FADING THE HOLIDAY – More often than not, over the course of my career, I have found that fading moves post lightened holiday trade is usually an effective strategy. Since trade lightened out at the end of last week, the SPX has rallied to another record high, while currencies have found some support against the US Dollar. So the play here would be to look for opportunities to be long the US Dollar (Yen exception) and short US equities. It is entirely possible that we see a bit more of this bullish equity, bearish US Dollar price action on Tuesday, but I don’t expect it to last much longer. I have been selling rallies to fresh highs in the SPX all year and have continued to employ this strategy. I don’t believe there is anything going on out there that would support a strong technical or fundamental case for this latest jump in US equities, and I am again warning of a major reversal in the days ahead.
FALLING BACK IN LINE - Key risk correlated currencies have however been a little frustrating, with the Yen and Franc both coming under some recent pressure. If we are going to see the desired pullback in risk correlated assets from current levels, it will likely require some renewed weakness in markets like USD/JPY and EUR/CHF. I am also very focused on the formation of a major top in the New Zealand Dollar. I have been short NZD/USD for some time, and hold a marginally in the money position at the moment. Keep an eye on 0.8515 here. Should we see a break and close below this level, it will likely open the door for a major bearish reversal exposing deeper setbacks towards 0.8200 over the coming weeks. At the moment, it feels like we are so close and yet so far away from breaking this level. But if you are short like I am, you should be anxiously awaiting that 0.8515 break.