In the clip below recorded Mid-December, where I recorded my views for what awaits us for 2016.
For those that missed this it is available again below, and is just 6:53 long.
Jenny: A new year, a new start, and new trends for the financial markets. With me to discuss what to what is Francis Hunt, The Market Sniper. Francis, the major talking points for the year ahead, probably start with low oil prices and of course interest rate rises we have recently seen. The FED raised rates by 0.25% but we’re still wondering whether the Bank of England and the European Central Bank will follow suit. How should traders approach this uncertainty in markets?
Francis: It’s very interesting moments at the moment, I tend to be, both as a trader and investor, to focus on what has been the key trends that have come into the cusp of a new year. It’s always the better policy on balance or probabilities to go with the existing flow, in other words, calling the bottom or calling the top in certain things invariably is a very painful game. In terms of oil, which you referenced, a number of times when it looked like we were getting a bit of a bid under oil, a number of people were tempted to come in and say, “Well I’m a buyer now, it’s got to bottom out it can’t get lower than this.” Whenever people are start saying, ‘it can’t’ and there’s that sort of imperativeness about something. They’re usually too emotionally invested in that idea or trade. You’ll be shocked at what can.
Keep staying short the commodities, is one of the carry over points that I’m taking into the new year. Also, emerging markets. This one is a big one for me. In terms of just forward projecting the current trends. A number of crises in a number of the key markets, so that would be South Africa, Mexico, the ZAR, MXN, that’s the peso. Potentially the Turkish lira, Brazilian real, Indian rupee. These kind of areas. Why? Because we’ve just had a dollar based increase interest rate, so, that cost or that capitol is going to cost a little bit more. Yes it’s very slight and it’s not going to go very far very fast in my view. But it’s a step in the wrong direction for people that are sitting with a lot of dollar based debt.
Then you add the crisis in commodities. A the interest rate hikes and they’re getting squeezed on both fronts and eventually things start to creak.
Part 1 ‘keep On Keeping on’ an example on Brent Crude Oil market.
My opening Statement is always to ‘Keep on Keeping on with existing Trends’
I stated that despite Oil being near new lows, lower Lows would be made.
Here was Oil [All charts Brent]at the time, $39.55 on December 11th 2015
In fact our involvement in oil goes back nearly 2 years on this theme. You can see that ‘Keep on Keeping on’ [Lesson 1] served us well with oil, from this point here below, when first we identified the possibility of a downside break at $105’s, this was April 2014 yes, you heard right well before, most were even considering Brent & energy complex a possible downside break.
This highlights another Key HVF Trading principle, ‘Be early’ and to do that, you actually have to be watching before anything has happened in fact when it appears its most ‘boring’ [aka Low volatility]. See Below
$103 dollars was ‘it’, the Key Level of Significance [KLoS] in confirmation, of what was to become the defining Asset revaluation of the next likely 3 years, and countless Oil major & Service company market capitalisation decimations
Here is that key moment in history on the 14th August 2014, the ‘Triggering event’, not that 99.9999% of traders recognised it as such then, or even now. Brent was $102.41 at time of this image it had just run our RL3 at $102.98. Lesson 3 = ‘Know what you looking for’.
I am afraid you have to be an ‘eyes’ on front Hunt Volatility Funnel Trader, to pull this one off.
Here is ‘keep on keeping on’ on a shorter Timeframe basis, plenty to tempt bottom pickers in here.
But to the trained eye of a HVF Theory practioner, this was the perfect enactment of Lesson 4 = Key Levels of Significance [KLoS @ $103] are nearly always just run, and often revisited, look at the rising wedge revisit to the Key RL3 level & KLoS at $103
On Balance Volume analysis had provided additional confirmation, in a distribution and divergence of meaning for our ‘bear’ view from early, Lesson 5 – HVF Traders see Volume & OBV as empirical and primary independent data, and a different category to mathematically induced ‘indicators’ such as RSI/MACD, which we forego entirely as providing false confidence, and distraction from price behaviour and pattern analysis.
See how the OBV leaked from its rising wedge pattern, revisited then peeled away to the downside well in advance of the price, note the orange square highlights.
What made *Oil unique, is that new macro set ups near high extremes, if they form the first Inverted Hunt Volatility Funnel set up [Inv HVF], they will overperform their geometric targets.
Here oil runs the $69 mark and geometric target, we manage these situations with overperformance bands,[ a subject beyond this post but handled else where on our private VPN].
We were tempted, after this set up below, to suggest there was a chance of a possible turn despite being counter trend, after all we had 3 impulsive spikes, we were soon wrong, recanted and went back to our proven rules.
In the chart below you can see where this occurred, however by the circled area we were already stating it will never be the lows here, with those selling wicks, and the Trend after a short moment of madness, was our friend again, as we called and traded for fresh lows.
The set ups kept coming..
This is how we saw the last push down above on a H4 timeframe from the first chart again.
A little later..
And so on… later at $32.44
So this is a short synopsis of our Rule Number 1 of ‘Keep on Keeping on’ in action in oil starting pre break in April 2014 and still being the dominant theme as we role into Q1 2016. But for 1 moment of ‘thinking too much’, we have been a bear and short trader of the trend.
Lesson 6: watch out for ‘imperative or absolutist’ language from market commentators, or even within ones self. An example:
Talking head: ‘It is impossible for Oil to go lower, I will bet my last dollar it is only up from here, it is a one way bet!’
These are made by people, who clearly have not understood, how the underlying market attained even its current levels, they are the least likely people to be accurate in explaining what it may do next. There statements leave no room at all for an alternate potential outcome, they are ‘all in’ Poker stars, its emotional, and they are already angry it got this far.
People in this state are nearly always perfect contra-indicators, but for me seeking my set up, I would trade in an opposite direction or feel comfortable to be in a position reflecting such. They are jumping un front of runaway trains, don’t try save them, they will sell you narrative and create imbalance in your own composure.
Watch your own language, they may be right some occasions, but on balance they fail, they are swathed in dogma, and in the long run they are all ‘dead’ in a trading sense as it only takes one runaway train of disbelief to crush them. Never underestimate the markets ability to shock, never count a profit till closed, use language that reflects that if discussing open positions.
Jenny: Well of course with those invested in dollar stocks it’s not a good time but, following the Fed rate rise, where are the opportunities?
Francis: There’s a lot of big investment banks that are coming out with you know there’s going to be 3 maybe 4 moves during the course of this year and I think they’re getting a little too excited. Don’t believe the underlying strength that Mamesoille Yellen is putting forward, is as robust as people think. I think we’re going to be on the ‘unders’ side. On the rates that interest rates are going up in terms of what’s being guided for the investment banks. This is going to be one of the meekest and most mild bottoming out cycles. There is even scope for backwards steps here, a bit Egg on face. Who knows. You could have a principal where there’s actually some quantitative easing going on when effectively you’ve actually had a marginal tightening of rates. Sounds perverse, it sounds like pouring water on the fire on one end and petrol the other. We are not strong globally and I’m on the sort of Bearish side macroeconomically on the global context.
Dow Mini at the time from 7th December, 4th Jan 2016, 10th & 13th .. Your slow motion crash in 4 frames
4th Jan 2016… note 17,000 KLoS & Neckline.
10th January 2016,
13th January 2016.. Target made once further downside possible..
Did this clip from World Finance, give you the news before the news?
Jenny: This all sounds a little bit negative. This isn’t a good time to be a trader then?
Francis: It’s a great time. It’s a great time [For the short side]. In fact, on the mid cap US stocks we’re getting lots of excellent set ups for selling off short. So, if you’re a trader be there. If you’re a long only, non-leveraged investor, you’ve got to think carefully in terms of where you put your money. The one thing that did well in the year that goes by … So just to balance out, I suppose my bearishness is what’s known as the FANG category. Facebook, Amazon, Netflix, Google etcetera. In fact, I feel I’ve done almost too well. Will they be able to carry that momentum? I think for a while potentially, but FANG, they can’t be successful in a void. If the retail buyers go to ground, and everybody else is feeling too far gone pinched, we’ll start to see a little bit of withering on the vine on that trend too.
Part 2 I reference Emerging markets with particular reference to Forex
We have called our second Ruble Crisis for this year, the first pre_Ukraine when 32Ruble to the dollar [currently 77 expecting 100], a Rand crisis begining from 2 years back when USDZAR was 10.5, countless Turkish Lira melt ups $USDTRY over the last 4 years landing 5 HVF set up in a row a number being double digit RRR’s in short too many to detail here. It also will not stop until wholesale Emerging market crisis’s have occurred, with debt restructuring likely involving the IMF or BRIC bank equivalent.
Jenny: Well there are multiple trends that point to a volatile forex market in 2016. But, the worlds economic lenders have also suggested that the world may well face a recession next year. Do you think this will really push forward short time trading?
Francis: Time frame on trading is an interesting discussion. People need movement and that’s volatility. I don’t think it necessarily has to effect or tie directly into time frame, but what it does mean is if you’re an investor and you intend to be on a larger view, you could have very abrupt moves against you. But, in terms of stop losses and their placement in a highly volatile environment, you’ve got to be very selective where you enter a marketing, for how long you’re in the market. Because if you have an open trade, by virtue of the volatility, you can be shaken out.
Jenny: Back to emerging markets, how do they fit into this?
Francis: The big thing for me is the forex on the emerging markets. I think that will effect almost everything because I think that debt that typically the share for a country is its currency in a very layman’s kind of view. The nature of the debt costing more, the squeeze on the commodities particularly. We are actually predicting another Ruble crisis actually. We caught the first one prior to the Ukraine hostilities, we didn’t know what the triggering event. That was in the charts. We’re seeing that coming up again. I think there is also potential for geopolitics reheating up which is going to be very … For specific emerging markets it’s obviously very specifically oil, and energies, and Russia per say. I think the others will be getting knocked generally. Just for lack of demand and squeeze.
USDZAR Later melt up, USDPLN after this interview was downgraded by S&P to BBB+, Ruble has slipped from 66 to 78 heading for 100
USDPLN as of a month later..
USDZAR a month after the interview.
One of the things I look at is Copper for the China recovery. It’s looking in terrible shape. Each time we’re seeing a ‘grind’ line and it’s spilling. There’s no bottom there and that’s the big construction it’s one of the big industrial metals for the construction model. That was leaking long prior to the news coming out of China. So, there’s a lot of leading indicators I would advise people to watch. Japanese yen, little bit of a fear currency when it gets really scary. So the yen gets a bid and could go up.
High Grade Copper.. at the time of the interview
A little Later..as 200 is run
The Yen – USDJPY
Jenny: We touched on political volatilities so how do you see this impacting markets?
Francis: There is a lot obviously going on in the middle east and it’s not entirely clear who’s on who’s side. I think there’s a financial warfare within that, on the geopolitics and that overly reasserting dollar strength is the pain leaver as I mentioned on certain markets and that is giving them a bit of the frighteners and the squeeze. Finally, China. We’re worth mentioning on China as well. They made it into the SDR which is quite noteworthy. They were probably on their best behavior as much as they needed to be and they did devalue once. I’m actually calling for further devaluations on the Chinese Yuan, and that’s going to give a bouncy old time. That might keep their share market up to keep the domestic investor happy, but it’s going to be a currency effect in that that’s actually seeing a little bit of the steam and the bubble being released with the Yuan being taken down.
End of the transcription.
[*And the correlated energy group, which on Intramarket analysis, from heating Oil, WTI all were in a similar set up]