The LFB's  Instablog

The daily updates provide clients intra-day detail on the drivers of each 24-hour global trading session with snippets of timely, concise, and potentially market-moving, information.

Latest Market Update:
Earnings Season has not revealed many upside surprises, and with most S&P 500 companies reporting their numbers over the course of the next week the chances are for more of the same skin-of-the-teeth numbers that just manage to hit their mark. The sentiment surrounding fiscal imbalances and the very cloudy outlook for economic growth and expansion are weighing heavy on global asset class price action.

There is little benefit in looking past where trade will finish each session; inter-bank lending is so scarce that risk is not transferring from one regional trading session to another. The consequence is market action that balances books and locks in exposure on a daily basis, in what used to be a weekly and monthly process.

Whether a bull or bear, it makes no difference; the one-day up, one-day down pattern is not going to change anytime soon. Buying the low or selling the high of the previous session is a regular pattern, as is the strong definition between the three regional trading sessions of Asian, European, and US trade. Each is aligning towards its own economic outlook and debt scenario on a daily basis, creating a myopic forward view.

Fair value is not hard to find each day. In the current environment where fear-of-loss dominates, price action is not being allowed to travel too far without a violent pull-back. Bank early and often, and look to limit any downside collateral.

Economic Calendar:
Weds:
08:30 ET USD PPI. Exp 0.1% Prev 0.3%
09:00 ET USD TIC Long-Term Data. Exp 27.3B Prev 4.8B

Recent Market Updates:
- Global price action is very choppy and overlapping. Near-term views will dominate as the largest economic Black Swan event many have seen unfolds.
- In the regular pattern, Chicago Futures markets are likely to reverse overseas moves, leaving the New York session struggling for momentum.
- The German Dax opened with a gap higher straight into the 200-day SMA and October reversal area around 6400. Main markets have not followed.
- The global asset class swing points highlighted earlier are coming unglued. Risk-aversion signals are forming. Further detail to follow if equities and financials follow through and drag sentiment lower.
- S&P 500 is holding 1290, Gold 1650, Silver 30.00, Oil 100.00, EUR 1.27, 10-year notes 131.0, Dollar Index 81.00; Fair value has been found.
- Here we go again; the US session cannot hold onto overnight Futures moves nad is moving to test support on main asset classes. The pattern must be frustrating to watch for 9-to-5 investors.
- News is rampant that Greece will default ahead of a March 20 bond payment. The real news however will be Credit Default Swaps triggering.
- The current debt fiasco has avoided a Greek CDS insurance payout, but goodness knows what the reaction will be if these trigger on Mar 20. 
- Remember that the 2012 pattern of trade has the US sessions reversing overseas moves, which has as much to do with inter-bank liquidity flows (fear of loss) as anything else. Take care trusting the US session to hold a move easily.
- The Bank of Canada interest rate decision and statement at 09:00 ET, along with a raft of Q4 Earnings numbers will hold traders attention.
- Risk is being bought in overnight Futures trade, with S&P 500 testing 1295, Gold at 1655, and EUR around 1.2750. All are pivotal swing point areas to monitor this week. 

Bull or Bear, trader or investor, the above content reviews both sides of any situation with impunity in an effort to create fair and balanced output. Reactive markets require reactive analysis and an ability to accept changes as they happen. A headstrong opinion may be an impediment in the new-generation roller-coaster global trading arena; however, a systematic process of balanced analysis will be an asset in any environment. Information, analysis and methodologies provided are for informational purposes only, obtained from sources believed to be reliable, and should not be used as a replacement for research by an individual investor or licensed investment professional. In no event should the content of this correspondence be construed as an express or implied promise, guarantee, or implication that profits or losses can be made or limited in any manner whatsoever. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

The daily updates will focus on 4-Hour mid-term analysis, and overall asset correlations in any given session.

Current Outlook
As the chart below highlights, there is very little alignment across global asset class trade, which historically has lead to volatile intra-day price action and unsustainable order flows. The overbought equity indices and bullion reads confirm that near-term resistance areas and previous session highs could be hard to break and then easily hold.

Tenured traders are likely to be reducing exposure to any position taken, and then studiously monitoring the mid-term trend and momentum reads for potential break-outs, accepting that the current outlook is for very weak price action. Until the trend reads start to align across most asset classes, and until the Neutral reads confirm one direction or another, the constant test and reverse off both support and resistance will dominate procedures.

These are very mixed reviews, which reflect a very mixed outlook for forward price action.

Global View


* See Table Notes below

Commodity Update
Near-Term Support and Resistance:
Gold: Sup 1625 Res 1675 Neutral 1656. Silver: Sup 28.60 Res 31.05 Neutral 30.10. Oil: Sup 98.75 Res 102.50 Neutral 100.30. 

Equity/Dollar Index Update
Near-Term Support and Resistance:
S&P500: Sup 1275 Res 1305 Neutral 1290. Dax: Sup 6220 Res 6280 Neutral 6230. DXY: Sup 79.50 Res 81.95. Neutral 81.45.

Currency Pair Update
Near-Term Support and Resistance:
EUR: Sup 1.2610 Res 1.2870 Neutral 1.2720. GBP: Sup 1.5290 Res 1.5435 Neutral 1.5345. JPY: Sup 76.35 Res 77.75 Neutral 76.80.

* Global View Table Notes
When 4-hour chart trend and momentum reads are aligned across Equity Indices, Commodity, and Currency asset classes, a trending market is more easily achieved, and trade exposure and initial targets are generally increased. When trend and momentum reads are not aligned, a choppy and overlapping period of trade is more easily achieved, and trade exposure and initial targets are generally reduced.

A long trend that is over-sold generally sets up for a long reversal off support. A short trend that is over-bought generally sets up for a short reversal off resistance. Markets that are over-bought into a long trend, or over-sold into a short trend, can remain that way for a long time. Any positions that are taken against the 4-hour trend will have to absorb choppy and volatile price action.

Bull or Bear, trader or investor, the above content reviews both sides of any situation with impunity in an effort to create fair and balanced output. Reactive markets require reactive analysis and an ability to accept changes as they happen. A headstrong opinion may be an impediment in the new-generation roller-coaster global trading arena; however, a systematic process of balanced analysis will be an asset in any environment. Information, analysis and methodologies provided are for informational purposes only, obtained from sources believed to be reliable, and should not be used as a replacement for research by an individual investor or licensed investment professional. In no event should the content of this correspondence be construed as an express or implied promise, guarantee, or implication that profits or losses can be made or limited in any manner whatsoever. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

Currency traders are reliant upon the global equity and interest rate market direction to indicate on a regional basis the acceptance of risk, and by default at this time the value of the USD. Intra-day currency charts are clearly showing that momentum waves are hitting harder as regional commercial markets in Asia, Europe, and the US, open and close for business and start the daily grind of finding fair value on risk in each economic region.

The global business cycles are not yet showing signs of growth and there is no confirmation that the contraction/trough phase is finished. That is the main reason the USD is having such a hard time each day holding fair value, and why the major currencies traded against the dollar are becoming increasingly volatile.

When either contraction or expansion are in place in the global business cycle it is fairly easy to value risk via the volatility seen in stocks and via the interest rate spreads on bonds and Libor (inter-bank lending rates). When these phases of the business cycle are in full swing currency values will be trending and the ebbs and flows of daily trade will continue in the overall direction of the trend.

When the markets transition from one business cycle to the other and hit a period of consolidation ahead of the trend change, as the market may be doing right now, the ebbs and flows of currency trade have to adjust three times a day rather than once, as each regional global market re-positions itself for a new value on the price of risk.

The new value on investment risk is seen in wider bond and Libor spreads, higher equity bid values, and also in the volatility of regional currency moves that cannot hold attempted breaks of tightly held ranges. Major currencies finished 2011 at similar values that they started from, confirming that high volatility cannot easily form a currency trend in the current economic environment.

In the last three months there have been one or two sets of 30-minute trade each day, on each pair, that housed most, if not all, of the daily movement. The subsequent follow through has not been worthwhile monitoring. The major pairs are all at their main 2011 swing points, and back to areas that were formed in December 2010. That however may be about to change as Quarter One of the New Year tends to more easily break and hold a range than any other.

The US dollar stands head and shoulders above all others regarding the sheer number of bills in circulation, and a move on the dollar index (DXY) impacts so many more areas of the global economy that any other printed currency. Of all the main global asset classes the dollar index has the slowest moving reaction to breaking news headlines, and the lowest average daily trading range.

DXY is 10% off its 1996 valuations around 85.00, which is a swing point area that has been in play every year between 2001 and 2010. The strong inverse correlation between equity risk and USD relative safety that has both asset classes moving inversely will be hard to break. If S&P 500 equity indices trade holds above 1150 support, DXY will struggle to break above 81.50 resistance.

For the first time in a decade traders saw a year that was unable to touch 84.00 on DXY, which may signal a re-newed move against the dollar forming on the long-term charts.

Bull or Bear, trader or investor, the above content reviews both sides of any situation with impunity in an effort to create fair and balanced output. Reactive markets require reactive analysis and an ability to accept changes as they happen. A headstrong opinion may be an impediment in the new-generation roller-coaster global trading arena; however, a systematic process of balanced analysis will always be an asset. Information, analysis and methodologies provided are for informational purposes only, obtained from sources believed to be reliable, and should not be used as a replacement for research by an individual investor or licensed investment professional. In no event should the content of this correspondence be construed as an express or implied promise, guarantee, or implication that profits or losses can be made or limited in any manner whatsoever. No guarantee of any kind is implied or possible where projections of future conditions are attempted.