Zone and the US housing market. Wednesday will be an important day to watch the reaction to these prints. Do we care? Do we not care? I'm extremely interested in this reaction.
Thursday and Friday are going to set the tone for the entire week. I'm not expecting much volatility Monday through Wednesday as most of the data that is coming out is either expected (positive Chinese, Japanese, UK) or isn't considered the marquee data for the week. Thursday and Friday we get US retail sales, jobless claims, industrial production, manufacturing production, and sentiment data. I'm expecting positive data from all but sentiment and even that I would expect a close miss. The problem is that I'm not expecting any blow-out positive prints from anything. Nothing that jumps off the page and says that this recovery is real and that it has any kind of staying power into the possible tapering that may or may not take place in late June. I don't think the reaction will be anything as bullish as some of the bulls expect and I think that the lame duck prints may give credit to the bears' argument that we are overbought and over extended. This may be one of those rare weeks where it is better to watch from the sidelines and get a feel for the sentiment and direction of the market than try to guess it. I begin this week with no position and may end the week with no position in the SPY. Either way, it will be a tone setting week for the next several.
Note: The following tables will outline any medium to high importance events, their currency, a previous number, and my take as to whether the number will beat expectations (+), meet expectations (=), or miss expectations (-). Doing due diligence on these events and taking a position based on the opinion derived from that research is a way for traders to play the markets using beta movements from these events. My calendar is in no way entirely inclusive of all data events globally, simply the events I will be watching that I feel will impact my trading strategy of being either beta neutral or beta levered. The events in the tables are events that, in my opinion, will have a significant impact on the S&P 500 Index, which can be most closely be followed by watching the SPDR S&P 500 ETF Trust (SPY), the Dow Jones Industrial Index, which can most closely be followed by watching the SPDR Dow Jones Industrial Average ETF (DIA), and the US Dollar, which can most closely be followed by watching the PowerShares DB US Dollar Index Bullish Fund (UUP).
Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in SPY, DIA, UUP over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.