Marc Walton on August 28, 2013
Now, I am not a fundamental trader. I don’t base trading decisions off of news or anything else fundamental. I don’t take my trend decisions from macroeconomic information. BUT…….I DO pay attention to geopolitical events that can cause HUGE, VIOLENT spikes in the market. Much of the time, these “black swan” events are completely unpredictable and sometimes you get a little notice in advance. I am writing to you today to discuss the latter. And today’s topic is Syria.
BE VERY, VERY, VERY CAREFUL TRADING THE NEXT FEW DAYS!!!!
I CANNOT STRESS THIS ENOUGH!!
There have been armed conflicts going on for a while Omar…..come on! What makes this different?? Chemical weapons. You see the market can price in certain events like war and oil disruptions based on civil wars inside various nations, but we cannot predict really crazy occurrences like Tsunamis, or when crazy dictators cross a major line. When the tsunami hit, I was watching the market and saw the Usd/Jpy swoon 500 pips in a matter of minutes. This of course was followed only minutes later by the G8 governments’ response which pumped in BILLIONS upon BILLIONS of Yen into the market causing that 500 pip fall to reverse course more than 300 pips just minutes later. Bad day to trade the Jpy for a lot of people. Especially for those who tried to catch the move after it happened!! These events we do not want to be anywhere near the market when they happen, but due to their unpredictable nature, we cannot avoid some of them. In some cases, we can steer clear of the situation, like when the Swiss bank announced it was probably going to set a price ceiling for the Chf a few days before it did rocketing the Eur/Chf and Usd/Chf in a huge way.
Today, we are on the verge of the potential very unpredictable situation in Syria. Chemical weapons have been used and a coalition of the US, Britain, France and other countries are almost certainly going to respond with force. That in itself would not have me writing this article. Yeah, I know it’s an escalation of armed conflict, but the markets would probably deal with it pretty well. What markets cannot deal with, is the reaction from the leader of Syria if he is forced to play an extreme hand and say counter the attack by launching a strike against Israel, which could start a chain of events that pull in Iran and set off an already volatile powder keg which is the Middle East. I’m much more worried about the response from Syria than I am about a coalition disabling their military to some degree.
How have the markets given us clues something is coming??? Remember, the biggest and smartest money moves first, and they tend to be the most risk averse because they have the most to lose…..literally.
1) Look at gold: Price of gold has
dramatically risen over the last few weeks. Notice what gold price has
done since the chemical attack. It has accelerated in movement upwards.
Normally this would correlate with an up move in the Aud/Usd, BUT
that’s the opposite as to what’s happened. The Aud/Usd has swooned
while gold has risen steadily. With this normal correlation completely
broken, it leads me to believe that the rise in gold is much more of a
“safe haven” move while people dump risk assets like the Aussie.
2) Stock market is starting to get
“nervous”. We saw a -170 point move on the Dow in the last session and
that could be just a taste of what’s coming if things get crazy.
3) Yen has gotten stronger across the board. Another “safe haven” when times get tough.
So, it’s my recommendation that everyone simply STOP trading for the
rest of the week and next week as well. We have Labor Day US holiday on
Monday, which is the official end of the summer trading season in my
opinion. Also next week, we have NFP. Throw in the situation in the
Middle East and my risk aversion starts to kick in. We have had a
REALLY solid few weeks on many pairs and now might be the time to take a
step back from trading and just enjoy something else.FOR YOU DAREDEVILS, I have still included a mid-week update with the areas we would like to see traded on all the pairs. Keep in mind, I DON’T RECOMMEND TRADING AT THE MOMENT. But if you want to take a crack…check out the video!!
I would like to say a HUGE THANK YOU to everyone who has made this month of me doing the blog a simply delightful experience. I appreciate all the comments and support and it is sooooo worth it to do this for such a wonderful group of traders. You guys are the BEST!! I wish everyone the most profitable trading and I look forward to doing this again soon!! Take care!!