The Final Holdout

  • Stock market reversal to trigger interesting moves
  • Yen still correlating with risk off flow
  • GOLD dips viewed as attractive but opportunity

LOOKING AHEAD - There are going to be some interesting moves in the days ahead and with those moves will come great opportunity. So here's how I see it all playing out. Now that the market is starting to buy more into the Fed's hawkish leanings and the prospect for additional rate hikes this year, this is triggering a risk off reaction that has yet to really get going. But I believe it will and with that will come a sharp drop in the SPX500. 

FINAL HOLDOUT - The US stock market is really that last holdout market that hasn't corrected since the onset of the financial markets crisis. Since 2009, this market has been moving higher and higher, trading to record highs in 2015 and consolidating just below over the past several weeks. But this Fed policy shift is what will undermine the stock market rally and bring it back down to earth. As this is happening, here are some markets that will be affected and here's how to play them. 

THE FACT - As much as I've talked about the fact that the Yen isn't a safe haven currency and doesn't really have any business benefitting from flight to safety flow, the fact remains that it still does benefit from such flow. And so, if we see a sharp drop in US equities in the days ahead, it is almost sure to weigh on USDJPY, with this opening the door for a retest and potential break below the recent multi-month low at 105.55. 

THE REALITY - But ultimately, the Yen strength will be unwanted and not reflective of Japanese fundamentals, which should invite BOJ action and renewed Yen selling into a sharp pullback in risk. So while I do believe the Yen has room to appreciate in the sessions ahead (i.e. USDJPY lower), I also like the idea of taking shots and buying USDJPY dips into extreme intraday pullbacks that are violently oversold. 

US equities are the last holdout market that haven't corrected since the onset of the financial markets crisis. Via @joelkruger

YELLOW METAL - The other market to keep an eye on is GOLD. There has been a clear bullish structural shift in the GOLD market in 2016 and although we have seen the market come back under pressure in recent days, while it holds above $1200, the outlook remains highly constructive. This is a market that should benefit a great deal from exhausted central bank policy and a shaky risk environment, with even USD demand unlikely to weigh materially. And so, I will be on the lookout to pick some GOLD up into a dip towards $1200 in the sessions ahead. 

EXPOSURE - As far as my current exposure goes, I am hoping a long AUDNZD position that is trading around cost. I love the idea of this market basing out over the coming sessions and I will be looking for the formation of a major inverse head & shoulders bottom on the monthly chart. I suspect any additional declines should be very well supported ahead of 1.0500 and wouldn't at all be surprised to see a push back towards the neckline at 1.1500 into the fourth quarter of this year. 

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