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Thursday May 21, 2009 - 12:19:18 GMT
Black Swan Capital - www.blackswantrading.com

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Trading the News, Killing the Fundamentals

Key News
• U.K. Might Lose AAA Rating at S&P as Finances Worsen; Pound, Stocks Tumble  (Bloomberg)
• World Economies Plummet  Steep declines in the economies of Mexico, Japan and Germany, three of the U.S.'s biggest trading partners, underscored the severity of the global recession and put pressure on industrialized nations to revive trade talks. (WSJ)

Key Reports Due (WSJ):
8:30 a.m. Initial Jobless Claims For May 16 Week: Expected: -12K. Previous: +32K.
10:00 a.m. May Philadelphia Fed Business Index: Expected: -18. Previous: -24.4.
10:00 a.m. Apr Conference Board Leading Indicators: Expected: +1.0%. Previous: -0.3%.
10:00 a.m. DJ-BTMU Business Barometer For May 9: Previous: +0.1%.
10:30 a.m. May 15 EIA Natural Gas Inventories

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Quotable
“So convenient a thing it is to be a reasonable creature, since it enables one to find or make a reason for everything one has a mind to do.”

            Ben Franklin

FX Trading – Trading the News, Killing the Fundamentals

Chock it up to the instantaneous transmission of information; that’s the reason for such near-term, news-driven price action. It doesn’t matter who you are, if you want up-to-the-second news and prices, chances are you’re going to be able to find it somewhere very easily.

Trading is easy!

Sure it is.

When the FOMC announced its minutes yesterday they spooked the market. Why? Because they downgraded their growth forecasts ... among a lot of other typical Fed mumbo-jumbo that goes into those meeting records. And for a second day in a row, the stock market reversed steady gains and finished in negative territory.

 (Chart unavailable in text format.)

I won’t beat on this drum too much today, but that would make one think that sentiment is nowhere near as strong as it was a little over two weeks ago. Tired? Quite possibly!

What’s interesting in thinking about the market’s reaction to the Fed is that they told us nothing that should have come as a surprise; at least we didn’t think it should come as a surprise. Perhaps it did, though.

Or perhaps this simply underscores the ongoing, albeit veiled, uncertainty of market players who find themselves attached to what world leaders and government officials say ... all the while ignoring what the data keeps on saying.

Do fundamentals matter? Yes, absolutely. You’re just probably going to be frustrated if you try relying on them too much in the short-term. Event-driven trading dominates in this time frame.

What remains to be seen is if current fundamentals come back into play (i.e. if market action behaves opposite what we’ve been experiencing lately) before prices start influencing fundamentals in a self-fulfilling prophecy type of way. The former is what our analysis tells us should happen assuming the numbers begin to mean something again ... and soon.

Shoulda, coulda, woulda ... I know.

Anyway, let me get to something here that might bring both the news and fundamentals together this morning.

Leading Economic Indicators

Three years ago, plus or minus, I remember everyone all geared up about the release of the Leading Economic Indicators report. For one, it was thought to be a relatively accurate predictor of future economic conditions. For two, the Fed often said they closely monitored this measure (enough said!)

As far as this data point is concerned, January got the year started off with a positive number. But February and March rained on that parade. The April numbers to be reported later this morning are expected to show a nice turn back into positive territory.

What could be the deciding factor is the differential between improved market sentiment and dismal employment numbers as they’re applied to this indicator. The market was on a tear through April, but jobs have not shown the same improvement.

The S&P 500 looks tired; it’s probably going to take something bright and shiny -- whether it is Leading Indicators or something else -- to revive risk-taking spirit. More than likely the Jobless claims, also out this morning, won’t be that bright spot.

The global economic headlines seem a bit less optimistic than they had been sounding. They’re almost sounding pessimistic at times; imagine that. We just wait to see if that will bring the true economic picture into focus; or if fundamentals really don’t matter right now.

And did I mention Treasury Secretary Geithner speaks today? If you like trading the news, sell the dollar when Timothy starts rambling.

[Note: the above comment does not constitute personalized investment advice, and you should consult your financial advisor to find out if selling the US dollar just because the Treasury Secretary opens his mouth in front of a microphone is right for you.]

Regards,

John Ross Crooks, III
Black Swan Capital LLC
www.blackswantrading.com

 

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