Day One of 2018

Daily Analysis - 02/01/2018

Markets are pent up and have what to say


Rest and relaxation are welcome for us as working traders, and necessary for all living creatures that work for a living. The markets precisely like the traders who comprise them return with pent up expectations, thoughts, ideas and fresh understandings of the markets. These unvented desires express themselves palpably after a long break. We’re seeing it today and will for at least the rest of the week.

USD weakness continues against the GBP

The US dollar continues to lose ground in value compared to the Sterling. The rate of these two currencies, often referred to as “cable” or “the cable”, because it was the first information transmitted over the first transatlantic cable in the late 19th century, is, like the relationship between all currency pairs, a statement of faith and confidence in the currencies one relative to the other. In our case the market is quite clear in its sentiment that the GBP and its economy is in a relatively stronger position than the perception is of the US economy. Currencies are the stock certificates of economic zones. They represent a “share” or more precisely what one “share” i.e. dollar, will buy in the rest of that economy. When faith goes up in the economic zone, just like when it goes up in the perception of a corporation and therefore its stock, its price rises. The price of a stock is denominated in the currency of the market where it transacts, usually the local currency. The currency of an economic zone is denominated, by definition, in the currency of another economic zone. Sterling stronger than dollar. Buy sterling, sell dollar.


Coffee rising strongly

The price of coffee is making a sustained upward correction in a long decline whose peak was 176.00 reached in November of 2016. That is a 28% decline in a little over a year. Steep. The crucial commodity is making a strong effort to regain some of that ground over a four day rally raising prices from 119.55 to today’s open at 126.20. A 5.5% rise in four days. And slow days at that. These were the last four trading days of the calendar year. The trend is likely to persist as no news came over the wire during the holiday break. We are looking for coffee to break the 130.00 level to signal a strong upward trend. Short of that, should prices fail to continue their rally a price of 122.30 or lower will signal a continued decline in the price. Keep an eye on the open and be prepared to buy when it is in the 127.60 zone. Java anyone?


Lufthansa nose-diving

OK, so we couldn’t resist the use of the sensitive word in relation to an airline. Nonetheless, tasteless adverbs notwithstanding, the price of the stock was falling rapidly this day and looks like it will continue to do so. Our research indicates that the planned merger between the German flag carrier and its bargain basement competitor, Air Berlin, will not be approved by the European regulatory authorities on monopoly grounds. Too bad for both firms as the deal would have strengthened both sets of corporate owners, as the rise in Lufthansa’s stock price since the announced merger clearly reflects. The European monopoly authorities, contrary to their American cousins, do not embrace monopoly power in the same way as the Americans have in the last half century. There was a time when the Americans placed severe restrictions on their goliath monopolies, but that was after those monopolies, called trusts, formed in the late 19th and early twentieth centuries and had grown entirely abusive and restrictive of trade. Recall the Sherman Anti-trust act to understand how the Americans felt then about monopoly market power. Not so today. Unlike the Europeans who feel that in principle conglomeration and concentration in a sector is by definition unwelcome, the Americans feel (in these days) that the concentration of market power can and often is desirable and usually benign in its presence. After all the shareholders surely are not hurt by near monopolies in the market. So how bad could they be? Lufthansa, um, what shall we say? Falling? Taking a dive? You chose the adverb. Your choice should indicate selling.


Axel Springer shedding value

The giant consumer and professional media producer Axel Springer is experiencing a fall in price. Our research reveals only that a bid to acquire the Israeli shopping comparison application was made in the last week and that no resistance to the deal has been registered by either any EU or Israeli regulator. Doesn’t mean that somebody won’t raise an objection, but for the time being we let the chart be our guide. We are, as most of the worlds’ market traders are too, trend followers. This means that we search for trends that are likely to persist long enough for us to hook our little wagons to and let the engine of that trend carry us along with it. Our existence is often likened to picking up coins in front of a moving steam roller. You have to be quick, choose your targets carefully and not let the steam roller of a market crush you. Prosaic? Definitely. Apropos? You bet. Trade with confidence.


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