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Trade Desk Thoughts:
November Risk Tolerance- Where To Now?
In its natural stance, the financial market has three major attitudes towards risk, which models its behavior and actions throughout each of the global trading session. The three are; risk aversion, risk tolerance and risk-neutral.
Risk-aversion is characterized by investors selling assets considered risky, and swapping them for the safety of the bond market, mainly U.S. Treasuries. Risk-aversion can be seen relatively easy; commodities decline as investors consider that consumption will slow, while the S&P futures also head lower. In the currency market, risk-aversion strengthens the dollar, as investor sell foreign denominated assets to buy U.S. Treasuries. In this period, higher yielding currencies are the one being sold the most.
The risk-tolerance phase is seen when Treasuries are sold as investors are looking for higher yields. In periods of relative calm and positive macroeconomic reports, traders abandon the safety of the bond market and invest their capital in stocks, commodities and foreign currencies, thus in this period the dollar is sold. Usually, bull markets are characterized by risk-tolerance phases and in this period S&P futures head higher, together with the euro and the rest of the pack.
Trade Plan of the Day: TheLFB Trade Plan is Eur/Usd, one of the six that are available to members on the major pairs each day, plus four Jpy based cross pairs, plus S&P futures, oil, gold, and the dollar index.
In most cases, risk-neutrality happens when the financial market moves side-ways, unable to push anywhere decisively. This period is characterized by a redistribution period, as investors shift their assets between the various financial instruments to prepare for the next leg (risk aversion or tolerance). The main difference being that the shifts are not only session-by-session, they literally happen hour-by-hour. Sentiment is seen to change from one to the other, empowered by the relentless flow of automated trades that trigger as a contingency play, as each individual market accepts risk neutrality.
The sideways moving market tends to be the more volatile as the channels are traded, and fair value sought at each regional market open. October has been a risk tolerant month; the equity markets were able to attract enough speculative interest to make a stance on risk. Now that the Mutual Fund year-end has wrapped up, the currency markets may give back some gains against the dollar as fair value on November risk is fought over, and as 1030 on the S&P becomes pivotal. A 4 hour close either side of this area may set the tone for near-term direction.
TheLFB Charting: Gold Elliott Wave view
4 Hour chart trend: Mixed. Main price points: 1015-1020, and 1070. Looking for: Wave 4)
Gold has made a turning point over the past few sessions, around the 1025 level, where wave C of wave 4) may already be completed. Traders however, need to be very patient since prices are still trapped in a corrective channel.
Any break of the upper parallel line will suggests that wave 5) is here.
TheLFB Charting: S&P Futures Elliott Wave view
4 Hour chart trend: Mixed. Main price points: 1036.50, and 1069. Looking for: 1069 to hold
S&P futures are trading higher after good GDP numbers from the U.S. Technically the market may still be going lower so long as prices stay below the 1069 resistance area and black wave I) low.
If the wave count is correct then prices could fall down into the wave v) over the coming sessions.
Any move through the 1069 zone will invalidate the wave count.
TheLFB Charting: Eur/Usd Elliott Wave view
4 Hour chart trend: Mixed. Main price points: 1.4682, and 1.5062. Looking for: Wave II
Eur/Usd found the support in wave I, as covered yesterday, when the U.S. GDP report numbers pushed the dollar lower across the board. As such, Eur/Usd is trading higher, probably in a corrective wave II. The most common structure of the corrective waves is a zig-zag pattern, so the market may come out with another push into 61.8% retracement of wave I distance, before wave II may be done.
Wave count valid below 1.5062 top.