Dollar Likely To Drop No Matter What Fed Does – Hewison Quoted By MarketWatch
Dollar likely to drop no matter what Fed does
Greenback to stay under pressure whether the Fed cuts a lot, a little or not at all
By Lisa Twaronite, MarketWatch
Last Update: 5:20 PM ET Oct 30, 2007
SAN FRANCISCO (MarketWatch) — As analysts ponder the U.S. Federal Reserve’s next move on interest rates, currency investors ponder the likely market reaction, and the consensus for both is that it’s a matter of degree, no direction.
Just as no one is expecting an interest rate high Wednesday, no one is betting on a sustained dollar rally this quarter, either. And just as bad economic or corporate headlines — or even record-high crude oil prices — rarely seem to derail stock market rallies these days, nothing the Fed delivers is likely to halt the greenback’s slide.
Whether the Fed cuts its benchmark a quarter percentage point, as expected, or a half-point — or even not at all — the dollar is likely to bear the near-term brunt of the market’s kneejerk reaction either way, and then move in one direction: down.
Regardless of whether or not the Fed cuts rates, “the dollar is in for a beating,” said Marilyn McDonald, marketing director at Interbank FX.
“The U.S. dollar is finally in trouble. For quite some time now, it has been onof the top five yielding currencies among the [Group of 10 industrialized] nations, which is why it has been used in the carry trade for so long,” she said.
Carry trades involve borrowing lower-yielding currencies, such as the yen, and investing it in high-yielding assets. The dollar has long benefited from such trades, but the benefits are dropping in line with U.S. interest rates.
“While this doesn’t mean it has a bright future as a funding currency — that will only happen if it drops into the 3% range — it does mean that the carry trade is in trouble,” said McDonald.
No cut?
Many economists and investors are betting that the Federal Open Market Committee will lower the target on the federal funds rate to 4.5%, down from 4.75% currently, and a few are betting on a large cut to 4.25%. Read story on Fed meeting outlook.
But Wall Street Journal Fed watcher Greg lp suggested that central bankers may not cut interest rates at all on Wednesday, contrary to market expectations lp said inflation concerns persisted, especially when the dollar’s recent weakness.
“The behavior of financial markets implies near certainty by investors of a quarter-point cut in the Fed’s key short-term interest rate,” wrote lp. “But for policy makers, the decision is between the quarter-point reduction and no cut at all.”
Since the lower rates erode the returns on dollar-denominated assets, all things being equal, the dollar should theoretically benefit if rates stayed steady. But all things are not equal, and the dollar would probably drop if the Fed stands pat.
“No cut would be a shock and be viewed as a negative for the dollar,” said Meg Browne, senior currency strategists at Brown Brothers Harriman.
“The Fed would be seen as not proactive especially given warning that [the forth quarter] was likely to slow. Expectations for a 50 basis-point cut would shift to the next meeting in December. The dollar would likely sell off and stay sold off, ” she said.
“We don’t expect the dollar’s downtrend to come to an end until sometime in [the first quarter] when the U.S. economy shows signs of stabilizing,” she added.
Shortcovering possible
Tuesday afternoon, the euro touched a fresh record high of $1.4440 against the dollar since the European unit began trading in January 1999.
The euro is now testing strong resistance between $1.4500 and $1.4545, the latter being its all-time high based on the Deutschemark’s record high before the European nations united behind a single currency, according to BNP Paribas technical analyst Andre Chaveriat.
The euro “has scope to reach $1.4500 or $1.4545 to $1.4600 with an ‘as-expected’ 25 basis point cut, and if they surprise with a 50 basis point cut, we could see $1.4700 to $1.4750, ” he said in emailed comments.
Other technical analysts, even those who believe the dollar’s downtrend is intact, did not rule out a brief dollar rally after Wednesday’s Fed announcement. If the dollar doesn’t fall as much as some investors expected, those who bet on a plunge might be forced to buy back the dollar to cover their short positions.
“We expect to see the dollar remain under pressure until the Fed announces, ” predicted said Adam Hewison, president of INO.com, a technical analysis Web site.
“I think this could be a case of buy the rumor/sell the news. In this case it would be sell the dollar then cover when the Fed announces, ” he said.
“We are close to our $1.450 euro/dollar target zone and like any good player it pays to take some chips off the table,” he said.
Lisa Twaronite reports for MarketWatch form San Francisco.
*MarketWatch is a registered trademark and belongs to the Dow Jones Companies
Trick or Treat from the FED and Chairman Bernanke
Filed under: MarketClub Techniques, Tips & Talk
The markets are waiting, we are waiting, the world is waiting to see what the FED is going to do this afternoon.
Traders that I am hearing from are mixed in their opinions. The consensus seems to be that we will see a cut of 25 basis points.
What if the Fed cuts 25 basis points and the market does nothing, what then?? The markets particularly the DOW and the S&P 500 are all acting a little tired but have not turned down and entered into a negative phase. Today could change all that.
The bright spots and strength have all been on the NASDAQ with APPLE, GOOGLE and RIM acting as the juggernauts of the economy.
It’s going to be a volatile day, so fasten your seat belts and get ready for a scary ride.
Stay safe,
Adam Hewison
Here’s your Wednesday Lesson
Traders,
If you’re not yet trading with the trend, No worries, this video lesson will help.
It’s been proven that it doesn’t matter if you’re day, swing, or position trading the key is to trade with the trend. Trend trading has been utilized for many years by professionals, intermediates, and novice traders alike who follow the trend with success. But why do they trade the trend and how do they find the trend?
The hardest part…Finding the Trend! The easiest part…Trading the Trend! Take a few minutes and look at this streaming video lesson titled, “Why to Trade the Trend and How to Find the Trend”.
Why to Trade the Trend and How to Find the Trend
China Correction? – Hewison on CNBC
China is red hot right now, but could a correction be in the near future?
Adam Hewison, of INO.com, and Zachery Karabel, of
Fred Alger Mgmt., share their insight.
Excerpt from show…
Burnett: “So Adam, this sounds very rational out of Zachery, but your saying we’re not just talking about any old correction. We’re talking about something very soon and very large…”
Hewison: “When we look at the market on a technical basis and we’ve been tracking the FTSE/Xinhua China 25 Index (FXI), which is the main index over there, for quite sometime and it charts beautifully. It actually is quite predictable. We’re looking for a high this market, we had, actually its great to be on the show today because we hit a new high over 30,000. But we’re looking for the market to possibly trade as high as 33,000 and then we’re looking for a 20% correction. I’m not going to disagree with Mr. Buffet, he’s one of the best investors around in the history of the world. And, he’s skeptical and I’m skeptical too.”
Burnett: “And your saying 20% in China means at least 10% as a result here in the U.S. Market?”
Hewison: “That’s how it’s worked in the past, we’ve seen a 20% correction In China; we’ve had three 20% corrections that we can track and each time it has meant a, uh, the last one was about a 10% correction in the U.S. So I’m guessing that’s what’s going to happen here.
Burnett: “So Adam let me ask you… I was just looking here at my screen at things that were up more than were up more than 5% today, John Deer was up, Goldman Sachs was up and then this thing FXI was the ticker which happens to be the FTSE/Xinhua China 25 Index, and that’s the way you would trade this and I guess you would go short that?”
Hewison: “I wouldn’t go short. I mean a 20% decline… I wouldn’t want to sit through a 20% decline, no one, no investor does. But I think if you’re an intermediate term trader you may want to take some chips off the table now with this FXI index, which is the best way I believe to trade the China trade.”
Burnett: “Alright so take some money off the table there.”
To Watch The Video … Click Here Or On Video Image
CNBC Is A Registered Trademark/Copyright of CNBC and Affiliates
Oil Could Face Resistance In Its March Toward $100
Oil Could Face Resistance In Its March Toward $100
By Matt Chambers
Wall Street Journal
Word Count: 432
29 Oct 2007
If oil prices have difficulty clearing the $100 milestone, psychology might be one reason why.
Expectations for tight year-end supply and other factors that have driven crude to record heights aren’t likely to diminish soon. But psychological resistance to triple-figure oil and a nagging feeling that prices have run too high, too soon could keep crude from reaching $100 a barrel before year’s end, as traders decide to lock in gains instead, analysts say.
December crude-oil futures on the New York Mercantile Exchange closed Friday at a record $91.86 a barrel, in large part because of forecasts for a huge global supply deficit in the fourth quarter, a weaker dollar that has made crude oil cheap for traders using other currencies, and an unexpected slump in the U.S. crude-oil stockpiles, reported this week. Concern about festering Middle East tensions, particularly between the U.S. and Iran, also sent prices soaring. The inflation-adjusted record remains $101.70, set in 1980.
“Buying is continuing in what is a very, very strong market,” said Peter Beutel, president of trading advisory firm Cameron Hanover in New Canaan, Conn. “The only fundamental factors I can see that can bring prices lower is warm winter weather or recession, or profit-taking.”
With prices in uncharted territory, winter not year arrived and recession not imminent, traders are looking at price levels to determine where the next pull-back in prices could be. When fresh factors affecting supply and demand are limited, traders often turn to technical charts, which use previous prices to predict turning points in trading.
Some market participants think oil prices aren’t likely to go much above $95 a barrel without some new event or change in circumstances, at least not until next year.
“I think we’re heading to $95, where we’ll likely see some profit-taking, maybe back to $90 a barrel,” says Adam Hewison, president of trading information service INO.com, in Annapolis, Md. “We’re looking for prices to trade over $100,” but not until January or February, he said.
In the six trading sessions ended Oct. 18, crude futures rose 10%, boosted by the falling dollar and plans by Turkey to authorize a military strike against Kurdish militants in northern Iraq. The magnitude and speed of that rise, and a subsequent pullback after it, is partly behind Mr. Hewison’s $95 target.
Cameron Hanover’s Mr. Beutel doesn’t see major resistance before $97.50 a barrel.
Prices had been heading lower at the beginning of last week, but they shot up after the Energy Department on Wednesday reported crude-oil inventories fell to their lowest level since January.
The Wall Street Journal is trademarked and belongs to The Wall Street Journal
Monday At 2:20 PM (EST) Adam on CNBC
Well he’s back…
Monday afternoon, Adam will be on with Erin Burnett at 2:20 PM (EST). He will be discussing the Chinese markets.
All comments will be posted.
Diversification a major key to succesful trading
Filed under: MarketClub Techniques, Tips & Talk
Last week I promised you a blog on diversification so here it is.
Did you ever have your grandmother tell you not to put all of your eggs in one basket?
Well it turns out grandma was right. Grandma, knew a great deal about the power of diversification and how it reduces risk both in business and in trading.
IN BUSINESS …
What if McDonalds only sold hamburgers, do you think they would still be competitive when the world is turning to healthier lifestyles. Now don’t get me wrong every once in a while I like to chow down on a nice juicy hamburger. But I also like to eat healthy and so do a great many other people. McDonalds moved with the times and diversified into chicken wraps, salads and a whole host of other healthier food groups. In other words they diversified.
IN TRADING …
It just doesn’t make sense to trade just one market, there’s just too much risk and too little opportunity in one market. A trader needs to stay flexible and at the same time be diversified.
Before we get into the meat and potatoes of market diversification let’s take a look and see how the dictionary defines “diversification”
1. the act or process of diversifying; state of being diversified.
2. the act or practice of manufacturing a variety of products, investing in a variety of securities, selling a variety of merchandise, etc., so that a failure in or an economic slump affecting one of them will not be disastrous.
Based on the Random House Unabridged Dictionary, © Random House, Inc. 2006.
That’s the official version of diversification. Now let’s apply that to the markets. First off, we have to accept that the market can do only three things, it can go up, it can go down and it can go sideways.
Your portfolio on the other hand, can only move two ways. It can go up, or it can go down.
We all know the direction our portfolio should go, and we want to see it go in that direction with the least amount of risk. That’s where diversification comes in.
NUMBER ONE SECRET TO DIVERSIFICATION
Here is the number one secret to market diversification, spread the risk and trade in non correlating assets.
Here’s an example of a non diversified portfolio.
Say you are bullish on Crude Oil and you buy a futures contract in crude, but what if
the rest of your portfolio was full of energy stocks?
What you have created is one basket of eggs. In this case a basket of energy eggs. Your portfolio is dependent on one sector and that is energy. This is just too risky for the average investor. No matter how many stories you hear from the various experts saying that energy is going through the roof you don’t bet the farm on one market … ever.
You need to have as many non correlating asset classes as you can follow. This short video illustrates diversification perfectly.
The other key to diversification is cash. You don’t have to be in all the markets everyday. Cash is a way of diversify … Swiss Francs, Canadian Dollars, Euros, etc etc.
Here’s an example of how a well diversified portfolio.
Stocks, bonds, futures and cash.
Out of those four asset classes, you have a multitude of choices. Stocks allow you to cover a broad spectrum of different domestic and international sectors. Bonds do the same thing, and the futures markets cover everything from raw commodities to financial instruments.
You can divide your portfolio into different percentages and allocate then to various asset classes. The more you divide into non correlated asset the less your risk will be.
Here’s what I am suggesting. I call it the Will Rogers approach. Here Will Rogers was known for his famous quips.
“I’m more concerned about the return of my money than with the return on my money”.
I guess Merrill Lynch should have remembered that when it had to write off 8.4 billion dollars and cause the firm to have it’s first loss in 93 years. Diversification would have smoothed that disaster for Merrill, what got in their way was plain old fashioned greed.
The American humorist Will Rogers (1879 – 1935) had a special way of making a point. Here’s another one of his insights about trading and investing.
“Don’t gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don’t go up, don’t buy it”. — Will Rogers
Will was right!
Only buy sectors when they are going up. When they turn down, get out and move into cash. Then look for another non correlating market sector for your portfolio that’s moving up. For sophisticated traders you can even short different asset classes which is a way to turbo charge your returns.
Learning when a market is moving higher or lower is not as difficult as you might think. Take a look at how you can tell if your favorite market is going higher or lower here.
Yes, it takes time to analyze the markets and find winners, but the time of a buy and hold strategy is gone forever.
We are living in extraordinary times, never before have we had so many people living on the planet. Never before have we had so many major countries competing for an ever shrinking supply of raw commodities. Never before have we seen times like this that present both great opportunity and great risk.
Diversify … spread your risk, don’t be a Merrill. You can do well and thrive in the future with a well balanced and diversified portfolio.
Next week: Money management.
Have a great weekend and a super profitable trading week.
Adam Hewison
Is there an answer to volatility?
Filed under: MarketClub Techniques, Tips & Talk
Dear trader,
You may not have heard about our Trade Triangle technology, but nows your opportunity to put Trade Triangles to work for you … all for free.
For a limited time only we are opening the gates and allowing non members an opportunity to enter any symbol into our Instant Trade Triangle Analysis Engine.
Here’s how it works.
Enter either a name or a symbol, and VOILA! In a matter of seconds we will shoot you an email that includes a chart of your selected market, a complete unbiased analysis in plain English of that market, and finally our Trade Triangles, that pinpoint the big trends.
The reason we are offering this now, is that we believe our Trade Triangle technology can help you in today’s volatile markets.
The answer to volatility is here
There’s nothing else like this on the web, so give it a whirl with our compliments.
See how your trading can benefit from the Trade Triangles.
Adam Hewison
Here’s your third lesson
Good Wednesday Traders,
Here’s your third lesson in “The Secrets Of
Professional Floor Traders” mini email course.
Lesson 3 – “Technical Price Objectives”
presented by Adam Hewison
================================================================
In this lesson you will learn how far a move is going to go.
You will be able to measure to a high degree of accuracy a
target zone where you can take profits. During my trading
career I have used these same measuring techniques to
forecast market moves. It still surprises me to this day as
to how accurate they are. This is a not-to-be-missed lesson
if you want to beef up your trading profits.
Because this lesson contains four charts, it has been posted
here.
If you have a couple of minutes, check out these ten trading
rules:
P.P.S. Check out MY special video on Trading with the Trend:
Black Monday Poll Results Are In
Filed under: MarketClub Techniques, Tips & Talk
The 20th Anniversary of Black Monday came and went… but not without causing a mini panic. The Dow dropped 366.94 points on October 19th, 2007, a small, yet significant 2.64%. Was it fear of a mirroring anniversary occurrence, or disappointment of corporate earnings, uneasiness of historic oil prices and revived concerns of credit quality?
53% (147 people) – YES
38% (105 people) – NO
9% (24 people) – NOT SURE
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