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08-17-2007, 11:02 AM #331
I agree as well, and I think what we might start to see play out is a return to focus on fundamentals in coming weeks (at least by the equity markets)...once unemployment rates start to pick up, EVERYONE will take notice.
08-17-2007, 11:10 AM #332
I know you guys don't focus on equities but in your research, what do you think might be a realisitc low for the Dow? This would probably give the USD an even greater beating, I am assuming, since all of the international investors will be withdrawing funds out of their US brokerage accounts.
08-17-2007, 11:32 AM #333
As far as a low for the Dow, I won't even venture to guess as this mess looks particularly ugly to me. However, I've attached a daily chart below (thanks you kindly, Bloomberg), and 12,000 doesn't look out of reach. This could actually be beneficial for the USD, as major declines in US equities tend to seep into global markets. Risk aversion doesn't discriminate, and traders everywhere are going to be looking for a "safe" place to invest (like US Treasuries). As a result, USD would get a boost from that flow of foreign capital into US assets.
08-17-2007, 11:36 AM #334
That makes a lot of sense. Thanks a lot for the explanation Terri.
08-17-2007, 11:41 AM #335
"n 1968, George Lindsay, a master technical analyst, published an article in which he outlined a repetitive chart pattern that he had specifically found at the end of long sustained bull markets. He called his pattern "Three Peaks and a Domed House," and used it to predict a peak in the DJIA for October 31, 1968 or a little later. In point of fact, the Dow actually peaked at 994.7 in late 1968, before beginning a somewhat merciless bear market shortly thereafter that would be the most severe since World War II.
The topping formation that Lindsay claims to have discovered ... idealized advance to a significant high."
Has this happened with USDJPY? If it has then deeper declines are perhaps in the wind.
08-17-2007, 11:50 AM #336
wow Black.day, that's a really interesting article. I've only had a chance to skim over it, but I can't wait to read it more thoroughly. How did you come across this?
08-17-2007, 11:59 AM #337
Japanese Stock Market
First time posting
I was hoping to get some feedback from the experts here on this Market Watch article today.
Tokyo suffers worst one-day fall in seven years
Particularly this comment by Deutsch Bank to it's clients.
'In a note to its clients, Deutsche Bank said that the performance in Japan was "dire" because Japanese equities already lagged other regional indexes during 2007 and in view of the late recovery in U.S. stocks overnight.
"As the (yen) carry unwind sees the dollar-yen approach the key 110 level, swap desks are being forced to sell dollar-yen into a falling market to hedge existing structures, which could only mean further yen strength to come," said Deutsche Bank. '
Bank propaganda or something to pay attention to?
08-17-2007, 12:20 PM #338
During 2000 and 2001 I traded mostly stocks on level 2 and sometimes the odd index bet and at that time, the DJIA. As index heaved back towards 7000, I came across the Barclay T. Leib article whilst searching the Internet for anthing that would support my estimate that the DJIA would hit 20K. After reading the article, I thought I could see the beginnings of George Lindsay's 3 Peaks, Domed House pattern so I bookmarked it ... in the unlikely hope that by doing so I'd somehow contained the evil genie thus preventing others from seeing it so that it didn't become a self fulfilling prophecy and blow my position away.
08-17-2007, 12:33 PM #339
rambo60 asked me for a quick guide on what Risk Reversals meant for spot prices. I wrote this yesterday but it's since been lost in the flurry of new posts:
Here's a somewhat useful guide from Investopedia on forex options: http://www.investopedia.com/articles.../04/101304.asp
A quick, perhaps oversimplified, synopsis:
The value of an option depends on several factors, but primarily:
Strike price and intrinsic value - The strike price is the price at which the buyer and seller of the option agree to exercise that option (if it is ever excercised). The intrinsic value is how much the strike price is above or below current market price for that currency.
An option with positive intrinsic value is called In the Money
An option with zero intrinsic value is called At the Money (ATM)
An option with negative intrinsic value is called Out of the Money (OTM)
Length of duration and Time Value of that option - How far away is expiration for that option? The longer dated the option, the more time value built into the option price. Intuitively this makes sense, as market price is given more time to go Into the Money.
Volatility - How volatile is the currency expected to be? The higher the expectations, which is reflected in Implied Volatility, the more the option will cost. More volatile currencies will give the option more of an opportunity to go into the money.
Now, if you suspect that it's a bit more complicated than this, it definitely is. But for our purposes know that higher Implied Volatility means that options will cost more. Higher Implied Volatility means that markets expect the currency to move a lot, which is especially detrimental to low-volatility strategies. The one currently making the most headlines is the now-infamous Carry Trade, which remains the most profitable in low volatility environments.
Risk Reversals (RR's) are directly tied to volatility. As you might expect, higher demand for options will drive up Implied Volatility. Risk Reversal measures the difference in prices paid for Out of the Money Calls and Puts.
In other words, we look at OTM Calls and Puts because it lets us know how many people expect price to move a given amount in a certain direction.
Example: EURUSD is currently at 1.3400. If there is overwhelming sentiment that the Euro will appreciate against the dollar, an OTM Call at 1.3500 will likely be worth more than an OTM Put at 1.3300.
The Risk Reversal is thus the difference in Implied Volatility paid for similarly OTM Calls and Puts.
This makes the RR a worthwhile tool to measure option traders' sentiment on the future direction of a given currency pair.
Last edited by David Rodriguez; 08-17-2007 at 12:53 PM.
08-17-2007, 12:47 PM #340
08-17-2007, 12:53 PM #341
Link fixed, thanks for the heads up.
Originally Posted by Black.day
08-17-2007, 02:00 PM #342
Not a whiff of the "I" word yet. I seem to remember that during 2004 when the JPY traded close to parity with the USD the BoJ seemed to be on the rampage, snapping up googolplex of USD's. Perhaps they are saving that for 108.65!
08-17-2007, 02:34 PM #343
US Session Update
USDJPY bidding is having a difficult time cracking the 114.68 38.2% fib from the recent 119.82-111.57 bear move. Should the pair take out current resistance, it would open up scope for targets at the 115.50 psychological resistance level. However, given the trading pattern into the level, we would not be surprised on an initial pullback to 113.50 round figure support before a move higher.
08-17-2007, 02:38 PM #344
Could be a reality. Remember back in 2004-05 everyone and their mother were shorting the USDJPY regardless of whether or not they knew what was going on. Seems like it's the same....everything based on speculation, granted this time it's more panic selling out of "carry trades"...but still massive speculation nonetheless.
Originally Posted by Black.day
08-17-2007, 02:43 PM #345
Speak of the devil, the carry trade has now unwound the second-most since the inception of the euro.
Originally Posted by Richard Lee