Trader thoughts - the long and short of it

Global markets are proving a mixture of extremes. On the one hand, we have global equities cautiously rising and the favorite ‘fear gauge’ VIX dropping back to extremely quiet territory (below 10). On the other, crude oil and Bitcoin have put in for dramatic declines.

Market data
Source: Bloomberg

These moves seem to defy traditional fundamental motivation, leaving a sense of speculative free-for-all that should keep traders on guard heading into the week’s final session and the G7 Summit on deck.


The world’s most popular cryptocurrency, Bitcoin (yes, there are many others; but others don’t match the average daily volume) spent most of the past session charging aggressively higher. At the peak of its quest to close out a ninth consecutive daily advance, the BTCUSD was up another 14% on the day – translating into a more than doubling of the alternative currency’s value through the month of March. Unfortunately for those that have rode the bull, that isn’t how the day ended.

Volatility begets volatility. By the close of the US session, Bitcoin lost all of its gains on the day and subsequently retreated 14% from new milestone high of 2760. Now there are two groups that are evaluating the situation: the optimistic opportunists and the unflappable skeptics. Whether or not the past session’s slide tips off a lasting reversal depends on who is participating in the market. If there are financial institutions seeking exposure through blockchain technology (as Fidelity announced it was this week) and institutional interest looking for exposure (perhaps anticipating reversal on the Winklevoss ETF in the States), there will be a more robust backdrop. If it is mainly brand new, tech-oriented millennials unacquainted with a true loss, weak hands could lead to a stampede. It seems much of the volume in the past months climb was the latter, and the scaling agreement DCG will go over this crowd’s head.

Wall Street

There was a little more spring in the US market’s step despite the questions of collaboration at the NATO meeting Thursday. Following the tepid performance from European indices before them, the S&P 500, Dow and Nasdaq 100 all gapped higher on Thursday’s open. Leading the charge higher, the S&P 500 closed out its 6th consecutive advance and may end the week matching the longest run we’ve seen since July 2013. No pressure. The Nasdaq 100 would also put in for a record high but the concentrated Dow only moved into striking distance of its own critical benchmark – thought it carried the day for volume, more than doubling the past month’s average.


Among the very aggressive and protectionist-oriented vows that US President made on the campaign trail, his criticism of the defense focused NATO alliance caused particular unease for Europe and ‘Western World’ countries. While Trump has softened his tone on a number of fronts since stepping into the White House, it seems his demands that member countries ‘pay their fair share’ is not one of them. He reiterated that some countries were not fulfilling their obligations to defense spending. It doesn’t require much pondering to connect speculative circulation to the sense of global safety. As relationships continue to show strain across the world, speculators’ complacency will increasingly expose them to the threats of political levies.


Another important international, two-day meeting starts later today in the European session: the G-7 Summit. While the host will have their agenda, the world’s interests will remain on whether the spirit of collaboration or competition will be promoted amongst the economic super powers. More of the former (generally termed ‘globalization’) will offer speculators a little more comfort in their already significant reach for yield. However, if the trend towards rivalry (‘protectionism’) continues; the outlook will grow increasingly cloudy for assets that are already dearly priced.


If there were little doubt that OPEC had lost its tight control on the day-to-day affairs of the oil market, this past session should put such skepticism to rest. The headlines were awash with news that the members of the oligarchy and so-called important non-OPEC producers had come to an agreement to extend their production cuts another 9 months out. That is not a small feat given who is comprises this group. Yet, the remarkable political accomplishment aside, US-based WTI crude nevertheless dropped 5.1% to $48.72. These are not economic textbook supply-and-demand market conditions. Complacency forms ranges from shares to FX to commodities.


Despite the strong swell in US shares before us, the SPI futures suggest we are on pace for only a four point boost to start Friday’s session. Traders are looking for a strong enough push to clear this week’s approximate 60-point range. The 5,800 area is progressive resistance for promoting a bear trend. However, as long 5,750 and the triple-bottom 5,676 going back to early February hold, the bulls will not relent.

Aussie Dollar

AUD/USD suffered its biggest daily drop in 3 weeks last night to saddle bulls with serious doubt over the measured climb higher they’ve had to fight for. The 0.7450 level stands a confluence of Fibonacci retracement levels: the mid-point of 2017’s range and the 38.2% measure of the past two year’s range. Stripping out the influence of the Greenback, we find that the Aussie was the past session’s worst performer against the ‘majors’. With little on the local docket and the speculative outlook mixed (undermining a clear carry trade view), expect tension from the FX market through the end of the week.  

Market Watch

SPI futures up 76 points or 5% to 5800

AUD +4.4% to 74.59 US cents (Overnight range: 74.51 to 75.16)

On Wall St, Dow +0.34%, S&P 500 +0.48%, Nasdaq +0.76%

In New York, BHP -0.25%, Rio -0.08%

In Europe, Stoxx 50 -0.06%, FTSE +0.04%, CAC -0.08%, DAX -0.17%

Spot gold -0.23% to $US1255.86 an ounce

Brent crude -5.10% to $US51.20 a barrel

Iron ore +0.2% to $US61.00 a tonne

Dalian iron ore -6.0% to 451 yuan

LME aluminium +1.09% to $US1945 a tonne

LME copper +1.28% to $US5682 a tonne

10-year bond yield: US 2.255%, Germany 0.363%, Australia 2.44%


By John Kicklighter, Chief Strategist, IG Chicago 

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