Another interesting week has given way to another weekend to digest and attempt comprehension of its events. Friday took many by surprise and thankfully we have a few days to reflect on what happened and why.
That reflection requires a refocus on the bigger picture because unless you discipline yourself to stay in tune with the truth it reveals then the temptation to hurl money into the market at every twist and turn will become overwhelming and then all those dodgy psychological habits revolving around greed, fear and revenge will all be there to eat up our capital.
It Is All About Perception.
“WILL SOMEONE TURN THAT NOISE DOWN , I CAN’T HEAR MYSELF THINK!” How many of us have heard our parents yell that in our ears?
We should have listened to them because as Friday showed the noise levels were high, so high it was very hard to figure out why. And herein lies both the danger and the lesson.
This is Friday’s hourly gold chart
For a gold trader this week , it was very difficult to see that kind of move without feeling left behind but then here is the chart for gold’s performance for the week;
Putin was reported to be buying Gold to shore up the sliding rouble hit so badly by the double-sword of sanctions and falling oil prices.
Probably not an event to affect the value of this precious metal in the medium term but certainly enough to touch sentiment in the gold market even if briefly.
With the benefit of hindsight, a perception we both love and hate, gold broke an important support area on a monthly time frame and there was a good chance that much of the rally resulted from short covering.
It doesn’t matter if gold is your market or not because it was evident elsewhere and is a constant ingredient of market behaviour.
Staying with Friday’s events, the US announced some encouraging data, the EZ showed up some more weaknesses, but the Dollar fell the Euro advanced. Here again is the US index for the week, shown as a single candle on this weekly chart;
This Weeks Trading Decisions ?
and the EURUSD also showing the hourly candles,
a lot of that move was stop-tripping; here looking somewhat less impressive on the weekly;
The Two Keys To Trading Decisions with Less Stress
1.Always check the weekly chart and in particular look at the weeks trading in one candle.
2. Understand what is driving the market.
So this is what the market teaches us. We cannot ever be sure of the outcome of our trades but what we can do is increase the probabilities of being right. That requires a level of fundamental understanding and keeping the big picture in focus
Drivers v. News/Data
These are not necessarily the same things. Many times data announcements can drive the market in the sense that they cause reactions whilst the real drivers , that is the underlying fundamentals of any given market stay in place and give the market is ’true’ direction. In other words reactions are replaced by responses, lower timeframes produce the former, longer ones the latter.
In terms of data this week, GDP growth gave us a picture of the major world economies. GDP is an important market driver and analysing these results is some of the work we do at fortress trading academy. I will be writing more about this indicator in an upcoming article.
In the meantime here are some crucial charts of GDP growth in the Eurozone and US economies with some comparatives well worth noting;
The Eurozone showed growth at 0.2%,
this is not impressive for those wanting to see signs of avoiding deflation and as a cautionary note, may well lead to the ECB downgrading forecasts next month.
More depressingly Germany, the world’s 4th largest economy did not contribute even to this meagre advance as it grew by only 0.1%
That is to say Germany only narrowly avoided recession. It is an export driven economy relying on mostly manufacturing and vehicles, but include pharmaceuticals oil, iron and steel and electronics.It is one of the world’s biggest export nations.
This is the GDP growth rate in the US where recovery is more trustworthy;
Looking Behind Expectations
This was a week in point. When expectations are exceeded or missed reactions are inevitable. From the list above, the eurozone met its expectation even tough the figures are not impressive. In the US we have seen countless examples of this recently with jobs numbers last week, in their 49th week of additions they actually missed the expectation. Again this week JOLTS, much revered by Janet Yellen showed 4.74M jobs added. This missed but is still progress. The US ended the week on strong results, retail sales consumer sentiment and import prices all showing improvement
Despite the dollars correction on Friday in late trading the Index as we have seen was little disturbed.
In Other News
The G20 takes place this weekend in Australia.
The Eurozone ‘crises’ is a major talking point as one would expect and Angela Merkel will no doubt be quizzed over her government’s approach to fiscal policy and her stubborn reticence to increase spending and boost demand at home.
There are few outside Germany who support her own goals of budget balancing at the expense of Eurozone recovery, which in turn threatens recovery for even the more upbeat global growth rates.
Putin is the other focus, warning of the dire consequences for his nation of plummeting oil prices, he stands accused of bullying and even as the meeting continues, Nato confirms more troop and equipment movement across the Ukrainian border . Tony Abbot started a head on confrontation whilst David Cameron the UK’s PM quipped ‘ I didn’t feel to need to bring any warships to keep myself safe at the G20’ Nothing like maintaining a sense of humour in trying times.
Commodities continue to fall, despite golds advance on the week. this is a chart of the commodities index, a basket the of major ones;
Chart courtesy of www.stockcharts.com
Oil saw fresh lows and settled at 75.87.
In The UK A dovish Marc Carney spoke this week though he saw progress in wage growth. He warned however that inflation could slip below 0.1% and rates will have to remain low until at least autumn next year.The GBP fell further against the dollar.
In Conclusion
Of course Putin’s cross-border activity does have to be taken seriously in terms of potential market catalysts as it can quickly disturb what is at the moment a quiet and calm market. The vix maintains its low levels:
www.stockcharts.com
The Dollar remains the long prospect and once again no amount of noise can alter the underlying facts whether they be derived from policy or data.
There is no prediction or strength in market ‘noise’, It is for those traders bothered ,disciplined and wise enough, that the market reveals its truths.
Judith Waker
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