“Are the markets poised for the next leg higher? Or are they getting ready for a leg to the downside? Right now, the market is just like a fickle mistress.” – JC
After a long Labor Day weekend, the market opened on Tuesday morning with a bang, with news of building tension in North Korea, destruction from hurricane Harvey and news of an impending Hurricane Irma barreling towards the Caribbean Islands and Florida. If you know of anyone displaced and/or impacted by these hurricanes let them know about the free therapy BetterHelp is offering for Harvey here and Irma here.
Pullbacks in the Dow (YM), Nasdaq (NQ) and S&P Futures (ES) hurt stocks, with the Dow getting hit the hardest and posting a loss of 234 points on the day. The S&P Futures and the Nasdaq recovered some of their mid-morning losses, with the S&P futures down 19 points at the close on Monday, and the Nasdaq down 60 points. The rest of the week didn’t give us much to speak of. Crude (CL) climbed higher this week, until Friday when it was down over 3%. Gold (GC) continued higher throughout the week. Wednesday and Thursday gave us relative chop in the major indexes, the Nasdaq, Dow and S&P Futures, and the Nasdaq was the only of the three that showed selling on Friday.
With markets on shaky grounds, John decided to exit positions in BIDU, SINA, FB, NVDA, LVS and BA on Tuesday and Wednesday. With continued strength in the Japanese Yen and market instability, by Wednesday morning he went completely flat and decided to re-evaluate his portfolio. As John stated on Wednesday, “Overall markets here are on an edge – could go either way. I’m looking to go flat and reset my portfolio to get positioned trades long and short that are lining up on the shorter time frames (30 min, etc). My thoughts with this market is that I want to have a ‘fully loaded gun’ for whatever comes next and get aggressive with that move.” By Thursday, we didn’t get much volatility in either direction, with the indexes ending the day with nothing but chop. John hesitated to put on too many new positions with the strength of the Yen, though he decided to play it via short S&P futures and long puts in the SPY.
As Henry returned from vacation after the long weekend, he started scaling out, taking profits in his long stock position in Control4 Corp (CTRL) as it began making targets. Henry added a bullish play in the Japanese Yen ETF (FXY) to play the move in the Yen. Going into Friday, where did he stand? As he states, “Bears are showing some life with the Nasdaq leading the way lower. I’m still keeping the ES gap at 2473.50 in mind. I’ve taken some bullish positions in BA and BIDU, bearish in NVDA. I’m keeping each position small as we get into next week’s expiration.”
With all this talk of currencies, I knew I had to consult our resident Forex and Futures expert, Raghee Horner. When I asked her, here’s what she had to say:
“This week was really about currencies. The market has been dealing with the Bank of Canada and the European Central Bank. What gets everyone worried is that the Nasdaq (NQ) and S&P Futures (ES) are at distribution highs, while the Yen is showing strength. But to me, I look at that and see that it’s because the dollar is so weak. That doesn’t mean long Yen plays won’t work, it just means the Yen strength doesn’t necessarily mean that the markets will fall out of bed. There are three ways the globe sells dollars – against the Euro, Yen and Pound. That sort of makes the Yen look stronger than it really is. It can almost become a self-fulfilling prophecy. The dollar is very weak. The FOMC is in the two-week black out period as of today. People have to guess at what they want to communicate to the market, because right now, you can qualify that with the Fed fund futures contract of December. That is heading higher. That is discounting the fact that we will see another hike in 2017. The equities could love that, but it won’t be good for the dollar. If we get a chance to buy the ES or Nasdaq, it’s a good time because I wouldn’t bet against the market because of Yen strength. One really great way to check and balance Yen strength, is to make sure the Swiss franc is moving to the upside as well. This will tell us if the Yen strength is a sign of risk aversion in the market. As for the strength that we have been seeing in GC, I don’t see it as flight to safety in the Gold, I see I as a negative correlation with the strength in the dollar. Everything is related to currencies.”
After the trading week is done, we always check in with our traders to see what they are looking for into next week. Here’s what they have to say:
John – When I look at the weekly charts, I see uptrends. When I look at the daily charts, I see distribution. Is this the beginning of a distribution trend, or a mere pause in the upward action? And that brings us to the crux of the issue. When the daily charts and weekly charts aren’t in alignment, there are lots opportunities to piss away your capital on mixed message trades. In terms of outlook, we have monthly expiration next week, which is typically accompanied by quiet strength. I like the idea of having a few long bullish setups, backed by positions that represent being short the indexes. And, at the end of the day, there’s nothing wrong with cash.
Raghee – My bearish bias in crude has already followed through today and I will look for more but limited follow-through on Monday. Copper has made a dramatic pullback and I will be looking for my level to get long on Monday. With the chop, I am seeing across the indexes I am ok with fading the ceilings on the Nasdaq and S&P but I will only fade the floor in the YM and my overall bias is still bullish in equities. I am watching the push-pull with the KWED and QQQ. I think once/if KWEB rolls over the QQQ could get the rally to new highs that the market is fearful may not happen. I am still looking for more opportunities to sell U.S. dollars against Aussie, Canadian dollar, and euro. These are arguably the three most hawkish central banks aside from the FOMC – but that narrative is played out.
Bruce – Barring any disasters with Hurricane Irma or North Korea, I am cautiously bullish and optimistic going into next week. However, I am heavy on cash and trading light, while keeping an eye on the news.
Carolyn – Well I’m heading to Scottsdale shortly….so to keep it short and sweet, all the moving averages on my daily chart of SPX are on the side of the bulls, along with the pattern. So, I have a bullish stance at the moment. Now, if someone starts dropping bombs…that could totally blow away my bullish scenario. Just remain aware of the fact that this IS a nervous market. If you are not comfortable with risk over the weekend, you might want to stick to day trading for a while!
Dr. John Clayburg – Long term trend is definitely favoring further gains, however the short term is a little fuzzy. Count me as cautiously bullish.
Danielle – I’m going into the weekend cautious and almost flat, minus a long play in the Yen via FXY. I’ll be looking for new entries next week, using slightly shorter-term trades and targets than I usually do. I’m exercising caution until this nervous market decides which way it wants to go.
Trade of the Week Follow Up
If you missed our trade of the week on Monday, click here to see the original setup.
Expert: Raghee Horner
Trade Date: September 5th, 2017
The Setup: This Thursday we have the ECB, so the Euro is in play. I am looking to buy a pullback to get long again. The FXE levels I am watching are 114.35 for an aggressive long position and 113.25 for a conservative long position off the daily chart. I will straight up buy Sep 122 ITM calls that will take me through the ECB meeting as well as the Sep 20 FOMC meeting. This gives me plenty of time and lets me take advantage of a more dovish tone from Yellen on the 20th … which will send the Euro higher. The idea is that Mario Draghi may talk the Euro down during that meeting. I am playing the FXE, however, and I’ll walk you through the forex and futures set up as well.
Trade of the Week Update – 9/8/17 – FXE Daily Chart
A note from Raghee – “The idea for the euro in the keep capitalizing on the strength it will have as the market anticipates the official taper from the ECB. It’s this anticipatory move that I will continue to expect as the EUR/USD climbs to 1.25. This week the euro made a new high but do not let this discourage if you are not already long. There are more opportunities for an entry and I will be looking for more pullbacks to buy into. In the meanwhile do not discount further U.S. dollar weakness versus the Canadian dollar and Australian dollar.”
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