Daily Client Note
Global Markets Review
Near-Term Futures Trading
The topsy-turvy world of global trade continues its path of one day up and one day down, in reaction to breaking news sentiment. The unique set of fundamental circumstances unfolding as a consequence of years of miss-directed fiscal policies and institutional investment faux pas is likely to continue through to year's end.
Patience is required as the mid-term global charts go through long anmd short daily spirals that are capable of testing support and resistance in equal measure. We have been here before, many times, but this period of trade does seem to be going on forever. Whether equity bull or bear, bullion buyer or seller, or a bond investor on the long or short end of the curve, the outlook remains the same; intra-day volatility as fair value is sought in milliseconds rather than historically over a period of days and weeks.
There are near-term trade opportunities in all markets when buying at the low of the previous session and selling at the high. These trades are available as a strategy because of the lack of mid-term chart directional sentiment and momentum.
The USD/S&P 500 inverse correlation remains strong, with equity and bond markets dominating intra-day direction across all global asset classes. Gold and Oil have formed an inverse correlation, with gold buying being met with oil selling, and vice versa. Silver trade does not yet have the strength of upside momentum seen in gold, but that may be more to do with Exchange floor margin requirement threats more than anything else.
The trade desk has highlighted over the last four years the changes that have happened in regard to electronic trading dominance, and the increase in algorithm trade that tracks momentum, headlines, price action, and sentiment. Who would have thought that Buy-and-Hold would so quickly cover just few days as a strategy, rather than the previous connotation that buying-and-holding could last decades.
Traders and investors have not been seen such reactive market arenas before, which is a pure reflection of the technical advancements that has all aspects of daily life impacted by the speed in which information now travels. The relentless desire to get information quicker than yesterday, in an effort to respond sooner, has transposed itself into traded markets that are truly 24-hours and are so completely globalized now that regional 9-to-5 trading is virtually obsolete.
Those looking for a flowing bell curve effect on their investment portfolio may not get it by trading and investing in regional markets only; gaps in closing/opening prices due to global momentum swings are prevalent. The long-term investor will have to introduce a near-term mix of global exposure to their portfolio.
Global exposure can be achieved via Futures and Forex trade, which remain the most liquid of all global traded markets. As a balance to equities and bonds held over the longer term, exposure to Futures trade offers easy access, low margin requirements, and 24-hour global momentum, creating a tradable balance to the buy-and-hold mantra that has failed to deliver for over a decade.
Whether equity markets go on a bull run that has S&P 500 breaking 1275 or has a bearish reversal that tests 1095 is literally a coin-flick in the current headline-dominated trading environment. The reaction to either move however is tradable, via the Futures markets that track both bull and bear equity and interest rate trade with a high daily correlation.