“We have reached a profound point in economic history where the truth is
unpalatable to the political class – and that truth is that the scale
and magnitude of the problem is larger than their ability to respond –
and it terrifies them.” – Hugh Hendry
Extremely interesting action across the board and we really can’t complain with how markets have played into into our positioning/plans. a lot to discuss in today’s webinar session: daily reversals, weekly closes, data releases, seasonal, policy response from the Central Banks and gee-political developments…
Here are some of the key charts we will be discussing today:
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As we discussed in yesterday’s post, we would be scaling out of shorts. The bears have been capitalizing on this ‘trade talk blackout period’ due to the Chinese being off on a one week holiday and the recent reaction to the Manufacturing PMIs.
As far as shorter-term action is concerned, don’t make it harder than it should be > it’s all about the ISM Non-Manufacturing PMI release later on today. If we get another disappointment like we saw on Tuesday, then things could get ugly quick. However, keep in mind that anything that is mildly positive will likely see a decent bounce attempt.
Our base-case assumption is that this is a scale out of shorts / build long zone. As discussed on our RTY trade, we pretty much consider the ‘ sell FOMC and Q3 OpEx ramp into seasonally weakest week of the year’ done.
Unless something really horrible hits the wires today or tomorrow, we expect the market to stabilize and put in some kind of bottom. We are wrong on a weekly close below the 2800 mark.
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“We have a bias toward wanting to be right, which is not objective. The way the brain works, we tend to give ourselves disproportionate amount of credit when we’re right and when we’re wrong, we tend to disproportionately blame outside and external factors. We externalize failure, we internalize success, which is not accurate, which the a priori fact of that is and this is a Freudian observation although these cognitive biases have built a business around the simple fact that as Freud said, we’re not accurate observers of our own behavior, we’re not designed to be.” – Gio Valiante
Our focus today will be on starting to scale out of our RTY short from the FOMC and Q3 OpEx ramp. We are open to anything but all in all, we would expect to see some kind of bounce, especially as China comes back from holiday next week. As we like to say, most traders would do a lot better if they focused on trying to catch 2/3% moves rather than 20/30% moves. it’s simply a function of number of occurrences. Furthermore, if O/N continues to trade heavy, there will be some very interesting trades setting up into the cash open.
The other key thing to discuss and review will be how markets will react to the Thursday data dump especially seeing the misses we saw yesterday. As discussed on Twitter, after those prints, slow and steady, you would have to expect usd longs start/continue to unwind across the board… especially, expect gold higher and yen lower to continue. All about Thursday now.
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As discussed on Twitter too, one of the most interesting dynamics at the moment is the unwind in Bonds and Gold. Remember, that these moves make complete sense not only from a technical perspective but also if you factor in seasonal tendencies.
Courtesy of @movement_cap
The above is extremely interesting and important to understand if you are trying to position into some FX trades, possible fading recent moves. Once again, we are at some key inflection points across the board but there is likely little edge trying to stubbornly initiate FX fades as long as this unwind in taking place with the accompanying USD strength…
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“You can’t be normal and expect abnormal returns.” – Jeffrey Pfeffer
This week we are going to focus on tactical plays on Crude as well as reviewing the bigger picture / long term cycle view on Gold (detailed video out for subscribers on tuesday).
Remember that China will be off on holiday as of tomorrow and that apart from the usual headline risk out of the Middle-East and Washington, we have pretty much every FOMC member speaking this week too as we run up into NFP.
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“I will not allow yesterday’s success to lull me into today’s complacency, for this is the greatest foundation for failure.” – Og Mandino
After FOMC/OpEX/Seasonal plays, it’s time to start to focus on the Dollar. In today’s webinar and upcoming video outlooks, we’ll review the latest corrections in Bonds and Metals and discuss what they mean for various FX dynamics and plays.
Once again, as far as indices are concerned, short-term, bears need to be cautious. There is no change to our bigger picture outlook, however; after the panic sell and apparent nothing burger – especially into quarter end – we would expect markets to make their way back to the scene of the crime.
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“The revolutionary idea that defines the boundary between modern times and the past is the mastery of risk: the notion that the future is more than the whim of the gods and that men and women are not passive before nature. Until human beings discovered a way across that boundary, the future was a mirror of the past or the murky domain of oracles and soothsayers who held a monopoly over knowledge of anticipated events.” – Peter L. Bernstein
If you missed our latest posts, here are the key levels for > NZDUSD AND GBPUSD. These remain two of the most interesting chart for this week.
In today’s webinar we are going to update our outlook on indices and our FOMC/OPEX setup:
As you can see in the above chart, it’s really important to understand context and flows into these events. It’s worth taking the time to study to avoid blindly fighting flows and overall, just making things harder than they should be.
Note for active 50Scouts members: *make sure you read our latest update* and keep an eye on your inbox for a free pass to Friday’s daily webinar session (make sure to check your spam folder too).
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“Without numbers, there are no odds and no probabilities; without odds and probabilities, the only way to deal with risk is to appeal to the gods and the fates. Without numbers, risk is wholly a matter of gut.” – Peter L. Bernstein
No change in outlook for Cable following the basing pattern in the 1.20s and the political stalemate. Clearly, there is still a lot of headline risk in the market but as we stand, as long as we do not get any substantial developments, 1.28s remain out primary target with 1.32s in extension. We would be in close-only mode and not adding, simply managing our exits. We will start to discuss our views for q4 next week.
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“If the problem has a solution, worrying is pointless, in the end the problem will be solved. If the problem has no solution, there is no reason to worry, because it can’t be solved.” – Zen Proverb
Seeing a lot of talk about positioning for an imminent conflict between KSA and Iran. For those that are too young to remember or forgot, here is what happened in 2003 with Iraq…
CME FedWatch Tool… markets move.
SPX chart overlayed with Powell FOMC Press conferences and Quarterly Expiration Cycles. We can’t stress how important this is…
Key Topics for us this week will be: (i) the situation in KSA (ii) Trump and the Mini-Deal (iii) RTY vs. FANG (iv) Bond seasonals (v)Powell and a Hawkish Cut (vi) Brexit developments and last but not least (vii) Draghi and a possible regime shift in Europe.
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