Important Assets Are Correcting and Adjusting

Daily Analysis - 17/01/2018

Market Psychology Takes Hold

As a slow week in the world’s economies unfolds, assets adjust naturally. No, we’re not talking about quinoa or wheat germ, we are talking about the nature of human and a subset of that nature, market psychology.

Financial Times of London Stock Exchange Index

Better known as the FTSE 100 index, this is the barometer of the British economy as the S&P 500 index is to the US economy. If you are going to take one measure of the health of an economy the major indices of that economy are a fine place because they aggregate the major participants and competitors within an economic union or nation and give a composite picture of overall performance. It is a singular statistic for a huge amount of activity and an aggregation of a large amount of traders and market sentiment about that activity. So yes, it is highly generalized. That is the nature of summary statistics. The chart of the FTSE (pronounced: foot see) shows a very steep and continuous climb on the hourly dating back since Friday. That’s a lot of up hours. And one of our principal techniques of analysis is trend following, due to the curious but undeniable fact that trends in market prices have a strong tendency to continue, they don’t do so forever. In fact they “correct”, meaning that they take temporary reversal in their paths to allow profits to be taken from the run up (or run down) and allow new traders to enter at advantageous price levels. This is precisely the point we are at with the FTSE this morning. Rising 6.88 per cent since Friday, price has fallen back .79 per cent. We do not recommend talking long term short positions here as the upward trend, again on the hourly chart, is too strong. FTSE100 DOWN.

Fiat Chrysler Automobiles

Fiat falls into the same patterns as the FTSE. It is making a technical adjustment, because nothing rises forever and traders need to rest from strong “exertions”, meaning they like to remove profits from profitable runs, and new traders come in to replace them hoping to capitalize on the continuation. Fiat rose 38.29 per cent since Friday and has given back 8.44 per cent in the last 28 hours. We can see some valuable truths comparing the FTSE and the Fiat movements. First, the patterns are similar. Second the volatilities are quite different as absolute percentages of movement. Third the timings are highly correlated. These are not random coincidences. They are patterns of human behavior and reaction to past events. Long upward (or down ward) movements are punctuated temporary reversals within those movements, called the trend. No trend moves in a straight line. They “kink” meaning they adjust or correct. You see this pattern universally in the human reaction to the performances of the assets being charted. Knowing these patterns and the psychology that creates and reinforces them is the key to anticipating them and making money from that knowledge. Fiat DOWN for the short term.

High Grade (HG) Continues its Declines

High Grade, commonly abbreviated to HG, is the commodity symbol for Copper on the Chicago Mercantile Exchange. It too is making a technical adjustment but a different one from the previous of two of today’s assets. It attempted to make a reversal in a trend that has been in train since the end of December of 2017. Falling 4.06 per cent since then until yesterday afternoon, the commodity rallied 1.22 per cent only to fail in the attempt to make a reversal and thus confirming a continuation in the downward trend. We look for Copper to continue its decline and so this trade recommendation is valid for what we think is a week or more. HG DOWN.

EURUSD Falling

This means, and if you can’t make this interpretation immediately you need to make sure to learn how to do so, the USD is strengthening. Counterintuitive? Sure. Obligatory to understand? You bet. When you hear “Dollar Up” and “Pound down” you know you are listening to or reading the words of a non-trader. For no trader worth their salt would say something so lame. A currency asset only strengthens or weakens RELATIVE to another currency. Sure you can say Oil up and Gold down, because we know they are relative to the US dollar because that is the currency those assets are quoted in. Currencies are quoted in multiple other currencies and so UP or down are meaningless descriptions of the assets movements. Again, like the other assets we feature today, EURUSD is making a technical adjustment in a longer term trend of a weakening USD versus the GBP. When we drill down to a 15 minute chart we can see that the downward trend is likely to continue for at least the duration of today. Maybe beyond, but a good short term trading opportunity. EURUSD DOWN.

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