Bill Cara’s Blog for Jan 6, 2012
CTA Trading Desk Morning Report
[7:45am ET] Good morning, Geoff here.
The last two days we have seen gold rally along with the dollar. What does that tell us?
It could be saying that gold strength is signaling an impending bottom in the euro and a top in the dollar. If that turns out to be the case, then gold and stocks should breakout to new highs as the dollar rolls over.
So, how does this fit into my recent morning notes? Well, I have been stating that we have been bullish stocks and remain long. But, we also feel that various sectors of the market are overbought (see Bill’s latest WIR) so taking some money off the table and/or hedging your current holdings is a prudent action.
I also have stated that a high profile economic data point, like the employment number this morning, can be a trend changer. The number could be positive and the market could rally for a short time and then get sold off as traders “sell the news”.
That is two completely different scenarios, so what is a trader to do?
Well, we added some hedges to our portfolio and we will simply manage those hedges based on how prices act today. If the market rallies, we will take the hedges off and be really long again. If the market falls, we will add to the hedges. In other words, you need to have a plan for both scenarios and trade according to price action. I will add one thing; most of our trades today may not be executed until the last hour of trade.
With that said, it is always fun to take a guess at what is going to happen, but that is all it is – a guess. My guess is that the dollar will top soon because the sentiment in the dollar is extremely bullish. No one wants to hold the euro right now and that extreme sentiment could really hurt the dollar bulls should the dollar turn down. If that occurs, there indeed will be a major trend change on the employment number, only it will be the dollar that changes trend and the stock market will do what it has done so often before – get even more overbought.
Well, enough with the speculating, time to watch the action.
Have a great trading day!
[8:35am ET] Addendum:
The employment numbers were released at an add of 200,000 which exceeded expectations of 150,000. The Unemployment rate dropped to 8.5% which beat expectations of 8.7%.
Stock futures rallied a few points after the positive data was released but the “rally” isn’t blowing my hair back at this point which could point to a weak day ahead. I will check in later in the Mid Day report.
Here are the 7:00am ET snapshots of the latest equity market trading results for Europe, and futures prices plus 5-minute charts of the futures for S&P 500, 30-year US Treasury Bond, US Dollar index, Gold and Crude Oil.
|Symbol||Name||Last Trade||Change||Related Info|
||35.00 (1.80%)||Components, Chart, More|
||19.20 (0.92%)||Components, Chart, More|
||26.00 (0.83%)||Components, Chart, More|
||15.37 (0.25%)||Components, Chart, More|
||0.13 (0.04%)||Components, Chart, More|
|^OSEAX||OSE All Share||450.47
||0.61 (0.14%)||Components, Chart, More|
||0.00 (0.00%)||Components, Chart, More|
||1.58 (0.03%)||Components, Chart, More|
||25.52 (0.45%)||Components, Chart, More|
||0.80 (0.09%)||Chart, More|
||3.87 (0.46%)||Components, Chart, More|
||0.14 (0.01%)||Chart, More|
|GD.AT||Athex Composite Share Price Index||647.58
||14.71 (2.22%)||Chart, More|
The team will check in during the day, reporting in the Discourse when there is a new entry.
Enjoy your day.
Cara on Trends & Cycles
Vad’s Catch of the Day
Kaimu’s Sound Money
CTA Trading Desk Mid-Day Report
CTA Trading Desk Post-Close Report
Jeff Borsato’s Hidden Truth
To build on what Bill has said this morning about gold and the USD, I wanted to repost prior thoughts about the gold/USD relationship that is not always a correlation, several years on we see gold and the USD in exactly the inverse positions on the charts, but how they arrived is vastly different.
Previous thoughts on Gold vs USD, nothing has changed imho
Gold is up, USD is up, this could be the norm going forward should the crisis in Europe continue. The rush to US dollars is nothing new, it happens when crisis appears on the horizon. How gold reacts to market crisis is somewhat more ambiguous, market collapses have witness gold following suit at times, where other price drops have seen gold stand firm.
We have seen the relationship between a strong dollar and weaker gold fall by the wayside over the past few years. While the chart shows gold starting at bottom left and the USD at the top right, and 5 years on they reverse that position, notice the total lack of correlation. This is significant. To me it is a sign of more complicated times ahead for traders stuck in a USD down= GOLD up mindset.
The relationship of gold to the miners broke many years ago, I do not believe this will ever return to historical norms unless gold hits the stratosphere, the broad markets are not collapsing and oil stays low. Until then it’s all about picking your spots in the sector.
Good luck gang,