So USD rates will not go up eh?

[Mercury]

As a contrarian I look for signs of herd mentality and sure things in the market place and in MSM and assess whether there is value in going the other way.  The idea is if everyone is convinced a market is going in a particular direction then who will take the other side?  When no one will the market is unstable and eventually turns away from the prevailing trend into a new trend.  This doesn't work in a mass panic of course but begins to work again after the panic subsides.

 

Usually there is something that drives this herd mentality.  Currently and for the part year or two the certainty that the central bankers would continue with the QE and low interest rates taps full on has driven the 2009 bull market in stocks but now the thing looks ragged and I am seeing the possibility of an exhaustion phase to the current rally.  I have separately targeted the last 2 weeks of Sept (ideally W/C 18 Sept) for the end.

 

And it is worth noting that the FOMC data release with the critical decision on USD rates is due out on 22 Sept.  After the NFP the odds of a rate rise have dropped sharply but what if the Fed follow through with their more hawkish stance.  They are once again in a tough spot having talked up 4 rate rises at the beginning of the year and then only push through 1.  Credibility is at a low point with many sources slating Yellen and Co.  I just wonder if they will feel they have to act?  There was an interesting article recently where history has shown that the Fed raised rates just before a Presidential election several times so the idea that they would not do that before the election is wrong.

 

If the Fed raises rates on Sept 22 or even ratchets up the rhetoric on this then we could very well see the end for the stocks bull and this also fits with my analysis of FX crosses and possibly main commodities as well.  Add to that the fact that since 1987 at least major corrections and crashes have all occurred or started in Autumn and the odds seem to be strengthening for something to happen this Autumn.

 

It could be an very interesting few months...

[dash1]

Yes very true. I am just not sure that I am brave enough to short this market with the dow swinging 200 points at a time

[Guest Gerard]

In your opinion what would be the best way to trade your position ? Markets. Banks. Bonds. Etc?

[Guest AviationForex]

Gold

[Mercury]

Well that is the $64 million question .  And volatility is your friend  otherwise there is little opportunity.  You have to stick to your strategy and method unless it clearly is not suited to a particular market.  Mine does not suit range trading unless I can identify the range early.  My strategy is to identify major turns and swing trade the resulting motive trends.  Therefore I get very active when markets near such turning points.  You have to accept the fact that this coincides with uncertainty, volatility and you have to trade against the herd, which can be daunting when there is strong moves about like there is currently.  However the reality is whether seeking a major turn or following a trend we buy weakness and sell strength, which is always contrarian in a sense even if this is in line with the long term trend.

 

I trade variously stock indices, commodities and FX, searching for the best opportunities and set ups rather than trading any particular market all the time.  I have been out of stocks for a while because I am waiting for a turn into the bear market, being bearish in bias.  I also tend to use technicals with little account taken of fundamentals in the short terms.  With respect to USD rates it is impossible to really know what will happen.  There could be a rate increase this month but if there is that will be all because the USD will rocket and other markets will tank (gold excepted, which is likely to fall initially and then rally).  If rates do not go up the market collapse will be put off again but not for long I think.

 

So really the way I am playing this is with extreme caution.  If I do go in I have close stops and get to B/E fast and take profits when I can (very short term and not my usual play).  I am waiting to see what will happen at the FOMC.  However if I get a chance to go in early on my long term swings I will take it ahead of the FOMC.  This is in reality no different to normal but with stocks potential having hit a top OR with another final leg up to go before that it is hard to trade them until long term direction is confirmed.  Something similar exist in FX except I believe these markets are, by and large, in retrace moves or final legs on large retraces, after which the main motives will begin.  On commodities I believe a strong rally is on the cards prior to another large final leg down of the Bear market that has held sway since 2011.  Gold/Silver being the only possible exceptions.

 

 

[dash1]

You could not have said it better than that. The US dollar is becoming rather unpredictable due to the talks of the interest rate saga that is driving the market up and down.

 

Jobless claims data this afternoon will prove rather useful with your strategy of trading

I personally am not of the opinion that a rate hike is possible this month however, who knows.

[Mercury]

I tend to agree  but it is hazardous guessing what the Fed will or will not do.  All we can do is be prepared for scenarios...

 

If I were to hazard a guess I would say that the Fed will have been scared off any potential rise this month by the stock and bond market jitters.  They are bureaucrats who have made their careers by appeasement rather than bold decision making and won't want to ***** Hilary off (they must hope she wins because if The Donald wins they are out of a job anyway).   I think deep down they must all know the game is up and that their policies have failed.  I think they would like to start on the road to real recovery by raising rates but don't want to be blamed for the resulting crash, which is going to happen anyway...  I think the markets will crash without a rate rise anyway so it is all inevitable.

 

One thing this does show some clarity on is that all the financial markets are subservient to one thing.  The USD.  Therefore when the USD rises into its next rally phase it will be as a precursor to the big fall in asset prices.  This will happen with or without a rate rise I think but a rate rise would trigger it for sure, which is why the Fed won't raise rates.  It will be the markets that decide this rather than the central bankers, which is how it should be.

 

So for me the order of the day is to watch the USD closely as I believe that everything will fall from this.  If there is no rate rise next week I anticipate a short term drop in the USD after the recent jitters strength corresponding with a final rally on assets more widely and after that comes the storm.  Obviously a rate rise next week offers the exact opposite.  It is kinda hard to trade ahead of the FOMC and/or NFP these days with signs of the "big one" all over the place.

 

A couple of other points:

1. The USD (DX basket) is currently trading in a coiling Triangle, which means a breakout soon
2. The Donald was ahead 5 points in a recent Bloomberg poll in Ohio (major swing state and must win state)

 

 

[dash1]

I could not agree with you more. Your insights and articulation of the current scenario is impeccable. Is there any way for me to follow you on this forum as I am truly inspired by your analysis and, I think you have a tremendous amount of knowledge and information to offer us new traders.

 

It is only a matter of time like you accurately stated for the markets to go under a major correction. The question then is, what is your view on the outlook for gold?

 

We know that gold generally becomes a safe haven for traders and investors alike however, the recent rally of the US dollar has halted this progress.

 

Looking forward to your comments.

[Mercury]

Very nice of you to say so  but a word of warning, I am wrong more often than right, especially in the short term.  The best piece of advice I can give anyone is to only follow their own analysis and judgement behind a solid tested method.  That said sharing ideas, particularly where there are contrary ideas, is useful and rewarding.  Also, as I pointed out, guessing what the central bankers will do is virtually pointless and I only do it to ensure a fit with the scenarios I come up with.

 

The main issue facing us is the point you allude to, "only a matter of time".  One can be right about the long term prognosis but still wrong because of timing and timing the markets is very hard, especially timing tops.  That said technical analysis is kinda all about that so...  At least about timing turns, if not actual tops.  having a solid money management and risk assessment approach is the key to surviving trying times such as we are in.  You need to arrive at the moment of truth with sufficient funds and not being gun shy from failed attempts to take advantage of the big moves.  Then again it depends on your strategy (day trader vs long term trader). 

 

WRT Gold, as I have mentioned recently that I am no longer sure of that market and until I become so again I will stay out.  I believe precious metals are in a retrace down until the next bull phase, which ought to be strong indeed and will only come when other assets have begun their big fall.  Or when sufficient fear it is about to happen exists.  Therefore a rally in Gold may be a precursor to a fall in Stocks and Bonds.

 

There are more factors to consider when trading Gold that the traditionally held view that Gold is a safe haven.  That is only true when a safe haven is needed.  Gold and Silver fell during the Credit Crunch and then went on the same rally as all other assets post the 2009 central bank accommodating policy shift.  Gold is used as a portfolio hedge (for reasons passing understanding in my view...) so investors buy in proportion to other assets and hence Gold goes up when other assets go on a bull run.  Like other commodities Gold and Silver topped out in 2011 and fell sharply and similarly all commodities rose again in early 2016.  So is Gold a commodity or a currency?  This debate absorbs many investors and is unanswerable in my opinion.  At least in general terms.  My view is that it is normally a commodity but becomes a currency (or at lease a value repository = currency of last resort) in troubled times.  Even this latter case it is really a commodity...

 

Therefore I am left with the view that I must follow the technicals in this as in all markets.  There is a case for commodities in troubled times (e.g. copper and oil can at least be traded in the real world where as stocks and bonds are just pieces of paper at the whim of central bank policy and phantom money creation via generation of debt out of thin air.  I believe we have yet to see the top of the current commodity rally but I also believe it to be a retrace rally and new lower lows in the big picture are likely as all assets take a hammering once the central bank party is over.  Gold/Silver may also take a hammering initially but then they may rally strongly as the only asset people believe in when the world is reeling from a back lash to central bank policy and government debt creation and the fact that the global economy in actually in contraction not expansion as so many bought and paid for economists tell us and the fact that corporate earnings are down, down, down and the fact that wages are flat at best and job creation is based on poor quality jobs and the fact that consumers are over stretched and pulling in their horns despite lowest interest rates ever recorded.

 

Also consider what would happen if The Donald advances in the polls and other unrest accelerates (Ukraine, Syria, more refugees trying to get into the US and Europe, Merkel and Holland lose their respective elections and so on).

 

The signals I am looking for are not Fed related but real world related.  Lower retail sales, lower corporate profits, bond market jitters, USD rally despite no rate rise.  These are the things to watch for if you are into Fundamentals.

 

 

[dash1]

Once again, a very insightful and educated comment. Something interesting to add to what you are saying. Technology shares seem to be the next big thing in the United States. Apple along one has jumped over 4% in the last two days on so-called speculation that the new iPhone is going to turn around sales.

 

I wonder, if this is the market telling us that traditional investing is moving out of the way and trying to find value in stocks that are already overvalued due to the fear of monetary policy or lack there of

[Mercury]

Yeah I don't know  I no longer look at individual shares nor invest in them.  Everything is overvalued on any measure in my book.  If you look at the sectors driving this bull market in recent times it is high dividend yields as because low interest rates mean that investors who want income have no where else to go.  Traditionally the income return on bonds being lower than total return from shares was offset by lower risk but now yield hunters are accepting much larger risk, which will end in tears.

 

As to tech stocks as a safe haven, as someone who lived through the last internet bubble and bust I don't trust them, at least not in the short term.  If you look at Apple over the years it has gone from darling to demon and back again.  Everyone has a phone now and fewer are interested in upgrades.  I'm not sure how the Apple watch did but that probably means it didn't...  I am reminded of the titans of the original mobile phone boom (Nokia, Ericsson, Motorola), where are they now...?

 

That said, once the impending crash is over I'd say there will be some great value among the survivours.

[dash1]

Are you South African mate? I ask this as it would be nice to get your opinion on the South African top 40.

[Mercury]

No, UK based.  In terms of actual companies I only know the FTSE and some US stocks.  But as said I would not buy stocks right now anywhere or in any sector.  In fact I would (and I do) only hold cash and gold and swing trade everything else.  Even my pension funds are in cash.  I will not look at actual investment until after the carnage unfolds, at that time anyone with cash will be in a great position.