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Good Afternoon Readers!
Stocks moved forward this morning after a turbulent week of panic buying and uncertainty, with Microsoft and Countrywide Financial heading the pack as the markets seem to ignore the record oil prices. Mortgage lender Countrywide is under investigation by the Securities and Exchange Commission for its possible associations to the subprime fallout and for stock sales by its chief executive, also recorded a third-quarter loss of about $1.2 billion. In the technology division, Microsoft posted a significant 23 percent rise in quarterly profit, due mainly to the new Halo 3 video game, Windows and Office sales. After ending Thursday's session at an unprecedented high, U.S. light crude oil for December delivery increased 87 cents to $91.33 a barrel on the New York Mercantile Exchange. It reached a record $92.22 in Asia trading overnight. It’s expected that the volatility that has seized the markets this week will not come to an end soon, as the Volatility Index hovers close to the brink for high volatility.
Warm Regards,
Lane Mendelsohn
Website Publisher
In
This Issue...
|
People Think Its All About Prediction -- But It Is Not!
by
Van K. Tharp, Ph.D. |
2 |
|
Trading Lingo: Definitions For the Less-Experienced Trader
by
Jim Wyckoff |
3 |
|
Currency/Commodity Markets
by
Kevin Klombies |
4 |
|
U.S.
Stock Market Update
by
Robert W. Colby |
5 |
|
Weekly Currency Wrap-up
by
Darrell Jobman |
6 |
|
|
Volume 8 Issue 3 |
www.TradingEducation.com |
October 26, 2007 |
Trading Psychology
People Think It’s All About Prediction -- But It Is NOT!
by Van K.Tharp
Let’s look at some of the major methods behind investing or trading and see what they can tell us.
- Trend following – If you buy what’s going up, it will probably continue.
- Value Investing – Buy what’s undervalued because it will eventually become overvalued.
- Seasonality – The market tends to show seasonal patterns that you can capitalize upon.
- Band Trading – It’s possible to draw bands to describe the nature of an investment. Those bands will allow you to sell when the price gets too high and buy when it gets too low.
- Elliot Wave – The market moves in a sequence of five waves up and three waves down, and if you can understand the various levels to this, you can predict tops and bottoms.
While there are many other methods, notice how all of these particular methods are related. What is the common element? All of these methods tend to predict, to a certain extent, what the market will do next. So if you are a trend follower, you are predicting that the trend will continue. If you are a value trader you are predicting that what’s undervalued will go up eventually.
Yet if you look at the track record of some of the major players who used these methods, you’ll find that they are often right less than fifty percent of the time. Good trend-followers, for example, might make money in about 40% of their trades. But when they are right, they make huge amounts of money.
Elliot wave traders look brilliant when they are correct, and the media wants to interview them about what will happen next. But when they are wrong, they can look really stupid and people start to laugh about their predictions.
My point in mentioning all of this is to show the importance people place on prediction. Countless books have been written about how to “pick the right stocks.” The media tend to interview professional traders about what stocks they are picking and why. And perhaps they’ll even show what happened to the last set of picks and ask what happened with the losers.
I have yet to hear anyone say, “I don’t make money picking stocks – I make money by cutting my losses short and letting my profits run. And more importantly, I meet my investment objectives through the judicious use of position sizing.”
Your trading style forms a basis for your beliefs about how to enter the market. This is important because you really only trade your beliefs about the market. It’s very hard to trade something that’s going up if you believe it is overvalued. Similarly, it’s very hard to trade something that’s considered undervalued, if you believe (because it is going down) that it will continue to go down.
But it really doesn’t matter what framework you select for picking your trades or investments. That’s only the starting point for real success. What’s really critical is that you understand that you make money by cutting losses short and letting profits run. This will give you a positive expectancy system. And if you can do it in such a way so as to develop a good system, then you can probably achieve your objectives through the appropriate use of position sizing. And if you can continue to do this without making many mistakes, then you’ll probably be happy with the results. These are the real keys to investment success.
Until next week, this is Van Tharp.
|
Volume 8 Issue 3 |
www.TradingEducation.com |
October 26, 2007 |
Weekly Futures Market Commentary
Trading Lingo: Definitions for the Less-Experienced Trader
by Jim
Wyckoff,
Senior Editor
Trading futures and stocks involves the use of some of the more arcane terms found in any field of endeavor. Those less-experienced traders who are trying to break into an already-difficult business are many times even more frustrated by “phraseology” they do not understand and which seems to make no sense at all. I wish you could have seen the look on my wife’s face when she overheard a telephone conversation in which I told a customer we were seeing a “deadcat bounce” in a market!
When I broke into this fascinating business about 20 years ago, I worked right on the trading floors of the Chicago Mercantile Exchange and the Chicago Board of Trade. As a “cub reporter” I, too, heard trading terms that I did not understand. And I was even a bit afraid to ask those veteran floor traders what some terms meant—for fear of being embarrassed. But after a short time, I realized the only way I was going to learn was to ask. I always tell my readers there are no “dumb” questions. Every single trader that has ever executed a trade had to start out as a rookie who also did not know the “lingo” of the trade. (Some veterans do have a hard time remembering that they, too, were once inexperienced traders.)
Below are some of the more widely used trading terms and their explanations. If you have any questions about other terms I do not address in this feature, just drop me an email at jim@jimwyckoff.com and I’ll do my best to answer your question.
“Dead-Cat Bounce.” The general theme of this trading adage, which many feel has now become “politically incorrect,” is that many times a market will experience a modest rally (a bounce) from depressed price levels. But most of this price rise is due to short covering (see definition below) or weak long positions getting back into a market that very likely has little or no upside power on the horizon.
“The trend is your friend.” This simple sentence is a very powerful one and is important for most traders. If you trade with the market’s trend, your odds for success are higher than if you trade against the trend. Most successful traders employ some type of trend-following trading strategy.
“Buy the rumor, sell the fact.” This is a frequently occurring phenomenon whereby a market will make a corresponding price move in anticipation of an expected result of a fundamental event. And then when the event does actually occur and the result was as expected by traders, the market price will move in the opposite direction. For example, if grain traders expect a bullish USDA report, the market will rally in the days before the report’s release—but then actually sell off once the actual bullish USDA figures are released. Traders were “buying the rumor and selling the fact.”
“Bulls make money and bears make money, but pigs get slaughtered.” In other words, don’t be a greedy trader. Don’t try to take too much profit out of a market too fast. The two biggest and potentially most damaging human emotions in trading are “fear” and “greed.”
“Cut your losses short.” This trading maxim is even more important than, “The trend is your friend.” Traders must limit their losses on their more numerous losing trades by using strict money-management and by employing buy and sell stops.
“Markets ‘discount’ events.” This phrase is similar to the “buy the rumor, sell the fact” phrase. Markets will many times “factor in” or discount events before they occur. For example, the last major U.S. Corn Belt drought was in 1988. The growing seasons for soybeans and corn end in late-summer to early fall. However, corn and soybean futures prices topped out in June of 1988. Traders had factored in the damage to the crops well before most of the damage had actually occurred.
“Never meet a margin call.” In other words, traders should never let a trade become so much “under water” that a margin call from the broker is initiated. “Cut your losses short.”
“Short-covering.” This is a phenomenon whereby traders who have established short positions decide to exit the market—either to take profits or because their trading positions have moved too far “under water.” Many times, short covering will occur after a market has been in a sustained downtrend without much upside movement recently.
“Long liquidation.” This occurs when traders decide to “ring the cash register” and take profits from long positions—or in which weaker longs exit the market when it appears to be showing weakness. Long liquidation usually occurs when a market has been in a sustained uptrend and many bulls decide to bail out—knowing the market is vulnerable to a downside correction.
Consolidation: Also known as “sideways trading.” Many times a market that has undergone a sustained trend will “pause” to catch its breath or move into a consolidation phase. This means price action on the charts turns more sideways and choppy.
A price “breakout.” This occurs when prices move solidly above or below a “congestion area” (or a sideways trading area) on the bar chart. Many trend traders like to trade price breakouts.
“Basing” action. This is extended sideways trading at recent historic lower price levels. Prices are forming a “base” at lower levels, from which to eventually see an upside “breakout.” Keep in mind that markets can also see a downside price breakout at what was perceived to be a basing area at lower levels.
A market “correction.” When a market has seen a sustained price trend, it will make a shorter move in the opposite direction. This is called a correction, as odds favor the eventual resumption of the trending move.
“Locals.” These individuals trade right out of the futures trading pits at the exchanges. They trade for their own accounts and are a needed function of pit trading because they provide the important market liquidity for better trade execution (fills).
That is it for this week. You can also visit my daily blog at www.traderblogs.com.
Have a great weekend!
|
Volume 8 Issue 3 |
www.TradingEducation.com |
October 26, 2007 |
Commodity Markets Review
by Kevin Klombies
Currency/Commodity Markets
One a few occasions weeks ago we commented that the Japanese yen futures appeared quite positive but to seal the deal the yen would have to break nicely up through the August peak. The high close in August was .8875 compared to yesterday’s price of .8818. Close but not quite there as of yet.
We showed the three charts on this page yesterday but wanted to take one last run at the argument before moving on. The problem with macro views such as this is that they can be absolutely perfect even if they miss by a quarter or two.
The point was that the last two major ‘bubbles’- the Nikkei into 1990 and the NASDAQ into 2000- had an offsetting or corresponding currency trend. We took this one step further and suggested that in both cases the ‘bubble’ ran for almost exactly two years.
The Nikkei began to rise in earnest at the start of January 1988 at the peak for the yen. For two years the yen worked lower as the Nikkei moved higher only to peak right at the start of January 1990.
The NASDAQ turned upwards in October 1998 at the peak for the European currencies. We show the British pound futures for this comparison. While the NASDAQ actually peaked in March of 2000 the down trend began in earnest at the start of the fourth quarter of 2000.
The Hang Seng Index began to rise in November of 2005 at the peak for the U.S. Dollar Index (DXY) futures so the two-year anniversary would be next month. In both prior examples the equity markets turned lower before the currency trend reversed.
Short-Term Views
We did a quick review on the Strategic Petroleum Reserve on page 6 today. There are currently 694 million barrels of oil in the SPR worth roughly $62 billion at current spot prices. With deferred futures prices $10 to $12 lower than the front month one might think that it would make sense to offer oil from the reserve into the spot market and replace it with deferred deliveries. Just a thought because we truly fail to understand how U.S. security is enhanced by enriching the regimes of many of the countries identified as representing a threat to security. We imagine that we are missing something obvious, however.
At right are charts of crude oil futures, the SPX from 1987, and the Nikkei 225 Index from 1990.
Crude oil futures price may be on the fast track to triple digits which, we imagine, would somehow bolster national security but we wanted to point out that major markets tops typically include one last little rally to new highs. Both the 1987 SPX and the 1990 Nikkei made a small peak, declined for a few days, and then pushed on to new highs only to topple back to the down side. If there was a reasonably safe place to go negative it would be just below the recent lows (84.68). In the case of a ‘crash top’, however, the first decline would carry through the 50-day e.m.a. line and then make a couple of rally attempts above that line before finally resolving lower. We wouldn’t bother showing this little piece of fantasy except for the very tight position of the CAT and CAT/PEP charts shown on page 2.
Yesterday marked the 7th Thursday in a row for strong energy prices. We have commented again and again that we distrust weakness on Tuesdays because it tends to lead to even greater strength on Thursday. The crude oil/gasoline ratio remains at the resistance line and the extent of backwardation expanded somewhat yesterday.
|
Volume 8 Issue 3 |
www.TradingEducation.com |
October 26, 2007 |
|
U.S.
Stock Market Update
by Robert W. Colby
Stocks: “The worst may be over.”
“Resilience in the face of bad news.”
This week’s lows hold again.
NYSE New Highs > New Lows, which is Bullish.
Relative Strength again rose to new highs for
Growth stocks relative to Value stocks, Materials stock sector, and Foreign stocks.
Utilities stock sector Relative Strength made a new 2-month high.
Relative Strength fell to new 6-year lows for
Consumer Discretionary and Financial stock sectors.
December Crude Oil Futures rose to a new record at $91.
Gold popped up another new high while the U.S. dollar sank to another new low.
On Thursday, major stock price indices inched higher in the initial 50 minutes but fell to steep losses by 2:00 p.m. on a rumor that Dow component AIG would announce a $10 billion subprime asset write-down. Once again showing impressive Bullish resilience, the market bounced back to recover nearly all of its loss in the final 2 hours of the trading day.
The Bulls were encouraged by the market’s resilience in the face of the scary rumor. Also, they liked that the lows of Monday and Wednesday were tested and held. It seems apparent that downside momentum is dissipating, and there may be a growing feeling that “The worst may be over.”
Breadth ended 2% net Bearish, with slightly more Declining stocks than Advancing stocks on the NYSE. The A-D for the NASDAQ was worse, and that Cumulative Daily Advance-Decline line broke down to a new low.
Up-Down Volume finished the day 4% net Bearish, with slightly greater Down Volume than Up Volume on the NYSE.
Total volume rose on the NYSE but fell slightly on the NASDAQ. The high overall level of trading reflected very active selling and buying.
New Highs-New Lows on the NYSE ended net Bullish by the narrowest of margins—just one stock. Still, that is a change toward the Bullish side after a string of Bearish readings.
The U.S. stock market recently retraced 43.2% (intraday) of its August-October gain. That magnitude is entirely typical and normal for a minor correction. The market does not move in a straight line, and downside corrections or shakeouts are to be expected in any uptrend. The long-term Primary Tide Trend remains Bullish, according to the Dow Theory.
Earnings reports and troublesome seasonal tendencies are clearly of concern to many traders. October has been a losing month on average, based on 101 years of month-end closing prices for the Dow-Jones Industrial Average, from 1900 through 2000. (See my book, pages 403-410.) Earnings reports, guidance, and now rumors of write-offs may continue to influence the price action over the very short term.
Spotlight on event stocks: Here is a stock screen I designed to pick out potential “event” stocks, both Bullish and Bearish. Sometimes, stocks with large changes in price and volume are revealed to be deal stocks, sooner or later, or are the subject of some other extraordinary events, positive or negative.
Bullish Stocks: Rising Price and Rising Volume
% Price Change, Symbol, Name
12.15% , CPWR , COMPUWARE
5.84% , AET , AETNA
6.22% , ESRX , EXPRESS SCRIPTS
8.52% , EMC , EMC
0.33% , JKI , Value MidCap iS M, JKI
6.40% , MHS , MEDCO HEALTH
4.82% , MWV , MEADWESTVACO
4.25% , FPL , FPL GROUP INC
7.57% , MNST , MONSTER WORLDWID
2.35% , WEN , WENDYS INTL
4.12% , UST , UST
8.12% , BDK , BLACK & DECKER
5.42% , MDP , MEREDITH
4.21% , FLR , FLUOR
3.90% , XEL , XCEL ENERGY
3.53% , GILD , Gilead Sciences Inc
0.43% , EWD , Sweden Index, EWD
0.82% , FEU , Value LargeCap Euro STOXX 50 DJ, FEU
2.37% , MSFT , MICROSOFT
4.68% , SWY , SAFEWAY
2.52% , TAP , ADOLPH COORS STK B, TAP
2.12% , SLV , Silver Trust iS, SLV
2.60% , ATVI , Activision Inc.
2.55% , ETR , ENTERGY
3.35% , AGN , ALLERGAN
3.03% , URBN , Urban Outfitters Inc.
4.04% , MOT , MOTOROLA
2.45% , PNW , PINNACLE WEST
3.35% , PETM , PETsMART Inc
1.93% , VPU , Utilities VIPERs, VPU
2.95% , YUM , YUM BRANDS
2.33% , DBC , Commodity Tracking, DBC
2.23% , WMB , WILLIAMS
3.03% , HMA , HEALTH MGMT STK A
3.31% , BMY , BRISTOL MYERS
2.83% , DYN , DYNEGY
3.15% , USO , Oil, Crude, U.S. Oil Fund, USO
0.26% , VIG , Dividend Appreciation Vipers, VIG
0.36% , RYAAY , Ryanair Holdings plc
2.89% , AYE , ALLEGHENY ENERGY
1.48% , AEP , AM ELEC POWER
2.43% , JCI , JOHNSON CONTROLS
1.74% , FISV , FISERV
2.41% , NWL , NEWELL RUBBER
1.62% , PUI , Utilities, PUI
1.25% , SCHW.O , CHARLES SCHWAB
1.38% , DISCA , Discovery Holding Co.
2.50% , IIH , Internet Infrastructure H, IIH
1.07% , PGN , PROGRESS ENERGY
1.95% , FE , FIRSTENERGY
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-19.28% , NIHD , NII Holdings, Inc.
-15.09% , ZMH , ZIMMER HLDGS
-3.65% , PSI , Semiconductors, PSI
-16.58% , CMI , CUMMINS
-8.42% , LH , LAB CRP OF AMER
-10.78% , CMCSA , COMCAST HOLDINGS STK A
-16.35% , BIG , BIG LOTS
-9.03% , LSI , LSI LOGIC
-14.86% , MBI , MBIA
-6.63% , LLY , ELI LILLY
-3.92% , LNCR , Lincare Holdings Inc
-4.19% , HSIC , Henry Schein Inc
-9.62% , SSCC , Smurfit-Stone Container Corporation
-5.03% , HPC , HERCULES
-6.19% , LRCX , LAM RESEARCH CORP
-3.21% , AIG , AMER INTL GROUP
-11.99% , SYMC , SYMANTEC
-9.32% , MTG , MGIC INVESTMENT
-13.82% , ABK , AMBAC FINL GRP
-1.19% , IGV , Software, IGV
-3.59% , SANM , SANMINA
-1.35% , PWT , Growth SmallCap Dynamic PS, PWT
-0.93% , MTK , Technology MS sT, MTK
-0.36% , FPX , IPOs, First Tr IPOX-100, FPX
-8.73% , NVDA , NVIDIA
-3.42% , HOT , STARWOOD HOTELS
-2.46% , PBE , Biotech & Genome, PBE
-1.26% , SYK , STRYKER
-4.52% , BLL , BALL
-3.78% , AMAT , APPLIED MATERIAL
-0.45% , PEJ , Leisure & Entertainment, PEJ
-0.61% , PWP , Value MidCap Dynamic PS, PWP
-0.50% , JKL , Value SmallCap iS M, JKL
-0.81% , PHJ , Dividend Growth PS, PHJ
-3.54% , TWX , TIME WARNER INC
-1.92% , LPX , LOUISIANA PAC
-2.17% , ROH , ROHM & HAAS
-1.44% , FDO , FAMILY DLR STRS
-2.00% , DELL , DELL
-1.36% , RAI , RJR TOBACCO HLDS
-1.69% , SNPS , Synopsys Inc
-2.00% , TMO , THERMO ELECTRON
-0.92% , EWW , Mexico Index, EWW
-3.48% , CIT , CIT GROUP
-0.85% , MYL , MYLAN LABS
-1.41% , ASD , AMER STANDARD
-1.74% , DIS , WALT DISNEY
-1.31% , TBH , Telebras H, TBH
-0.75% , PMR , Retail, PMR
-1.48% , IVGN , Invitrogen Corporation
Sectors: among the 9 major U.S. sectors, 7 rose and 2 fell.
Major Sectors Ranked for the Day
% Price Change, Sector
2.45% Utilities
0.95% Energy
0.84% Technology
0.82% Consumer Staples
0.78% Materials
0.59% Health Care
0.17% Industrial
-0.61% Consumer Discretionary
-0.70% Financial
Looking beyond the daily fluctuation to the major trends (listed in order of long-term relative strength):
Energy (XLE) Bullish, Overweight. XLE made an all-time closing price high on 10/16/07, and XLE made an all-time high in Relative Strength on 10/18/07. XLE has been strong compared to the S&P since 3/12/03.
Technology (XLK) Bullish, Overweight. XLK made a new 6-year price high on 10/11/07, and Relative Strength made a new 2-year high on 10/23/07. Long term, XLK has been relatively strong compared to the S&P since its low on 7/24/06.
Materials (XLB) Bullish, Overweight. Relative Strength made a new all-time high on 10/25/07. Price made a new high on 10/11/07. The long-term relative strength trend strongly outperformed since 9/27/2000.
Industrial (XLI) Bullish, Overweight. Industrial stock sector price made an all-time price high on 10/10/07. Longer term, XLI has been relatively strong compared to the S&P since 8/9/06.
Utilities (XLU) Neutral, Market Weight. This defensive sector’s Relative Strength made a new 2-month high on 10/25/07 and has improved significantly since its low on 9/28/07.
Consumer Staples (XLP) Neutral, Market Weight. This defensive sector’s Relative Strength has improved since its low on 10/9/07.
Health Care (XLV) Bearish, Underweight. Relative Strength has been trending down since 10/9/02, and it made a new 5-year low on 7/19/07, thereby confirming a major downtrend.
Consumer Discretionary (XLY) Bearish, Underweight. On 10/25/07, the XLY/SPY Relative Strength ratio fell to its lowest level in 6 years. Relative Strength has been trending down since 1/5/05.
Financial (XLF) Bearish, Underweight. On 10/25/07, the XLF/SPY Relative Strength ratio fell to its lowest level in more than 6 years. Relative Strength has been trending down since 2/20/07.
Foreign stock indices’ Relative Strength made a new high. The EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) made a new price high on 10/11/07 and a new relative strength high on 10/25/07. EFA has substantially outperformed long term, since the Bull market started in 2002, and the secular trend is still Bullish. My Top 10 ETF Relative Strength Ranks are all Foreign.
NASDAQ Composite index has been Relatively Strong, compared to most other indices. Price made a new 6-year high on 10/11/07. Relative strength made a new 17-month high on 10/23/07. Longer term, NASDAQ has outperformed since 8/8/06.
Growth Stock/Value Stock Relative Strength ratio rose to a another new 20-month high. Growth price made a new 6-year high on 10/11/07. Growth stocks outperformed Value stocks since 8/8/06. The main trend for the Growth/Value ratio (IWF/IWD) is confirmed Bullish.
Small Caps substantially underperformed Large Caps since 4/19/06, and the main long-term trend is Bearish for Small Caps.
December Crude Oil Futures rose to a new record at $91. Support appears at previous resistance at 84.10 and at previous minor lows in the 78.25-78.35 zone. Note that the U.S. OIL FUND ETF (AMEX: USO) is not a pure play on Crude Oil. Major trends remain Bullish.
The Energy stock sector underperformed the USO but outperformed the SPY. Longer term, since 3/12/03, the stocks in the Energy Select Sector SPDR ETF (XLE) have significantly outperformed crude oil as a commodity, as well as the S&P 500. So, the Relative Strength major trend is Bullish for the energy stocks.
Gold made a new price high. Gold set a new 28-year high on 10/25/07. The Gold Trust ETF (NYSE: GLD) also hit a new high. These major trends remain Bullish.
Silver’s main trend is relatively Bearish. Compared to Gold, the iShares Silver Trust (AMEX: SLV) has been relatively weak since 12/7/06.
The Gold Miners ETF (GDX) has underperformed the metal since 10/12/07. Profit taking seems normal after the previous price run-up.
Inflation expectations appear choppy and uncertain, especially since 6/22/07. This is based on the behavior of the ratio of two ETFs, TIP/IEF.
U.S. Treasury Bonds eased a little lower in an indecisive Inside Day. The short-term trend is still Bullish. Long-term, it seems possible that the iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT) ended a normal oversold bounce in a Bearish trend on 9/10/07. Bonds remain reactive to news about the credit crisis: the worse the credit crisis, the higher the Bond prices; the better the credit crisis, the lower the Bond prices.
U.S. dollar sank to another new low. The main trend has been confirmed Bearish—again and again. Longer term, the dollar fell 16% over the past 23 months, and the main tidal force remains very Bearish.
Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day:
3.16% South Korea
2.45% Utilities
1.98% Taiwan
1.91% Natural Gas
1.87% Hong Kong
1.77% Dow Utilities
1.58% Brazil
1.48% Singapore
1.31% Malaysia
0.95% Energy
0.95% Oil
0.92% United Kingdom
0.89% Australian Dollar
0.87% Paper
0.84% Technology
0.83% France
0.82% Consumer Staples
0.80% Germany
0.78% Materials
0.74% Commodity Related
0.74% Gold Mining
0.72% Oil Services
0.72% Italy
0.60% Switzerland
0.59% Health Care
0.58% Spain
0.57% Chemicals
0.50% Swiss Franc
0.46% Euro Index
0.45% Canadian Dollar
0.43% Sweden
0.38% Health Care
0.32% Health Care Products
0.30% Belgium
0.27% Australia
0.26% REITs
0.24% Canada
0.20% NYSE Composite
0.17% Industrial
0.17% Japanese Yen
0.12% AMEX Composite
0.12% Drugs
0.12% Netherlands
0.10% British Pound
0.00% Austria
-0.01% Dow Composite
-0.02% Dow Industrial
-0.08% Retailers
-0.09% Computer Tech
-0.10% S&P 500
-0.14% Russell 1000
-0.16% 30Y T-Bond
-0.17% Wilshire 5000
-0.18% S&P 100
-0.18% Russell 3000
-0.29% Value Line
-0.32% Banks
-0.35% US Dollar Index
-0.36% Japan
-0.47% S&P Small Caps
-0.47% S&P Mid Caps
-0.58% Russell 2000
-0.58% Hospitals
-0.61% Consumer Discretionary
-0.70% Financial
-0.72% Network
-0.85% Biotechs
-0.86% Nasdaq Composite
-0.92% Mexico
-1.02% DOT
-1.13% Broker Dealers
-1.24% Dow Transports
-1.24% Nasdaq 100
-1.28% Internet
-1.32% Insurance
-1.95% Airlines
-2.02% Semiconductors
-2.26% Disk Drives
-3.06% Hardware
Best
Wishes,
|
Volume 8 Issue 3 |
www.TradingEducation.com |
October 26, 2007 |
Weekly Currency News Trading
Weekly Currency Wrap-up
by Darrell Jobman, Editor-in-Chief
The state of the US economy remained a key market influence and there was a notable deterioration in market confidence during the week.
The US data was generally weak with durable goods orders falling by a further 1.7% in September while the underlying increase was held to a weaker than expected 0.3%. The latest jobless claims data was also higher than expected at 331,000 for the latest reporting week, maintaining unease over labour-market trends.
The housing sector remained under pressure with existing home sales falling by a further 8.0% in September to give an annual rate of 5.04mn, the lowest rate since the current series started in 1999. There was a monthly recovery in new home sales, but this reflected a sharp downward revision to August’s data.
Markets moved to price in fully a 0.25% Federal Reserve interest rate cut next week while there was increased speculation over a second successive 0.50% rate cut.
Investment bank Merrill Lynch moved to increase its bad-debt write-downs in the latest week while there were rumours of substantial AIG losses which renewed credit fears in global markets.
At last weekend’s G7 talks, the US administration appeared to reject European calls that there should be a stronger statement opposing further dollar weakness against the Euro. G7 repeated their call that excessive exchange rate volatility should be avoided.
The Euro-zone PMI manufacturing index weakened significantly for the second month running with a decline to 51.5 in October which was the lowest reading for 26 months. The services-sector PMI was more robust with a monthly increase.
The German IFO index edged lower to 103.9 in October from 104.2 while the IFO institute was generally optimistic over economic trends. German consumer confidence weakened over the month.
The dollar strengthened to 1.4125 against the Euro on Monday, but then reversed course and was subjected to persistent selling pressure with a drop to a record low around 1.4375 on Friday. There were reports of strong sovereign Euro buying support which helped the currency regain ground.
The latest UK data recorded a slowdown in the housing sector with a drop in BBA mortgage approvals to 52,700 in September from 61,100 the previous month while overall mortgage lending also dropped.
The CBI survey recorded a significant deterioration with the orders component weakening to -6 in October from +6 previously while business confidence fell to a 20-month low.
MPC member Barker expressed caution over the immediate need for lower interest rates. The Bank of England, however, issued a cautious statement by pointing to commercial and financial-sector vulnerability to shocks. Markets continued to price in a rate cut within the next few months. Sterling moves remained correlated with global stock market moves and levels of risk aversion with choppy trading against the dollar.
Sterling was unable to sustain levels stronger than 0.6950 against the Euro. The UK currency found support below the 2.03 level against the dollar and climbed back to challenge levels above 2.05 as the US currency came under renewed selling pressure.
Commodity-related currencies secured important support during the week from the high level of commodity prices and the general loss of confidence in the US dollar. The Australian and Canadian dollars dipped early in the week, but the Australian dollar then pushed to highs above 0.91 against the US currency while the Canadian dollar strengthened to a 33-year high near 0.96.
The Japanese corporate services prices index rose 1.4% in the year to September, but there was no significant shift in interest rate expectations as core consumer prices fell 0.1% over the year.
The Japanese yen moves were correlated strongly with moves in global stock markets with the yen securing some support from a firmer tone in Asian currencies and persistent upward pressure on the Chinese yuan.
The yen traded within a 113.30 – 115.0 range against the dollar during the week and there was a increase in volatility against the Euro with the yen weakening beyond 164.0 on Friday.
Have a great day and a
wonderful weekend.
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