A few weeks into the new year we can already assume that Q1 2014 isn't going to be a walk in the park, particularly for alternative strategies. And as a whole, the first part of 2014 could be no different with nasty reversals in store for traders. After a quiet start of the year in equities which may have lulled some into thinking stocks were going to grind higher after looking for direction (despite obvious signs of over-optimism in late december), the floor suddenly fell off for equities. Another emerging market panic, another "taper" anxiety. High yield bonds and yen pairs dropped sharply along with stocks while the Argentine peso and the Turkish lira collapsed spectacularly. Financial media have focused on stockmarkets in China and Brazil but last week the technical damage was in developed markets. In currencies, the majors have also been looking for directions and traders may have found themselves whipsawed more than usual by short term reversals.
I expect to see in the first part of 2014 sharp/large and unpredictable moves notably in EUR/USD and GBP/USD and would tread cautiously when it comes to these two currency pairs.
I expect to see in the first part of 2014 sharp/large and unpredictable moves notably in EUR/USD and GBP/USD and would tread cautiously when it comes to these two currency pairs.
A Conviction Year
Markets have a tendency to repeat recent patterns therefore market participants, especially those favoring short term positioning, should exercise caution in the following weeks. With the poor start of the year in equities -january is going to be a down month which isn't a good sign historically - and the likely return of serious downside volatility, investors are faced with a stark choice : stay fully invested with a strong conviction that 2014 will end up to be another good year or manage risk with alternative strategies and/or by timing to a certain extent this market. Unless we see large moves at some point in the year, hedge funds as a whole and trading strategies in particular, could have another disappointing year. As for timing this market it could prove to be a futile and counter-productive exercise in light of the current rather unpredictable gyrations.
Chart by Netdania
Chart by Netdania
Both Dow and S&P threaten to break last month's low which would be very bearish. Tomorrow's FOMC meeting could completely alter the picture however. Expect some soothing words from good ol' Bubble Ben
Chart by Netdania
Notice the RSI divergence and potential double tops in those European indices, the current correction could be deeper than some expect
Notice the RSI divergence and potential double tops in those European indices, the current correction could be deeper than some expect
Both Dow and S&P threaten to break last month's low which would be very bearish. Tomorrow's FOMC meeting could completely alter the picture however. Expect some soothing words from good ol' Bubble Ben
