The markets jumped after a strongly worded statement from the president of the ECB saying they would do whatever it takes to preserve the Euro. That sent the US markets up nearly 2% at the open. But just a few hours into the day the markets gave up 1/2 of those gains. For most of the summer the markets have been leaderless and subject to knee-jerk reactions to this comment or that headline. This choppiness makes the markets difficult to navigate and no doubt chewed up anyone that got in the way.
Will the markets rally further on this verbal support from the ECB? Or will this be a short-lived lift that quickly settles back to the 50dma? Any guess is simply a toss of the coin and makes it very difficult to trade. The smart money is sitting out this market and waiting for better trading opportunities.
The US equities market continues to be a derivative of the currency markets. Early this morning the Euro shot up 2 cents against the Dollar after the ECB president’s comments. Exchange rates are in the driver’s seat these days and this has completely changed the personality of the equities markets. It is no longer about fundamentals or expectations of future growth, but a battle over whose currency sucks the least. At the moment the USD sucks the least, but Congress and the Fed are trying to change that.
Is this currency correlation just a temporary phenomena, or paradigm shift due to increasing globalization of most companies? This overlap and correlation between the various markets and assets makes it increasingly more difficult for a trader to focus exclusively on one market. Going forward, the most successful traders will need to understand all these interactions in an increasingly interdependent world.
AAPL failed to wow the market the other day and fell back under its 50dma. But what was the leader of the markets in the first quarter has lost some of its influence. A few moths ago an Apple stumble would have taken down the markets, but now the new standard-bearer is the USD and the currency markets. For better or worse the markets are constantly evolving and as traders we need to stay on top of these changes.
Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.