Looking for Key Turn Dates

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In my short term trading accounts I try to benefit from price changes in various markets…trading what the markets are doing…not than what I think they should be doing. I try to align the time frame of my trading with the time frame of my analysis. I read a lot of research and watch a lot of markets. I try to gauge Market Psychology because I see it having a powerful impact on markets…either extending or reversing price trends. I use the term Key Turn Dates (KTD) to identify points in time when changes in Market Psychology, measured across a number of asset classes, causes a significant change in market price trends.

Sept 14 was a KTD and “risk assets” fell from that point…became “oversold” by Nov 16 and bounced…I’ve thought that the bounce was only a correction to the downtrend from Sept 14…I’ve been waiting for a confirmation that the bounce was over before re-shorting some of the “risk assets.”

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It’s interesting to notice that “risk assets” may all turn (more or less) on the same KTD but some “assets” move substantially more than others…this could reflect “fundamentals” specific to one market and not to others…it could be a function of “riskier risk assets” having a higher beta than “less risky risk assets”…or other factors…this variance definitely influences my choice of which market to trade when I want to take a position.

In most of the markets I watch the US Dollar is the common denominator…to get a different view (and perhaps a better understanding) of markets I will frequently construct charts where I take the US Dollar out of the equation…for instance, looking at the gold/silver ratio, or the EuroYen chart.

Charts:

The S+P 500 chart really has my attention…I’ve been waiting for the rally off the Nov 16 lows to run out of steam…that may be happening this week…but no real confirmation yet…

The German DAX has had one of the biggest rallies of any of the “risk assets” off the Nov 16 lows…easily taking out the Sept 14 KTD…this has happened in conjunction with a strong rally in the Euro currency as Market Psychology has become less negative on “Europe.”

Silver has been one of the weakest risk assets since the Nov 16 date…silver looks at risk of a breakdown.

The Euro had a Key Weekly Reversal higher this week…a powerful chart pattern.  In my comments on the Euro last week I noted that the currency markets get thin and weird this time of the year…that as implausible as it may seem given all  the “troubles” in Europe…if the Euro rallies and takes out the triple top going back to the Sept 14 highs then it could run higher into year-end…here we go?

The Japanese Yen has fallen steadily from late September…some analysts have been predicting for the last couple of years that the Yen “had” to fall…it’s been the absolute weakest of the major “assets” since the Sept 14 KTD…huge short positions have been built…the Dec 16 election is expected to give Abe a clear mandate and he has been forceful in calling for the BOJ to ramp –up money printing to stimulate at least 2% inflation…will this be a classic “sell the rumor, buy the fact” story? Will Abe have to tone down his demands once in office to keep Japanese bond yields from rising?

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The New Zealand Dollar has been one of the strongest “risk assets” since the Nov 16 lows…like the DAX it has easily taken out the Sept 14 KTD. It has “blown away” its sister COMDOLS the CAD and the AUD. Is this a case of “hot money” pushing up prices as it rushes into a small market…or has something fundamental changed in NZ relative to other risk assets? I’d go with the former…but beware thin year-end conditions in FX markets…note over the years how significant “V” shaped turns in currencies happen around year-end. This currency is definitely on my “watch list”…I may look to short it against the CAD or the AUD rather than the USD…once it gives me a sign that it has stopped rising…

The Japanese Yen against the New Zealand Dollar: this is the chart of the weakest currency (JPY) against the strongest (NZD) since early September…a move of about 12.5% or about 50% annualized. If Market Psychology were to turn negative across asset classes this spread could reverse big time.

The US Long Bond made a low on the Sept 14 KTD as risk assets were making highs…and made a high on Nov 16 just as risk assets were making lows…the US bond market has been the opposite side of the “risk on / risk off” teeter-totter.

Apple:  What a chart! Fortunes made and fortunes lost. Note that the All Time High for AAPL was made the week of the Sept 14 KTD…Market Psychology shows up all over the market…

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avatarVictor Adair - Victor Adair posted Saturday, December 15th, 2012.

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