FOREX TRADING

A crazy day for markets today as global risk appetite tried to take a cue from Asia once again (much like the recent commodity currency sell-off only really got going once we got some negative news out of China) and rallied strongly on the strength in Asian markets (triggered on the flimsy excuse of a new round of infrastructure projects this time rather than the last time, which was on the flimsy excuse of a downgrade of leading indicators). The US gapped open with a bang and rallied right through a fairly negative ISM non-manufacturing report, reaching all the way to….the magic 1040 area in the S&P500, which became the sudden brick wall that spelled the immediate end of the rally. Bonds actually gave some premonition of the move once again as they never sold off very deeply relative to the hysterics in the equities and in FX. We will continue to use bonds as an important indicator. Other risk indicators took a turn for the worse today, though not with pronounced momentum.

So what does it mean?

From a trading stand point, today was a huge outside day for risk – with the highs and the lows in equity futures in the US, for example, engulfing the highest and lowest levels of the previous three days. What this means, it’s hard to tell as we appear to be set for a long-legged doji on the day – a sign of extreme uncertainty. It is is certainly less bullish, however, than if the market had managed to close higher on the day and especially if it had managed to close through that 1040 level. That level and the recent highs in the range in 10-year treasury yields (a nice even 3.0% is the obvious focus, this was close to the day’s high today) are the two areas to watch in other markets in the coming days as we try to judge where the markets will take us next.

On the economic calendar, watch out for the US weekly ABC Consumer Confidence number out after the US equity close and the Construction PMI in Australia. The roller coaster ride for the Aussie is likely set to continue if we see a very weak number there. AUDUSD was unable to maintain altitude above the 0.8512 3-day high and didn’t convincingly take out the 0.8550 resistance, so those levels bear watching in the session ahead as the rally is on uncertain ground in the entire zone between here and 0.8595 and even 0.8690 (the 55-day moving average). To the downside, the pair may be using yesterday’s more recent 0.8470 peak as the support level of note now.

On the EURUSD, perhaps the upcoming ECB meeting provides the pivot point for renewed Euro downside, or perhaps the highs are already in after today’s action? We neglected to point out the minor 1.2675 area peak that was a salient high back in late May and may be receiving a bit of focus here.

Scarier stuff than normal

One interesting thing we just had a look at as we noticed all of the red candles on our Nasdaq-100 chart: from opening price to closing price (intraday, in other words – and only during the actually trading session for physical stocks, not the futures, which may be part of what is behind this……) has fallen for the last 12 days in a row – the first time that has ever happened in the 21+ years of data we could assemble for the test. Isn’t that a little bit scary? Some might argue that in the past, this kind of action was associated with climax selling and represented a good entry point – our investigation suggests there is no clear pattern and every market is very different – especially this one, where it feels like the ecosystem has drastically changed.

Chart: QQQQ

The Nasdaq 100 ETF – which tracks the Nasdaq 100 shares during NY trading hours is registering its 12th negative decline in a row – the first time this has ever happened (according to our data, the actual index has only registered 12 days in a row of intraday declines, while the QQQQ is actually posting a new record 13th consecutive day of such declines)

That’s why we suggest that everyone should stay more than a little bit careful out there.