I have been trying to search for what a “perfect storm” really is and what its impact could be to no avail. Can anyone here help?
Hi Philip,
I tried to set up the settings as I wanted to observe all you have written. However I have never used this website and have some problems. Can you maybe post a picture how it all should look like? Or write a detailed discreption how to set it up? Like last time with COT Index. That was also clear. My problem starts right away that there are two products called “VIX”. Also I had problem to plot the MA as it was not an option. As I had so many problems right in the beginning a I rather thought to ask you.
Thanks,
FE
[QUOTE=“ForExchange;661716”]
Hi Philip,
I tried to set up the settings as I wanted to observe all you have written. However I have never used this website and have some problems. Can you maybe post a picture how it all should look like? Or write a detailed discreption how to set it up? Like last time with COT Index. That was also clear. My problem starts right away that there are two products called “VIX”. Also I had problem to plot the MA as it was not an option. As I had so many problems right in the beginning a I rather thought to ask you.
Thanks,
FE[/QUOTE]
Open trading view… Type in “VIX” in the grey tool bar at the top center of the page that says "chart, eg. “Aapl,D”. This takes you to the VIX chart.
Then click the indicators tool bar and add “moving average”. To overlay the s&p to see correlation then click on the “compare” toolbar and click on the first option which is the s&p trust.
Hello Rookie39.
I enjoyed finding a place where I might post my thoughts because in writing them I helped myself too - I was able to clarify my particular “take” on the current unfolding situation.
As for experience, I don’t have a ton, but I did get nervous when I saw the S&P 500 start to turn flat in 2008 and did call that as a top with a crash imminent.
But you are correct - all my conjectures about a longer-lasting crash and economic winter could be completely misguided.
I found you when trying to find that recent Murphy article on StockCharts - I hoped if I typed in the title to Google, someone else might have re-posted it outside the Members Only area. (I know they offer a 10-day free trial, but I had found, in the past, Subscriber Only newspaper articles reproduced (for free) on the author’s blog).
You came up 6th on Page 1 using this search:
google. co. uk/ webhp? q=%22MARKETS+ENTER+DANGEROUS+MONTH+OF+OCTOBER±-+A+LOT+OF+200-DAY+AVERAGES+MAY+BE+TESTED %22
When stock market crashes I was thinking as a speculator shouldn’t I go short ?
I’m not sure if you can short an etf like you short a stock, but you are effectively taking a short position if you either
- buy an inverse S&P 500 etf like SH (being “inverse” you are buying a short position, it goes up when the S&P 500 goes down); or
- buy Put options on an etf which tracks the S&P 500, like the SPY etf, and Puts go up as the S&P 500 goes down.
Here is the proof that SH moves exactly inversely to the SPY etf (which is a tradable financial instrument that allows you to effectively trade an index - the S&P 500 - type “SH” or “SPY” into any online trading platform like OptionsExpress, CharlesSchwab, thinkorswim, TDAmeritrade, Trademonster, Optionshouse and you can either trade the etf itself, or its underlying options).
stockcharts. com /freecharts /perf.php? spy%2Csh
and if bond market is no longer considered a safe haven should interest rates rise inverse S&P500 etfs could attract plenty of attention no ? and how should one go about trading inverse S&P500 etf ? Can one even speculate or is it just an investment vehicle ?
The treasury bond I see most often mentioned in the etf space is TLT - the 20 year maturity. So if you believe interest rates are going to go up (and that bond prices must therefore go down) then you’d need to either find:
- an inverse bond etf that you could buy (it will go up as the bond-equivalent etf TLT goes down); or
- buy Put options on the TLT, and they will go up as the bond TLT goes down.
So its the inverse bond etf of, say, TLT that you would buy, not the inverse of the S&P 500 in response to interest rate rise fears.
You can speculate on all etfs (like TLT, SH & SPY) - the Bid/Ask prices change second-by-second on your computer screen when the US markets are open; similarly for their options too.
There are also leveraged etfs which move 2x and 3x the S&P 500, available both in the same direction, and inverse, if you want some real excitement (and don’t mind heavy losses). However, many say these should only be traded intra-day - strange unexpected things may develop if you keep them for weeks or months - something to do with the practical difficulty of keeping any leveraged etf strictly close to the anticipated magnified prices.
“Benign deflation” is an interesting idea - it sounds more like he doesn’t want to spread fear and panic, so he claims this particular deflation won’t hurt anybody. And you could say that at the moment the inflation rate in the UK is probably just approaching the borderline where it might become harmful, so I guess “some inflation” (1.2%) is the same as “benign deflation”.
But its what happens next that will determine if it becomes harmful deflation (e.g. if inflation dropped to 0.3%)
wouldn’t they want to place their assests/cash in a country where they offer the highest interest rate with AAA creding ratings , Australia ?
There is an investment bank in Denmark that will try to turn a profit by borrowing money on your behalf in a low interest rate country, and then putting it in a savings account denominated in a high interest rate currency, so you make a good point about how capital might flow on a global scale.
I think that bank even hedges the exchange rate risk by using currency options, so your absolute profit from the difference in the interest rates is not wiped out by adverse moves in the high interest rate currency while its sitting in the savings account.
Presumably investors might chose bonds denominated in AUD if:
(a) it pays a higher interest rate than they could get in their own country;
(b) they don’t anticipate (or actively hedge against) any adverse exchange rate change while in AUD; and
© they don’t expect an interest rate rise in Australia.
The main guy who turned me on to the possibility that population statistics can fortell stock market boom & bust reliably in the future was Harry Dent, Jnr
YouTube video
"Harry Dent - The Great Depression Ahead"
youtube. com/ watch? v=UbaBM3pDer0
Amazon book
"The demographic cliff"
amazon. com/ Demographic-Cliff-Survive-Deflation-2014-2019 /dp/1591847273/ref=sr_1_1?s=books&ie=UTF8&qid=1409881375&sr=1-1
I don’t know of any texts on intermarket analysis - I picked up what I know about how bond prices must change when new interest rates are set, from a pamphlet in the Post Office called “Understanding Gilts” - gilts is the UK name for government-backed bonds.
In the interests of balance, I must say that some researchers believe the demographics (i.e. the population’s age structure) will shortly become better for a healthy economy - so its not all gloom out there.
However, if there is to be a new injection of an adequate number of fit and healthy working age people, you must wonder what jobs they are going to do. In a globalised world, there isn’t a lot of work to be done in the West. But I guess that’s another story.
For “Hey! The bull market is only just getting underway” see
bloombergview. com /articles/ 2014-08-08/ the-beginnings-of-a-bull-rally-ritholtz-chart
(Not allowed to post links - so put spaces in there - no worries)
LB
Hey FE I will get back to you with a detailed post.
Lagoonboy first I want to admit that I am in awe of your writing style. I have to say (and I might regret this later) I do feel there is an over reaction in the market and in the near-term future fading this move will be best. I have three reasons:
-
Data for the US have been improving, they are not spectacular but they are definitely not worse than when we saw a dollar rally. The same applies to Britain where the shorting of GBP is only down to dovish BOE rather than poor data. They have been achieving good growth and took steps to try and control a potential housing bubble. There is a slowdown in China but there numbers are still good. We have issues with AUD but their economy is in a transitional state. The only major problems are at Japan and Europe, I suspect Europe markets will regain optimism once we see a QE program. I think we have a great opportunity in Euro (if the zone manages to stay in tact) and I’m thinking of doing a physical carry trade for you in 2015/2016 for the following five years.
-
There was a clear determination through Fed statements that they would not allow the market to falter and would resume QE if that happens.
-
I have a market correlation that my job always me to see and its absolutely priceless. That is the correlation between US stock market and that in the Middle-East. If I pull up a chart of the stock market of Saudi Arabia, Qatar and especially Dubai you will see they are almost identical. Middle-Eastern stock markets actually do look like a leading indicator for SPX. Now on top of that, I receive a daily report tracking the movements of big money in the Qatari stock market (all of which I can show you) they have been buying into this down move already.
-
There is a seasonal trend for stocks to fall in October. Buying stocks in November-December and selling them after the holidays is one of the most famous and safe trades you can take, along with shorting oil in September.
Hi guys,
in the last days we have talked a lot about intermarket analysis. I really like what Peter shares with us and as you all know, I just like to test things in live setups. So after missing almost the whole weeks’ action, today I decided to scalp at night if there will be a setup. And there was! The setup was not the very best (as it did not happen at a crossover) but it was still ideal.
As we do not analyse real trades very often, I thought you guys might like a complete analysis based on our strategy.
-
I tried to put into action what I learned from Peter. I checked the USD/JPY action today, then I went to look at S&P 500 (because it was the US session so that is the leading indicator) and both charts showed me: risk on sentiment is the current trend. I decided to look for a long trade on the S&P 500.
-
I went to check the charts to find the right technical setup. First I spot a double bottom. Now you guys know that I am not a technical person, but for a very short term trade it is not enough to enter a trade only on my daily bias. So I made all my efforts to find a right entry point. First the 5- and 10 SMA confirmed the trend and I should now look for an entry point (best would be a crossover but as I was not at my computer it was no possibility). I was waiting 2 hours and a pullback occured on the hourly chart. I do not trust much Fibs, but I drew it from the last swing and I saw it lines up with the trend line drawn. Now the question was if I should take the 38.2% Fib or the 50.0% Fib. I did not want to miss the action and entered the 38.2% at the beginning of the candle which the attached picture shows. Now in the first hour the trade went against me and turned on the 50.0% Fib… Great… Still, the second hour was good and made some progress. The third hours started quite good but in the end price retraced some and I wanted to close the trade before the end of the market close.
-
Facts
Entry: at 1876.63 at 20:02, exit at 1881.38.
Win: +475 pips. Here however keep in mind the different pip counting. The spread itself was 50 pips. (On the other side we should also not forget that the different pip values mean a lot more win or loss with S&P, especially at my broker. For this reason I do not let the trade to go much against me and also protect my gains strong.)
Altogether not a huge win, but it was the first trade based on the stock correlation with using USD/JPY. Also it was a short-term trade and S&P 500 is often not as full of action as forex pairs. Not even mentioning that it was Friday night.
All I wanted is to make the first test with getting the edge with choosing the right direction and deciding the technicals where to enter (the exit not because I wanted to make this decision easy and just close it before market close).
Just so you understand the chart: the print screen was made during the second hour of action. I pointed with a blue sign where I exited the trade later on. The bold line is the line from my broker, shows the level of the entry.
Mike and rookie, I guess you liked it. We can do such posts.
Peter, please share your view of my trade on the fundamental perspective so I can get better; Philip, please share with me if you would have done the trade something differently on the technical basis.
FE I have created two charts in Trading view and wrote my notes for you to use them as a guide to what I mean.
You will need to switch between both charts simultaneously in accordance to the instructions on the charts.
VIX weekly: "How to use VIX to find SPX market bottoms" by trader motcha1 — published October 17, 2014 — TradingView
SP Daily: "How to execute on SPX" by trader motcha1 — published October 17, 2014 — TradingView
All you have to do is move chart back to 2008 and follow the arrows and notes. Hope this helps. Exciting times!
FE… Please do this more often. Congrats on your wins!
I like how you used USDJPY as a sentiment indication for S&P500. I’ll sure be trading other markets pretty soon. Currency has been a headache lately. I want to be in a trend not a range market. And not to mention its a lot of work. I do however might go long on AUDJPY or any yen pairs. The rest doesn’t appeal to me anymore unless we get a clear change of bias.
PS: You may want to keep yourself updated on US Earnings: Company Earnings Calendar - Yahoo! Finance - is released every quarter I’m sure this is a major mover for stocks
Where would you have went long S&P daily ?
I mentioned this in the original post two pages back.
We look at VIX weekly close above 200 MA. Then I switch to S and P daily chart and look to buy after the first close above the 200 day moving average. If you open the second chart, you move the chart back to the year 2008, you will see an arrow showing you where I first entered.
Where are we now with stock markets?
This is just a quick note to tell everyone about the new Stockcharts webinar series - the 3rd one went out Thursday (16th Oct 2014) but they keep using the same URL so you can’t currently see the earlier ones.
I urge you to view this week’s before it’s replaced next Friday (usually broadcast on Thursdays).
The Canadian market technician goes through a few charts of US and Toronto indexes to show that the trend lines have been broken, and that they were broken in much the same way as they were broken in previous crashes. Some charts also show how the index has broken down through the 200-day (40 week) moving average, which is considered significant.
Later on, after a sector and commodities review, he spends a little time examining the Japanese index and suggests it may be in trouble, and that if it is truly in trouble then bad effects could ripple through to other countries and continents, with possibly associated effects for the Yen.
stockcharts. com/webinars /schnell /webinar.mp4
You forex guys might like to mark next Friday’s (24th Oct 2014) webinar in your diaries as he expects to talk about how Stockcharts displays currencies then.
They indicate when the next webinar is available for viewing towards the bottom of the Home page - scroll down to “What’s new at Stockcharts” area, and the link should be there to click so you can view the latest webinar.
So where are we with stock markets after this breakdown? This analyst suggests that we ought to look for the rebound to break decidedly back above the 200-day (40 week) moving average.
If the indexes can do this strongly, then worries about an imminent collapse may recede somewhat.
I’m not allowed currently to post links, so I’ve put lots of spaces in the link above.
LB
I must have forgotten I’m sorry Philip. Its getting harder to catch up with the posts here lately. Have you tested your studies on a live trade yet ?
Good points.
The whole argument hangs on how well the departments of State can indeed control things.
I guess my thinking is if the crash happens (unaffected by anything the Fed tries to do), and we enter a deflationary winter with prices of all things dropping (including commodities), then Dent says, in the YouTube video I have recently mentioned, that the USD should strengthen, as he claims it did in the prior crash of 2008/9.
His advice to people in non-US currencies is to get into USD to profit from that anticipated strength.
If the Fed does have the power that you suggest, then I have no opinion on how they’d like to control the USD in relation to all other currencies.
Thanks for posting.
LB
Hi LB,
Why should US strengthen in times of deflationary period ? Is it because dollar is a reserve currency for most countries or is there something else? 'I haven’t watched the video yet so excuse if the answer is already provided in there.
Japan has been struggling with deflation for almost two decades now, if that deflation was going to spread to other countries across continents through financial systems why now ? why not then ? or had it happened already and as a consequence we’ve got eurozone tumbling down on the edge of deflation possibly ‘a recession’ ?
Apparently Saudi Arabia one of the biggest producer and net exporter of oil is in talks to bring down the oil price further down and we will see how it turns out on 27th Nov next OPEC meeting. Now this concerns me on the possibility of deflation, remember every central bank governors are blaming declining oil price to be cause of falling inflation. Global economy is already not in its best shape I believe with falling commodity prices and further decline in oil price. I wonder if its really “benign” as Carney claims it to be or is there something serious going on.
I’m not sure how much portion oil takes up in CRB index but if oil price were to decline further I’m assuming CRB index will tumble down depending on how big portion it takes up of course and given the inverse correlation between CRB and DXY wouldn’t dollar rise in value across the board ? Fed will have to come in and balance it out in such scenario I suppose.
Update: Subscribe to read | Financial Times --> one more reason to short yen I suppose.
BoJ: the central bank bought just Y2.6tn of treasury bills, short of its Y3tn target. It was its first miss since May 2012 and also the first time since the initiation of “quantitative and qualitative easing” (QQE) in April 2013.
“Perfect storm” IMHO would be the confluence of a whole variety of factors that have the net impact of ensuring that a very bad situation befalls most of humanity for a protracted period of time.
I don’t know if these factors are specifically included in current discussions of a perfect storm, but here are a few I would consider significant:
-
the stock market tanks dramatically so most people’s investments and retirement accounts are now down by at least 50% (largely because many people believe that it is un-American to go short, even if this wrecks the finances of their family and their old age);
-
bonds, which traditionally were the place to go in a “flight to quality”, now reduces the 50% they had remaining and had moved to bonds because interest rates are raised, and that inevitably depresses bond prices, so their savings are hit a second time;
-
inflation keeps dropping until it is so small it is virtually unmeasurable so we enter a prolonged period of deflation (similar to Japan), when all prices of all things drop, and the house they live in is mortgaged at $800,000 but is worth $300,000 - they are negative equity;
-
unemployment rises in a period of deflation (as nobody is buying anything, and everyone is waiting until next month to buy it when they hope the price will be even lower) so they lose their jobs and their health care benefits. (“Buddy, can you spare a dime?” was a popular song in the Depression).
-
the mortgage company forecloses on the home loan, which they can’t pay, and they move out to a wooden shack and they watch somebody else buy it for $290,000 (somebody who had sold their own home in October 2014 and had been renting, while waiting for the house price collapse);
-
the mortgage company put their house in a foreclosure auction but it only reached $240,000, so they still owe $800,000 minus $240,000 on the loan (the person who bought it at the auction was a rare person - somebody with cash - and he made $50,000 when he sold it to the family who paid $290,000);
-
Then their kids get sick, they have no money for a doctor or the drugs that are prescribed, and the government cuts the money spent on welfare.
I’d say that was a fairly perfect storm.
LB
(Reuters) - Euro zone weakness will be only one factor that helps to determine when the Bank of England raises interest rates, Governor Mark Carney said in media interviews broadcast on Monday.
“[B]The only difficulty[/B] that is caused by Europe is that it provides an [B]additional drag on growth[/B]. But that doesn’t dictate the monetary policy of the Bank of England,” he said.
Financial markets have recently pushed back their bets on when the BoE will start to raise interest rates, with interest rate future contracts pricing in a first hike in mid-2015.
As well as the [B]weakness in Britain’s core export markets such as Germany[/B], investors also believe [B]very slow growth in pay[/B] for British workers will stay the BoE’s hand for now.
Carney said the BoE had already forecast that Britain’s [B]rapid recovery would slow slightly towards the end of 2014[/B], and would continue to[B] keep a close eye on “domestic inflation” pressures[/B] that might come from the labour market.
He said the slowdown in Europe’s recovery did not compare with the scale of the crisis in the single currency zone in recent years when Greece was at risk of dropping the euro.
“This is a chronic phase of European adjustment,” Carney told CNBC. “We’re not back in the acute phase,[B] back into that period of a couple of years ago.”[/B]
PS: And on inflation notice how he’s emphasizing “domestic” inflation rather than inflation alone, well judging from his stance it seems to me that we shouldn’t be too concerned on falling oil prices imposing downward pressure on inflation and if there’s only thing that we should be is “domestic” inflation that might come from labour market - “sluggish” wage growth.
I cannot fault or dispute your logic regarding the Middle East.
Maybe I just have a negative personality type! 
So those with a more negative disposition see Europe and China rather differently to you.
Dent says Europe is such a sick man that it may set off the final descent, and I know from BBC tv that China has a massive credit-fuelled housing bubble not dissimilar to ours in 2008/9, where hundreds of luxury apartments in new tower blocks are being kept unoccupied as the owners believe property prices will never drop. They’re purely an investment vehicle which is expected to produce future profit, and not dwellings for human habitation. Many purchased on credit.
It seems that you are saying that we don’t need to worry at the moment - we only need to worry if data from the Gulf States becomes negative.
Did their indexes foretell the 2008/9 collapse, I wonder?
In an attempt to check that out myself, I had some trouble finding charts of these indices but here’s Saudi Titans 30 compared to S&P 500 at MarketWatch:
www. marketwatch. com /investing/index/DJSA30R/charts?symb=XX%3ADJSA30R&countrycode=XX&time=20&startdate=1%2F4%2F1999&enddate=10%2F17%2F2014&freq=1&compidx=SP500&compind=none&comptemptext=Enter+Symbol%28s%29&comp=none&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=2&style=1013
Sadly the index wasn’t in existence for 2008/9, and Dubai and friends all seem to be very new entrants to the index space, at least that’s the impression I get from this cursory glance via Google.
Saudi Titans have directly mirrored the recent fallback in the S&P 500, though, so it doesn’t seem to be suggesting that. everything is just fine.
Please keep us posted, especially if you start to see weakness there, if they are reliably acting as leading indicators.
(I can’t post URLs yet so that link has a few spaces in it).
Thanks for your insights.
LB
@Rookie39
I don’t know the reasoning behind why the USD should strengthen in deflationary times.
My guess is that;
(a) it happened in the past when stock markets have fallen; and
(b) if all other currencies fall, then the USD must go up.
Yes - that does sound a bit weak. I just don’t know.
As an aside, if oil can only be sold in USD, and the USD strengthens, then all other countries that are not USD affiliated, will have to spend more of their currency to buy the oil, which sounds rather counter-deflationary.
Why now the spread beyond Japan? Presumably, as all of Dent’s thinking is based on demographics, only now is the age profile of the people of Europe and America the same as Japan’s was back in the 1990’s, when he predicted Japan’s fall (and everybody laughed at him).
I get the feeling that our leaders just don’t know what to do.
They say mildly re-assuring things, while crossing their fingers behind their backs, especially if they’ve read Dent’s book and realise that deflation does seem to be an unavoidable by-product of the age makeup of the current Western populations.
The whole scene seems to be remarkably fragile - and presumably at some point the market will have to fall, and deflationary times do have to come around some time, so it may as well be now as in 5 years time.
Here I’m taking a “cycles are natural” approach, QE not withstanding.
Dent sees the true seeds of our current malaise as originating way back in 2005 with the banking crisis - we’ve only been putting off what must eventually come to pass - a natural move into the next, rather unpleasant, phase of the natural cycle of economic events.
1929 happened - at some point “a 1929 economic climate” must happen again. He sees it purely in terms of seasonality. At some time winter must come around again, no matter how much we would want summer to continue forever.
A bit mystical, but that is what he seems to be saying.
And hey! Rejoice! He’s told you exactly what to do to profit from this once-every-80-years event.
- Sell your house, bank the money, live in rented accommodation. Then buy when prices have fallen.
- Get out of the stock market and buy some S&P 500 index inverse etf - ticker:SH.
- Be careful of bonds - if interest rates go up, your investment in them will go down.
- If you’re not in USD, get into USD.
LB
[B]Alright, COT numbers out, database updated, here are the values![/B]
For the sake of simplicity, I’m going to give you the table format for each instrument, unless I’m about to take a trade.
[B]Gold[/B]
COT Index
91 -> 90
COT Movement Index
49 -> 38
Open Interest
OI stagnate, Longs - decreasing | Shorts - decreasing
CP/OI
Longs - 51% | Shorts - 31%
Willco
88%
[B]Silver[/B]
COT Index
88 -> 88
COT Movement Index
46 -> 35
Open Interest
OI stagnate, Longs - increasing | Shorts - decreasing
CP/OI
Longs - 44% | Shorts - 49%
Willco
90%
[B]Platinum[/B]
COT Index
80 -> 81
COT Movement Index
37 -> 35
Open Interest
OI decreasing, Longs - stagnate | Shorts - decreasing
CP/OI
Longs - 25% | Shorts - 65%
Willco
77%
[B]Palladium[/B]
COT Index
78 -> 77
COT Movement Index
18 -> 17
Open Interest
OI stagnate, Longs - stagnate | Shorts - stagnate
CP/OI
Longs - 17% | Shorts - 83%
Willco
9%
[I]I’m observing Copper atm, it deserves pictures so I’ll post them later. VIX, USD Index, etc. are coming afternoon.[/I]
If you want me to post the data on a particular instrument, feel free to ask.
Hi guys,
observing our thread in the last days I try to step up a bit. At this point I have to agree with BB. Our thread is moving fast away from the original topic. I wrote myself a couple of days ago a post where I explained to Balazs that we do not only discuss here COT but many other issues. It is also ok in my opinion. Still, as I see slowly we do not discuss COT at all. Please take everyone some time to develop COT skills at least on the weekend and share your ideas. Balazs is first with his analysis, it is a great discussion point. Soon comes my observation.
Lagoonboy made some nice post about bonds and stocks. Everyone liked them. How great it would be for example to see these posts about stocks but at the same time comprate these view with the COT report on indexes? That would fit then perfectly with the point of this thread. If we analyse the COT then it does make a lot of sense to discuss everything else during the week and look at it from the perspective of our COT findings
Happy Weekend!