It’s Hard Out There For A Pimp

I could never understand how people manage to trade via ‘fundamental’ data or the news for that matter. Today’s a textbook example – let me walk you through the mental framework that currently drives the majority of Euro traders. As we all know earlier this month the Bernank tipped his toe into potentially dangerous (and shark infested) waters by announcing that the FOMC may soon entertain the notion of ‘tapering’. A few days (and several red SPX candles) later he ‘qualified’ his statement by adding that they would closely monitor unemployment and the economy and then make their final decision – yadayada – you get the idea.

You have to feel sorry for Wall Street sometime as they just don’t seem to be able to catch a break. Take the top five banks – JP Morgan, Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc. which account for $64 billion of total subsidy, an amount roughly equal to their typical annual profits. Apparently life is hard out there for a pimp, so better keep your hoes in check!

So back to ‘tapering’ – which we could call ‘tapering the papering’. I wish George Carlin was still among us as he’d have a field day with this one. Basically it’s a fancy way of saying that the FOMC will start cutting down on dishing out free POMO money to their closest primary bankster cronies. Of course like any drug addict the market reacted rather poorly to the idea of having to kick back on Bennie’s juice and that in turn temporarily pushed the Dollar up and the Euro down.

Why you ask? Because the EUR/USD can be correlated very nicely to the ratio between Fed/ECB balance sheet expansion – I’m not going to bore you with the charts, it’s all out there, Google is your friend. But let me dumb it down for you: If the Fed out-prints the ECB then the EUR pushes up up up – but if Draghi for some reason pushes the QE pedal the Dollar jumps higher and the Euro falls on its face. That’s simple fractional reserve banking 101 – 21st century edition – it’s all about the easing, brother.

Until of course we started to get some bad Q2 earning releases. Microsoft disappointed, AMD as well and a few others. And suddenly the hamster started spinning: What if we’ve got a lousy earning season? Won’t the Bernank see this is a reason to possibly push back the ‘tapering’? And (perhaps not so) coincidentally equities suddenly caught a bid and started to bubble higher. And this brings me to exhibit A today (actually I only have one – sorry):

The EUR/USD vs. the EUR/JPY – as you can see they seem to be running on inverse cylinder groups as the former is dropping down and the latter pushing up today. What happened? Well, for one AAPL happened – good iPhone sales and some other b.s. everyone probably knew several days ago – who cares – it made the news and thus it’s a winner for the Q2 earning season. And let’s remember the hamster logic at work right now:

Bad economy = More printing (i.e. no tapering) = Dollar down = equity markets up.

Which means:

Good economy = Tapering = Dollar up (Euro down) = equity markets down.

What you got love about this – bear with me as I’m getting to my point now – is this: Let’s say the economy continues to do well, wouldn’t that mean that the Dollar will start gaining as it currently is almost exclusively driven by the Fed/ECB easing ratio? And if the Dollar gains that means that exporters and other U.S. corporations will have a harder time competing, right? Which would probably mean that more easing could be called for. After all there’s always a good reason to print – and very rarely one to work toward a strong currency that actually buys you stuff. Less is more after all. You have got to love the logic.

Now, you may wonder when exactly the hamster wheel spin out of control during such convoluted mental masturbations. I don’t because I have long given up on making sense out of it all and that’s the main reason I purely stick with my charts. Which is my segway to the only chart I really care about today as everything else is looking rather boring:

Now if you took yesterday’s RTV-S signal then you should be short already. We haven’t really gone anywhere since but at least we’re still in the game – it was a low probability setup to begin with. Now we are probably going to finish the day with an inside day candle and that means two things:

1. Your stop just advanced to 3,057.25 – I know, same difference.
2. We’ve got an inside day candle and that makes 3.057.25 a long trigger and 3,031.5 a short trigger for tomorrow.

And that’s pretty much it. See – so much easier than trying to make sense out of all that fundamental mumbo jumbo. I’m a simple market megalomaniac after all – plus my brain hurts when trying to decide between breakfast cereals.

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Cheers,