The Rooster Call: Euro Zone Impacting the Markets Again

Hit the Mark Trading’s Brief Review of Overnight Market Action Setting the Tone for the Trading Day

Today is the last day of the third quarter. I think the news of automaker, Ford’s troubles in Euro land are the tip of the iceberg for multinational firms dependent on Euro zone business. Drug and health care should be relatively immune, but manufacturing and service industries will likely all report lowered income due to Euro zone exposure.

Economic troubles in Euro zone are one of those grand themes which elude a central bank fix, while at the same time exposes the smoke and mirrors central banks rely upon to instill confidence against the dark back drop of reality. 

All we do is focus on the unemployment rate.  As long as stubbornly high rates of unemployment exist, the economy slips rather than gains traction.  By extension no one…should be the least bit surprised at continuing deflation, which I have discussed for quite a while. Deflation is a human behavior patternHuman behavior runs markets. Central banks and politicians feverishly work on manipulating human behavior in order to effect change.  With the Euro zone economy, improvement was very slow and then suddenly Russian sanctions fell in the mix as a road block for nascent economic recovery.

I am always concerned when I see high levels of youth unemployment. Lurking in this pool is the stuff of radical economic or political change potential as youth (up to age 24) feel like they simply cannot get ahead. Meanwhile the gulf between the “haves” and “have nots” widens.

The latest strategy of the ECB…totally expected…is devaluation of the currency.  The attitude in hushed power corridors is one  of “let it fall…we’ve tried everything else…get the word out through appropriate channels, we will not support the currency, but if asked, we shall issue denials”

Back when the only way was down for US dollar, successive US political administrations maintained the USA was always in favor of a strong US dollar.  Nothing was further from the truth as economic policies caused the US dollar drop.

Euro fell below 1.2600 this morning.  Our December Euro short entered on September 15 shows profit over $4,000.  We will lower protective stop to 1.2689 locking in $3,000.  I think trading currencies “swing” (holding overnight for several days or longer) demands a protective stop of minimum $1,000.  That’s just my opinion. 

Obviously profits can be taken at any time depending upon your personal relationship to money and risk.  All trades I call “in advance” are for your testing and education.  It does no good to imagine a $4,000 profit if you are too conservative in your personal trading.  Then again, if a trader makes $100 on a trade and the trade goes on to make potentially more, who am I to criticize?  A profit is a profit!

When we can catch a “grand theme” and ride it for all it is worth, the pay-offs are usually over-sized gains. We did this with other commodities this year and are presently in soybeans riding the perfect storm, yet mindful of a quick pop potential against us.

Yesterday afternoon, I spoke with a broker who said in a live trading environment 50% of people will lose because even though they see a trade called…no one trades exactly the sameI heartily agree!

This trading business is more mental in contrast to the latest and greatest indicator or trading system.  So many short term traders take incredible risk yet feel a swing trade would be even more risk. That is the trading mind saying “better not risk a swing trade.”

And look at what you have to contend with as a short term day trader…high frequency trading, fake orders (a current law suit against CME points this out), and reaction to the latest political speech or central bank action. Stock traders have it worse with sudden stock up grades or down grades, news of corporate malfeasance, heated competition, product failures…or the latest event…cyber crime at TGT and HD affecting the stock.

Add to this your mind tripping you up assuming logic will prevailDay trading demands an ability to read the foot prints of price action complete faith in your tested strategy that commands you execute according to plan rather than emotions. Easier said than done…yet possible.  Anything is possible and our mantra is “anything can happen.”
 
One of my mentors was a 50-year veteran trader and hedge fund manager. Retired and trading on his own, he still paper traded new ideas and every single day he wrote his simple day trading plan before he started his day…just to get his mind ready.

OK, Rooster Call…
Euro drops on continued very low inflation (it’s deflation folks), and a stubbornly high 11.5% unemployment rate. US dollar climbs higher.

Japan Industrial Orders for August sharply miss expectations. Yen falls.

The Financial Times states the USA is poised to surpass Saudi Arabia as a liquid energy producer. Last night in your video we discussed crude’s recent pop. Overnight CL hit $94.90 and has started pulling back. If CL moves below $94.28, then $93.89 is next stop.

Bloomberg cites several refineries shutting down for “unexpected” maintenance. This of course will support gasoline pricing. I am always intrigued by the timing of refinery shut downs.  For example we seem to always have refinery fires and unexpected shut downs right before USA driving season.  Start noticing.

Today, at high noon EST, we have the USDA quarterly stocks report. This report can move markets.  We are riding through the report. Current profit on our position flirts with $7,000. Anything can happen.  Yesterday’s price action in several grain markets was short-covering in front of today’s report.  After today, the next report is October 10. Mark your calendar.

Brazil’s Agroconsult expects a record 2014/15 soybean crop of 94.8 million tonnes, down slightly from the 95.1 million tonnes estimated earlier this month (Allendale).

Today’s Reports and FED Activity

7:45 ICSC Retail Store Sales
8:55 Redbook Chain Store Sales
9:00 S&P Case-Shiller Home Price Index
9:45 Chicago PMI
10:00 Consumer Confidence
10:00 State Street Investor Confidence Index

Overnight/Pre-Market

  • US and European Equity index futures are higher in overnight trading. FTSE 100 incrementally lower. Nikkei 225 lower, but higher off overnight lows.  Equtiy markets want to move higher it seems within a period of consolidation.
  • Natural gas is worth watching for day trading breaking resistance yesterday rising with crude.
  • Crude quite after making overnight highs…reviewed last night.
  • Rising US dollar kicks the legs out from underneath gold.
  • Softs are quiet…coffee takes a break.
  • Corn trades in tighter range because most of the money in corn has been made and traders aren’t sure about lower prices. We are not currently in corn having traded the run earlier.  However, we have a long term price target of 311. The thing about lower corn prices is demand should increase exponentially as this is the grain of choice for livestock.  Add to this the low prices will likely cause less planting next year in favor of beans. Bottom line is we expect significant corn price recovery in 2015.
  • 30 year bonds and 10 year note lower as equity index futures rise.

Think About This!

I am not reading much into the Hong Kong protests even though it makes for great headlines and photo ops. China has warned the world this is an internal issue. Hong Kong protests are a drop in the bucket compared to Ukraine, and war against Islamic State, which equity index futures discount as a concern.

Have a great trading day!

To learn more from Martin, visit HitTheMarkTrading.com to join his mailing list and receive blog updates.