ON AIR with F.A.C.E.

Back on with Dale Pinkert and the gang at Forex Analytix Community Experience (F.A.CE.) at the beginning of autumn trading was awesome. This is the time of year that we see most likely what trends will follow us into the new year. As summer trading winds down and institutional traders return to work, many will start to use this time (September – December) to position for the new year. Keep in mind that positioning includes profit-taking and closing trades as much as it means entering trades and establishing positions for the year ahead.

In this episode, Dale and I discuss how high-yielding currencies, risk aversion, and equities are faring and what implications to keep in mind in the current market landscape. Enjoy!

As I mention in the video, I have room for new mentees! If you would like to improve your trading, I would love see if I can help you with a 1-week trial.

Intermarket Action Showing 1st Signs of Concern

The $GBPJPY has a huge wedge on the weekly chart but it has been difficult to catch a move on this currency pair. Shorts at the top of the wedge just above 147.00 level had to contend with choppy price action. After a few weeks price finally broke down lower to the 144.00 support, and former resistance, level. The reason why I don’t think we’ve seen a huge correction is because we have been moving in such a way that allows momentum measured by the RSI to reset. With the measured move lower to the 144.00 support level. When the yen caught any kind of weakness, the $GBPJPY moved as high as 146.76, close to the former highs above 147.00 which are the former lows turned now resistance level. However, I think this one will just continue to grind lower. The price action has stair-stepped all the way down allowing momentum to progress naturally lower in the midst of this very measured move to the downside. Until this week.

GBPJPY WEEKLY CHART

If you look at U.S. equities, the major American stock indices have been making new all-time highs all summer. Equities just keep grinding higher despite the divergence in momentum between price and RSI. The divergence has been recently invalidated with momentum make a new high higher than the previous high. However, the other equity markets in Europe, Great Britain and Japan have all failed to make new highs in tandem with the U.S. markets. In fact, the $DAX has already broken below recent lows and the $NIK has failed to move higher. The weak dollar has clearly supported U.S. equities higher. In converse, the strong euro has been killing European equities as of late. The forex market has certainly been a factor behind the divergence in western stock markets.

DAX WEEKLY CHART

SPX DAILY CHART

And in steps North Korea. The geopolitical tension between North Korea and the United States has been building for months. But this week, the warring ideologies escalated to fighting words. The market closed today below the summer highs for the first time since trump took office this year. This looks to be a first, early signal that the market is starting to crack. Will it be 2007 all over again a decade later? Get ready.

The Commodity Dollars Signal

The market seems to be turning higher for the commodity dollars (comm dolls), which is inline with the recent price action in commodities. Commodities, like copper, oil, and gold, have been generally rangebound in 2017 following the significant downtrends that started in 2011. During that downtrend in commodities, markets have been operating on loose monetary policy based on the flow of funds from central bank balance sheets and ultra-low interest rates. Now these fundamentals are shifting with balance sheet reductions, interest rate hikes and increasing hawkish central bank sentiment around the globe. With the fundamentals transitioning from one psychological paradigm to another one, increased volatility and choppy price action may start to creep back into the markets.

GBPCAD 4 HOUR CHART

There have been no summer doldrums in the forex markets. Starting with the Canadian dollar, the Bank of Canada (BoC) completely surprised markets last month with an interest rate hike. The start of monetary tightening in Canada now gives the CAD fundamental support for the rally that has taken place for much of this year already. So the correction this week just ahead of the Bank of England (BoE) interest rate announcement this Thursday, was a fantastic opportunity to buy Canadian dollars versus the Great British pound. The corrective rally moved right into the 61.8% Fibonacci level giving a level of risk reward that worked well for sellers ahead of the UK Super Thursday news event. The BoE was more dovish than the market expected as it cut its inflation and economic growth forecasts amongst calls for gradual rate increases. This divergence in monetary policy between Canada and Great Britain may see the $GBPCAD move to new lows.

GBPAUD 4 HOUR CHART

The Reserve Bank of Australia (RBA) released their monetary policy statement this week too. While the RBA is hawkish on the Australian economy, they remain adamant that accommodative monetary policy must remain for that growth to continue. As such, the RBA will likely not move on interest rates at all this year. But neither will the BoE. If this remains the case, the interest rate differential and the divergence in economies should continue to underpin the Australian dollar against the Great British pound.

GBPNZD 4 HOUR CHART

The $GBPNZD was trading in a wide range while we saw the aforementioned breakdowns in the $GBPCAD and $GBPAUD. The $GBPNZD finally joined suit and fell to new lows at the 1.7400 support level. But the $GBPNZD staged a major correction this week that actually saw price move back to the top of the former trading range above the 1.7900 level just before the BoE announcement. While this complete reversal higher seems like bullish price action, hindsight reveals another fantastic sell opportunity post BoE.

So now that the selling opportunities have presented themselves, can the commodity dollars continue to strengthen against the pound? There is another factor at play here that we have not yet touched upon – the weakening U.S. dollar. A weak dollar boosts most commodities since they are priced in U.S. dollars. Higher commodity prices should bolster the commodity dollars higher as well. But this is no guarantee. So take care with your trades. It’s going to be a choppy month with the occasional bursts of volatility as markets ready for full throttle trading come September. Be patient and take advantage of the setups, like these, when they come.

ON AIR with F.A.C.E

I spend every Sunday with students looking at markets for the upcoming trading week. So I was happy to share this week’s insights with Dale Pinkert this morning of the Forex Analytix Community Experience (F.A.CE.). While F.A.C.E. may be a new community, Dale certainly is not. He is an expert trader who has great experience interviewing the best personalities and experts in the business. So it is always an honor to be asked to discuss my views on markets. The nugget I dropped today that Dale really liked:

Correlations are shot. There are no correlations right now in the market.

What do I mean? Watch my interview and market review to find out.

Is The Cannabis Trade Burnt?

Right as markets closed last week, the newswires had a flash crash. And just for an instant, a headline came through the wires that wasn’t tainted by Russia. No, this headline was original, home-grown American. Attorney General Sessions announced his own war, the War on Drugs 3.0. And the focus of the war will be cannabis.

Cannabis plantCannabis stocks have become a new trend in the market as over 8 states and the District of Colombia either approve of medical marijuana or recreational use straight out. And as such markets have responded with companies transacting goods and raising funds to the tune of millions of dollars. The Obama administration rightfully acknowledged the profit and commercial potential in the drug. Though President Obama never went so far as to legalize marijuana, it can be argued that he liberalized it. And yet here we are over 100 days into a new presidency and Sessions reminds the world that he needs to save us from ourselves.

Unfortunately, there’s little a company (public or private) can do about the federal government enforcing its own laws. Strict enforcement could seriously hamper investment in the budding cannabis sector. The regulatory risk inherent in a cannabis trade right now is sky high in a trump administration. Investors may need to wait 4 years until a science-friendly administration steps back into the Oval Office.

Despite the many opportunities to invest in cannabis companies, now may be too early to invest. Remember that in trading being too early is just as painful as outright loosing money. However, if you have the appropriate timeframe and investor mindset, the market may actually smell like opportunity.

cree weekly chart

canopy daily chart

msrt weekly chart

 

More to read: States Keep Saying Yes to Marijuana Use. Now Comes the Federal No. (The New York Times)

The Youth vs. The Market

Now that the markets have opened after the week that ended in a hung parliament, I, a mere trader, can now make exclaim,

Theresa May made the biggest mistake of her short tenure as prime minister. FULL STOP.

She completely discounted the voice and vote of the youth. Since the June 23rd referendum vote, it was clear that young British voters in no way approved of a Brexit. But they didn’t vote. Or so it was reported. In my mind, as a disgusted Democratic sitting in California, why would the Prime Minister ever give the citizenry an election so soon after she stepped into office? Americans are waiting excruciatingly for the 2018 midterm elections. Can you imagine trump ever declaring a snap election to prove a point? We could only hope. But I digress. Back to Great Britain. As the market rallied in anticipation of the election, I thought it was market cheer for a new change in Parliament. Surely, folks would oust the party that campaigned for and got their Brexit. The youth were not going to make this mistake twice.

And that’s exactly what they did. The Party of Brexit lost its majority hold. And the voters gave that majority to NO ONE. Fucking brilliant. If Prime Minister May was truly engaged with the public, she would’ve never declared that snap election. She counted on increased apathy to secure a mandate for Brexit. And as such, her party not only lost their Parliamentary majority, nobody won the majority. And the hung parliament just completely changed the fundamental landscape for the Great British pound.

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FM CAPITAL GROUP

I have been on Twitter for 8 years. I birthed #forexTwitter along with some pioneering souls. We were here before the stock guys. They just made it cool. In those 8 years, I have been hugely humbled by folks who have reached out to me for help in their journey to build wealth. Most of these requests have been from traders. However, more requests were looking for advice in how to build their wealth portfolio. I love trading and I love the markets. No one wakes up in the middle of the night to trade foreign exchange and not love it. So I began translating my midnight trading into portfolio building. I bit the bullet, produced the paperwork, passed the Series 65 and raised an advisory firm — FM Capital Group LLC. I’m happy to discover the incredible good that comes from helping others put money to work.

But we are not doing investment advice the traditional way. No 2-20 fees or commissions. No account minimum. Yes, the chair of our advisory board thinks I’m crazy. She’s been in the brokerage business for over 45 years and all she ever did was sell product. But she trusts my vision. I want a company that first believes that clients should keep as much of their investment profits as possible. I want a company that knows that everyone has to start somewhere. Lastly, I want a company that educates. The is a natural extension of the trading tweets and blog posts I have been producing the last 8 years on Twitter. My dream to give individuals who have traditionally never had access before, personal access to opportunities to grow their own wealth. Without knowledge, I know firsthand that significant wealth is quickly harnessed in all the wrong ways. I am on a mission to change this trend and feel very well positioned to do so.

So with that said, I can’t do this alone. My hope is that the advisors of FM Capital Group provide the most comprehensive investment help for you. I am a building a team to do that. If you are interested in the opportunities we have available, visit this page for application instructions.

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This is the Correction We’ve Been Waiting On

After waiting weeks for the $GBPUSD to put in a correction of this recent bull rally, cable finally staged a real correction last week. Since the end of April (exactly 4 weeks ago now), the $GBPUSD attracted buyers at the 1.2850 level never allowing for a Fibonacci retracement to take place. For the entire month of May, these shallow dips would produce new highs. So when the rally finally exhausted at the 1.3050 resistance level, the break of these lows around the 1.2850 level was a welcome development for traders waiting for the opportunity to buy the GBP. The correction took cable as low as 1.2774 on Friday. The 1.2774 low has confluence with both former highs and lows at 1.2772 and the 38.2% Fibonacci level at 1.2786. The market has been waiting on this correction the entire month of May.

What’s in question now is whether or not the $GBPUSD continues lower or if buyers will now start to step in after this correction. And right now, buyers have stepped in. The $GBPUSD bounced on Friday right at the 1.2772 support level but opens the week already finding resistance at the former lows around the 1.2850 level. The former floor has become the ceiling, which may indicate that further weakness may be in store for the $GBPUSD. As such, we find Friday’s buyers taking profits against this 1.2850 resistance level as price is unable to move higher in early week trading action. This initial weakness is also attracting sellers who are now anticipating the failed high at 1.2850 to signal more weakness to move cable below the Friday low.

GBPUSD DAILY CHART

If further downside price action is in store for the $GBPUSD , we anticipate a break below the 1.2774 Friday low to the next support level at 1.2700. There is confluence at this next support level with the 50% Fibonacci level at 1.2706. As the market continues to experience risk aversion flows and anticipate a rosy U.S. jobs report, we could see the $GBPUSD continue to weaken to new lows even as low as the 61.8% Fibonacci level. Once at these levels, any surprise USD weakness will catapult the $GBPUSD higher from what will be in hindsight a brilliant Fibonacci trade setup.

Trade what you see!

What’s The Deal With Bonds

With the stock markets entering 2017 rallying into all-time highs, bonds have gotten very little attention. Or rather, they are just getting very negative attention. I really don’t like all the high-yield U.S. bonds and junk bonds that seems to get most of that attention. I think if you going to buy U.S. bonds, you have to look at Treasuries. For those that don’t know, buying a bond is basically lending money with the expectation that you will receive your money back at the end of some time period and receive interest payments while you wait. With the backing of the U.S. government, which I hope we can still rely on over these next 4 years, bonds have always been thought of as the safest investment an investor can make.

Taking a look at the $TLT as a proxy for all long-term Treasury bonds, we see that bond prices have risen dramatically in the aftermath of the 2008 financial crisis. Most recently, however, prices have taken a beating since the election of Donald Trump. Many screamed it was the end of bonds and the start of a new bearish cycle in the bond market.

tlt

I just don’t believe it. Looking long-term, bonds have simply corrected from all-time highs (in the $TLT). Prices have settled in the Fibonacci levels drawn off the entire rally in bond prices since the lows in 2004 (again, according to the $TLT). In fact, bond prices could certainly go lower from here… and still be in a correction. So I hesitate in calling the end of bonds as we know it. Rather, it could be just the beginning….of new life in bonds.

Nothing More Left in the Aussie

The Australian dollar set off the new year rallying pretty much across the board. Even after some consolidation, the Australian dollar attempted to push the Great British pound to new lows but failed just below the 1.6000 support level. Since that failed new low that put in a higher low than the previous low, the $GBPAUD has rallied over 400 pips to trade at 2-month highs.

GBPAUD DAILY CHART

The move to 1.6400 has ran up against resistance at the 38.2% Fibonacci level. Swing buyers at the lows may seek to book profits here, especially ahead of the weekend. But it is unlikely that this $GBPAUD rally exhausts here. Even if the GBP drops on the Article 50 trigger event next week, bids are very likely to step in on that dip. Additionally, the Reserve Bank of Australia (RBA) is concerned with slowing wages in its economy. This concern prevents the RBA from increasing interest rates despite a still-strong housing market. A weak Australian dollar could continue to fuel this rally right into the 1.6700 resistance level. I think that is the line in the sand for the $GBPAUD. There are former highs at that level as well as the 61.8% Fibonacci level. While I expect profit-taking at 1.6700, a break higher will signal that a larger reversal is in play for the $GBPAUD.