Trading in 2015, with all the news and international political personalities influencing the direction of the dollar, Euro and Oil, the real volatility comes from not what we know, but what we don’t know.
2014 trading has shown us that the outliers have the most influence in the markets. Who could have known that we would see a decrease in oil prices that would take us to $54 a barrel, or that the dollar would strengthen and consumer confidence would go up in the US again, or that Obama care would be such a large percentage of GNP. Oil prices have an anesthetizing effect on consumers as they quickly use this windfall from falling gas prices to buy their new widescreens and Amazon devices. A definite boost to the economy. It was amazing to see our street this year as delivery truck after delivery truck zoomed down to drop off deliveries for the holidays.
Oil trading in 2015
2015 oil trading could see a break of the $54 support and a move to under $50 a barrel prices. If it does break the $50 mark, it could be a very short term capitulatory spike with a reversal back to the $50 area. The move back to the 200 MA is where the markets could settle in the long run or mid 2015. Expect to see the market test the lower support at $46 then $43. Remember the Saudis said they can support this all the way to $27. We are going to see Oil sands in Canada getting hit and west Texas crude rigs shut down over the first half of 2015 with a decrease of US oil production and then a demand driven price increase later in the year.
Index Trading in 2015 as we are reaching new weekly highs, could see more complacency on the small investor side, as they let their money ride this wave. Short side sellers, that have been beaten into submission from the buy, buy, buy signaled by the quants and market makers still eek out a call of “the market could fall” vs. the chicken little calls of “the sky is falling”.
Index trading in 2015
The S&P500 has a new paradigm in trading running for the past few years as we are seeing faster rise than sell offs. The price action used to be 10x the speed for a falling market with the ensuing gradual rise to previous highs taking weeks if not months. An underlying characteristic in this new price action shift is that the retracement by buyers is swift and targets not a double top but an extension. The velocity which buyers have moved in the market has out paced sellers.
I am expecting to see more tests to the 200MA with same extensions repeating themselves through 2015. Watch for more volatility to come from these unknown outliers as the reality of falling gross income and increasing unemployment weave their way into the US economy and manufacturing shifts occur through out Asian economies. Most likely scenario is the grinding up we have seen. Watch for tests of the 2000 level and move to 2560 through the 2015 year. More consolidation looks possible. Sell off levels to 980 if there is another crisis(doubtful). Expect Volatility, larger price ranges intra-day and 2-4% swings on profit taking and market maker plays.
Gold trading in 2015.We have seen the same transition in the Gold market where the “gold bugs” have been beaten down. The risk off trade is to the dollar, not gold. Gold is too volatile to be held as a risk hedge. Gold is held as a “Disaster Hedge” when there is a threat of war or some devastating economic turmoil. I coined this term since 2005.
The gold markets volume has changed dramatically changed this past year and we might see less participation on the individual investor side. If we have falling demand for gold in the derivatives market, it means would could see some extra price volatility in the daily ranges.
Watch for lack of commitment on the gold buyers side in the volatility. This means we could see a consolidation zone being followed by sell offs to new levels. If we were to see a continuation in direction with the $360 annual range, we might see tests to $780 range. The gold market is still in control of sellers until it gets above $1246. Remember there is no rational sell off or real price to be attained and the price could sell off to even the $600 range or more if there is some type of capitulation or default in the derivatives markets. If there is then the upside would be to previous swing highs $1360, 1580 then 1800. (not likely) Expect to see gold breaking to $1300 and the volatility to increase. If we get above $1380 welcome back the bulls.
Dollar Index trading in 2015
The dollar index has been our major focus in our proprietary fund this year. The dollar index has been the major influence on price action in the major pairs, index trading, Gold and Oil. There has been quite a bit of volatility with momentum to the upside working in favor of most trades, mixed with oil price adjustments that have hurt many USD trades as the economies of the oil producing countries have some what cratered.
The key to the next year will be in trading the Dollar index and the price levels of support and resistance. We are posting a long term chart with some upside targets. Remember markets don’t normally move straight up or down and we will of course see some pull backs as the “unknown’s come in to play”.
If we have a continuation of the present direction of the dollar index we are targeting 92.56 and 99.10 for major resistance. This could take many months and watch for some consolidation for an upside continuation to occur. The dollar index has plenty of buy side momentum and could continue for the next year at this rate. The five year decline from 2002 to 2007 and the ensuing 2 years of consolidation in a 4 point range from 2012 -2014 built enough pressure in the market to bring us up over 10 penny in 6 months. There seems to be no let up on the buyer side which could keep this direction.
The dollar index has broken above the 200MA on the monthly chart, also above the 28.2 retracement an has a clear path to new highs. This is a long term perspective and the market does not move straight up or down. Presently the Dollar index is at resistance and sellers could come in for profit taking. Expect to see the dollar index strengthen as Europe Falls Apart.
The biggest Outlier that will effect economies will be QE and central Banks.
2015 will give us a roller coaster ride in currency manipulations. Expecting to see weakening in the Euro as risk adverse economies will move away from the peg against their currency. Watch for China to step in doing their own type of Quantitative Easing that will increase the range of their peg to the US Dollar. This will cause a wild ride in the markets especially if the Hong Kong dollar is allowed to trade on the open market with out the Peg. This is where we will probably see it first, then by wider margins to the Chinese Yuan. Since all the worlds Central Banks are buying their own debt and investing in the stock markets we could see strength in the US markets and Dax, followed by small corrections relative to their buying patters. Expect to see profit taking along the way. This means more volatility. Trading in 2015 will experience larger daily price swings and a lack of direction.
“China is the wild card for bonds and currency manipulation, weather they do it through Hong Dollar first or Quantitative easing, expect some market volatility.” Joel Wissing
Inflation Vs. Deflation
The world is finally coming to grips with the “Quantitative Easing” experiment, Keynesian economics is a failure and consumers will gradually be reacting to the incredible disparity it has created across the board. Deflation is coming and it is a sign that the hyper Quantitative easing has forced this slowdown, and we can expect to see markets shrink, economies slow and major banks to hold out their hand in support. QE in Japan has been a failure and their model has shown that deflation will occur. More QE will just prolong the disease, stemming a few of the symptoms but not curing the problem. It is so irrational that I can’t fathom where the idea that inflation is good for anyone. The Japanese, which have an aging population with the highest savings rate in the world, are crippling their retirement population by pushing inflation. They should be going the other way. When price go down people shop, when price go down people buy. It is when prices go up that consumption goes down…Wake up. You don’t raise prices to help an economy, you raise prices to help bond prices and the banks. Time for a change.