The following is slightly modified version of a biweekly newsletter I send to our clients at AVAFX to summarize major market events and trading opportunities over the past half month. Readers may find it useful because
It's a brief summary of the key events in these global markets
It illustrates how diligent, alert traders can generate outsized returns with minimal capital and judicious use of leverage. Trading is NOT for everyone, but can be a rewarding form of investing for those willing to do their homework and learn not just basics of trading but the management of risk.Introduction: In General, Stocks Lead, Commodities and FX Follow
Global stock markets continue to set the overall direction for commodities and currencies markets, though gold was a notable exception which we'll discuss below.
In the below chart of the S&P 500 index, an experienced market observer can see the overall direction for most other major global asset markets.
Typically, global stock markets move in the same overall direction, though not always on a daily basis. The same goes for commodities, as well as their related "risk currencies" the AUD, NZD, CAD, and EUR These are currencies that tend to move up against the safe haven currencies (JPY, USD, and CHF) when market sentiment is upbeat and anticipates growth, and move down against these when stocks and commodities are dropping due to market pessimism about future growth.
Market Diary: What Happened Since Our Last Newsletter
Global Stock Markets
The S&P 500 Futures 09/07—09-21 Chart Courtesy of AVAFX
Other major global stock indexes in Asia and Europe followed the above general direction.
While historically, September has been a losing one for stocks, the S&P is up so far over 5%, and most of the major global stock markets are also up.
Currencies and commodities followed accordingly, with commodities also moving somewhat higher, and commodity and higher yielding currencies gaining against the other, more safe-haven crosses.
Commodities: Major Swings for Major Profits, Despite Only Modest Overall Gains
Like the S&P, Crude's total movement has been a bit over 5%, from $68--$72, as shown in the chart below.
Crude Oil 09/07—09/21 Chart Courtesy of AVAFX
The exciting aspect of crude oil from a trading perspective is that it has made this move THREE TIMES in less than 2 weeks. Using 100:1 leverage, savvy traders had three chances to turn each move into a 500% profit, 1500% in total. Using just $500 cash to control $50,000 of crude, those traders could have made up to $2500 on each swing, $7500 in total, on just $500! Sure, it's unlikely you would catch the full range of each move. So what? Out of that 1500% total profit potential, even catching 10% of the moves meant 150% profit in less than two weeks.
In our last newsletter, Gold was the star, with financial media worldwide focused on its dramatic 5% jump in 3 days leading up to and including the 9/4 US Non Farms Payrolls report, and the possible meaning of the move. Here's what happened since then.
Gold 9/07-9/21 Chart Courtesy of AVAFX
Since then gold made another 3.3% climb before beginning to retrace its move. Using 100:1 leverage, alert and lucky traders caught most of a 330% profit opportunity.
Looking at the above two charts, a key point to note is that the range of the gains was not huge, yet potential profits were enormous.
A traditional buy and hold investor with no leverage would have made little since 9/7. However, a trader doesn't need large sustained moves. By identifying the swing points or resistance and support levels, and by using 100:1 leverage, simple range trading in a relatively modest 3%-5% range can yield outsized gains for even those with very modest trading capital.
Interested in reading more about gold? Check out our latest special report: What Pro Traders Think of Gold. Go to the avafx.com, under resources, select Market Review, and find the report under the daily analysis for 21/09/09, for an introduction to the weekly Commitments of Traders report.
While risk currencies also followed the overall direction of stocks and commodities higher against the safe haven JPY, USD, and CHF, this predictable move does not mean currencies haven't also had their share of drama.
The big story by far was the US dollar's break below major support against virtually all currencies, adding a new leg to its 7 month downtrend. In addition, its 3 month LIBOR yield is now THE lowest of the major currencies, adding new selling pressure because this low rate makes the USD the ideal currency to sell in order to fund purchases of 3 month debt in other, higher yielding currencies.
- There are reasons to believe a big bounce is coming for the USD because
it is so oversold by a number of measures
- as the second most sought after currency in times of fear (after the JPY), the dollar is likely to be a big beneficiary of any pullback in stocks when it finally arrives
The reassertion of this trend has created trading opportunities galore. You didn't have to look hard. Look at this chart of the EURUSD, the most widely traded pair that accounts for about a third of all of the over $3 Trillion/day forex market.
EURUSD 07/09—21/09 Courtesy of AVAFX
The EURUSD jumped over 3% in 10 trading days, as the EUR benefitted both from a major USD drop and also from good economic news out of Germany and France. Using 200:1 leverage, that's a potentially 600% move in 10 days, that could turn a mere $500 stake into $1500. See our latest weekly outlook for a detailed look at this week's prospects for all major currencies. Go to avafx.com>Resources>Market Review and scroll down to the Weekly Analysis Archive. At the top of the list, choose the AVAFX Global Markets Weekly Outlook Full Version, for 21/09/09.
In sum, with many risk assets like the S&P and crude oil at 10 month highs, we continue to suspect that traders would be wise to plan for playing a pullback in risk assets. Some of the reasons we believe this could happen are discussed in the weekly analysis.
However, even if markets continue to trade in reasonably tight ranges, the above recap of the prior 2 weeks shows that there are always opportunities of outsized profits for alert, serious traders who do their homework and use leverage properly.
This is exactly why AVA FX strives to provide such a diverse range of trading instruments. While other markets are struggling, our clients can always find a bull market somewhere
Disclaimer and Disclosure: The opinions expressed do not necessarily reflect those of AVAFX. The author holds positions in the above instruments.