When Correlations Break

Yesterday evening 9:30 pm was a highly anticipated event - US CPI report!

OK, those of you bottom-up stock picking and Singapore stocks only pandas and koala bears would yawn...

Ya, spending 5 minutes on economics is 5 mintues wasted you would parrot.

But to us macro top-down, interest rate, precious metals, forex and stock index traders, its like watching the World Cup for soccer.



Last night did not disappoint.

Come to think of it, the price action was like Trump's surprise election win!

Quick! Data out!

Inflation was higher than expected.

It reinforces the higher average hourly earnings from 02 Feb's US Non-Fram payroll catalyst that started this recent equity correction - fear of faster inflation and higher Fed interest rates.

But Retail Sales disappoint.

What trades should I put on?



Short Simsci!

That was what I can think of spontaneously.

Quick look at the market price action.

Yup. 

Interest rates spike up. Dollar strenghten against G7 currencies. Gold drops. S&P, Dow, and Nasdaq futures all nose-dived. (I use inter-market analysis)

Quickly enter limit order to sell the Simsci.

Idiot!

Not filled!?

Missed by 4 ticks!!!  (That's how fast market moved between when I pressed "send orders" to when the order appeared in the queue. Retail platform mah...)

Should have used Market Order instead! I was cursing myself now.

(Side note: I just letting out frustrations only. I would "never" use Market Orders in a fast moving market- too dangerous. Don't try this at home!)

As I was fumbling to  re-enter another Limit Sell order at a much lower selling price, I looked with dismay to see the market run away from me.

Give up. The train has left without me. 

Better to wait for a retracement to enter at better selling prices.

Funny thing though. When the retracement came, I've changed my mind. I've decided to short USD instead.

I am now betting the retracement will turn into a reversal.

Decided to use Forex instead of Simsci to express my thesis.

That's what makes Trading so intellectually stimulating!

Provided you get it right. You should see me when I get it wrong...

US 10 year Treasuries now around 2.93%.

Wasn't the fear of it breaking 2.68% that caused the recent US equities correction?

How? US markets last night, and Asian markets today all rallied!? 

No longer afraid of Fed rate increases? 

Shouldn't higher interest rates be good for a currency?

US dollar got creamed after the initial knee jerk reaction strength....

USD/JYP tanked and broke below 107 indicating riskoff. But Nikkei 225 today rallied with rest of Asian markets?

Its easy when correlations are positive. Then its like memorising 10 year series or rote learning of definitions and formulas - 3 times 3 = 9.

Anyone and everyone can do it! That's what we can learn from books and courses.

But when the correlations break, its times like these you'll discover you can't depend on others telling you what to do...



Hee hee.  

Got a risk-free trade on. 

Volatility is back!