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Thank you for visiting my web log.  Although this blog is centered around alternative investments, foreign currency exchange & risk managment,  you will not see graphs nor price charts scattered about.  You will not see any news summaries, news articles or other such rehashed fear & confusion.  I have spent an immense amount of time, energy and sleepless nights (i.e. life) studying charts, analyzing price movement, spotting trends, memorizing formulas, determining correlations and pouring over grueling finance books.  What for? For why? Well, to decipher the code, navigate the matrix and predict the future, of course.

That is the past.

This blog reflects process.  And right now, the process is refined, the models are in place and the Mind is set.  God is in the Winds.  And when the Winds gust, the simple truth is that either your sails are up or your sails are down.  Make preparations before the storm.  Here, I will tell you when I hoist the Mainsail, why I lower it, or if I’m just reducing sail to prevent taking on too much risk.

In the sidebar, you will only find links to those resources that I personally use or have personally contributed to.  If the quality or status of the resource has diminished, the link will be promptly removed.

Good sailors know the ocean is unforgiving, relentless and beautiful; they always signal other ships when a storm is coming and when the coast is clear, so that is what I will do for you  …there is enough of God’s blue ocean for everyone to enjoy.

 

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Sails Up

↓€/AUD

↓€/AUD

Capital flows look good:

  • According to the COT report, swap dealers are short the AUD
  • Hedge funds are short the AUD

Technicals are lining up:

  • Head & shoulders forming on the weekly chart
  • expecting CCI divergence on the weekly & daily charts

Downside:  DXY is expected to fall which will strengthen the €uro.

Also, China’s PPI is up, strengthening the AUD.  So, with all that, I entered an order at 1.585 with a normal stop.  Risking a full bell.

If the weekly chart plays out as expected I intend to hold this trade longer than my usual 1 week holding period.  Keeping a weather-eye on the DXY.

Update:  closed 2/3 of the position before the weekend then bulletproofed the chart.  Stop hunted on Monday; gain on trade was +25.6% of margin.

What To Do …And Not Do… In A Confused Market

What Is A Confused Market?

A confused market has several symptoms.  A confused market is more than just observed volatility.  It also ranges, has no clear trend, or no clear price action.  In a confused market, price may also get stuck between our traditional exponential moving averages (EMAs).  Think of someone spilling rum on your best nautical chart while you are preparing to get underway  …you can squint at it all day long but still won’t be able to make out the channels from the currents.

Observed volatility leads to expected volatility.  This is the thing investors may not like, financial salesmen do not like, but what the calm, patient trader needs to pay the bills. A  confused market has none of that.

In a confused market, patience is key.  Be patient, Stay up-to-date on fundamentals, update your risk model, calculate your probabilities, reconcile your accounts, wait for price action to cross the proverbial line in the sand, but do not make any hasty trades and gamble client accounts.

Remember, capital is one of the three key factors to economic prosperity and capital preservation is number one rule.

That all leads up to my recent trades –which have all been purely technical with a short holding period (and less than 2.5% gains).  I am currently holding a PLN and CHF long which will probably play out before Sydney opens.

The greatest challenge I face in a confused market is holding a trade for too long.  I use many off-chart market indicators that guide me on when to close a trade.  Those indicators are just not very accurate in a confused market.  Again  …p a t i e n c e.

A little bit goes a long way in times like these.

If you want to make sense of a confusing market, go visit the fine folks who taught me how to read a chart:  Infinite Prosperity, a Corp. Authorised Representative of Alpha Equities & Futures Ltd ABN 76131376415

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US: Federal Reserve FOMC Meeting Minutes

Economic Calendar: FOMC

The Federal Reserve’s Meeting Minutes

The Federal Open Market Committee (FOMC) always delays the issue of its meeting minutes. The minutes of the previous meeting are reported three weeks after the meeting.

Why The FOMC Meeting Minutes Are Important

The FOMC has changed dramatically in the transparency of its operations. It now discloses policy changes at the end of each meeting. Historically, the Fed used to keep investors and traders guessing about policy changes and Fed officials did not appear on the speaking circuit to set the tone of expectations as frequently as they currently do.

Since the Fed moved up the release of the minutes to three weeks after a meeting from six (in January, 2005), the minutes have become a market mover as analysts parse each word looking for clues to policy.

However, the minutes do include the complete economic analysis compiled by Fed officials and whether or not any FOMC members have dissented with the rest of The Committee.  These dissentions can be important in forming future expectations.

Investors who want a more detailed description of Fed opinions will generally read the minutes closely. However, the Fed discloses its official view at the end of each FOMC meeting with a public statement.

Fed officials make numerous speeches, which freely give their views to the public at large.  When they do this, watch out for extreme short-term volatility in the market

Generally,  I shore up trades when I see the economic calendar filling up with pirate meetings and wait for the storm to settle.

↓€/PLN

Weekly eur/pln market structure looks good, so I put in a foundation trade at 4.23 with a wide stop. After the weekly candle finished, I checked for CCI divergence & positioning on the COT report.

Today, CCI divergence is confirmed on the weekly & daily.  The CFTC reports that dealers increased their euro shorts & non-commercials are taking profit on euro long positions this week.

Initial foundation trade (4.23) is a 1/3 bell, but looking at the DXY, not sure when I will add to it.  So keeping a weather-eye on the DXY for now.

Update:  added a bit of outside leverage to the trade, held for a couple weeks and eventually scaled out on the 4-hour chart; closed at a total of +18% of margin.  this is an extremely volatile pair and my risk management model was definitely put to the test.

Risk Off Event Volatility

Looks like the market has now been prepped for incoming volatility.  To profit in times like this, it is important to remember your risk threshold and your market correlations

With a 2-year wedge breakout on the VIX, equity markets declining, and risk-sensitive currencies finding temporary highs; we have to be ready for extreme volatility.

The market has followed through to the downside with the DOW sliding over 900 points, risk currencies declining, and the JPY powering up reflecting a true risk-off sentiment.  Risk off means movement in JPY and CHF.

Additionally it’s important to note that crypto-currencies did not receive a bid during the latest, big risk-off event; confirming that these speculative assets are sold in times of uncertainty to raise cash out of fear or greed.

The winners of the day will be those who don’t get emotional about the big market swings and stick to their money management model….always.

To be successful, think dynamically and understand the correlations among financial markets.  Tunnel vision on one specific asset class no matter the market cycle is not true objective analysis.

For me, this month I am closely watching correlations, commodities and balancing my portfolio out with metals while I search for an auditor to update the gains to my track record for 2017.

British Producer Price Index (PPI)

Economic Calendar: British PPI

The Producer Price Index Defined

The Producer Price Index (PPI) measures the prices of goods bought and sold by manufacturing firms. The input price index measures the prices of material and fuel purchased by producers for use in the manufacturing process. These are not limited to just those materials used in the final product, but also include what is required by the company in normal day-to-day operations.

The output price index includes prices charged by manufacturers as they pass out of the factory excluding any VAT or similar deductible tax.

Both measures may be seen as leading indicators of consumer price index (CPI) inflation although the short-term correlation is historically weak.

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Why Is The British Producer Price Index important?

The British PPI measures prices at the producer level before they are passed along to consumers in the UK. Since the PPI measures prices of consumer goods and capital equipment, a portion inflation at the producer level gets passed through to the consumer price index (CPI).  By tracking price pressure along the pipeline, investors can anticipate the ending inflationary consequences in subsequent months.

A producer’s price is the amount received by a producer from the purchaser of a unit of goods or services produced as output less any value added tax (VAT) or similar deductible tax, invoiced to the purchaser. It excludes any transportation charges invoiced separately by the producer.

The PPI provides a key measure of inflation alongside the consumer price indices and GDP deflators. The output price indices measure change in manufacturer’ goods’ prices produced and often are referred to as factory gate prices.

Input prices are not limited to just those materials used in the final product, but also include what is required by the company in its normal course of business.

Why Should I Track The British PPI?

The PPI is considered a precursor of both consumer price inflation (and profits). If the prices paid to manufacturers increase, businesses are faced with either charging higher prices or eating the difference. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.

  • The bond market rallies when the PPI decreases or posts only small increases
  • Existing bond prices fall when the PPI posts larger-than-expected gains.
  • Equity markets rally with the bond market because low inflation usually leads to low interest rates and is good for profits.
  • Governments receive higher tax revenue when a low interest expense leads to higher corporate profits.

Track the British Producer Price Index here:  British PPI

 

Great Britain: Consumer Price Index

Economic Calendar

The British Consumer Price Index (CPI)

A consumer price index (CPI) is an average measure of the level of the prices of goods and services bought for consumption by most households.  For the British Consumer Price Index, the entire UK is taken into account.  It is calculated using the same methodology (HICP) developed by the European Union’s statistical agency (Eurostat). The British CPI is the Bank of England’s target inflation measure.

Why Is The British CPI Important?

Out of all inflation indicators, The consumer price index (CPI) is the most widely followed. An investor or trader who understands how inflation influences the markets will have a tremendous advantage over other investors and traders.

In countries that make up the UK (England, Scotland, Wales, Northern Ireland), where monetary policy decisions rely upon the central bank’s inflation target, the rate of inflation directly affects all interest rates charged to businesses and consumers.

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Remember, inflation is an increase in the overall level of prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence markets.

Inflation (along with risk premiums) basically explain how interest rates are set on everything from mortgages, auto loans and Treasury Instruments (bills, notes and bonds). As the expectations on inflation change, the markets adjust interest rates. The effect ripples across all asset classes:

  • stocks (equities),
  • bonds (fixed income),
  • and commodities.

Everyone pays close attention to inflation trends.  By tracking the change in inflation investors can anticipate how different types of investments will perform.

Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits leading to more tax revenue for government expenditure.

For monetary policy, the Bank of England (BoE) generally follows the annual change in the consumer price index which is calculated using the European Union’s Eurostat methodology so that inflation numbers are comparable across the EU.

UK Office For National Statistics