A couple of risk events to be aware of:

We are heading into earnings season – US companies are going to start releasing earnings for Q2 – this takes place one or two weeks after the last month of each quarter – Q2 is April, May and June. Earnings has an impact on securities (stocks and bonds) due to investors buying and selling off of the earnings releases and therefore can strengthen or weaken funding currencies and safe haven asset classes.

It’s summer in the northern hemisphere and we know what that means – if you caught Wayne’s webinar on Friday (so good to see him again after he’s been away for the last month at Harvard, note that he is back in action from tomorrow so be sure to catch him here from 13:30 every day) you’ll remember him speaking of the annual migration of Americans as they head off for summer holidays armed with beer and selfie sticks, dressed in Acapulco shirts and ready to demolish the all you can eat buffet followed by the Europeans who do the same in August (ok so maybe less Acapulco and more Lederhosen for the Europeans).

Talking about risk off – there’s also that issue with North Korea’s Intercontinental Ballistic Missile launch last week that resulted in an emergency UN security council meeting on Friday (can’t find any news on the outcome of that meeting) and subsequently in the news today the US flew two bombers over the Korean Peninsula joined by South Korean and Japanese fighter jets as a show of force. Bombs were dropped in the drill though North Korea was not targeted. North Korea has responded by saying that Washington is pushing the peninsula to the “tipping point” of nuclear war. Read more 1 Read more 2 Read more 3

So you’re a hedge fund or bank and your job is to manage the risk of your very big client investments. What’s your move – buy the dip or take profit and move money to safety until late August/ Early September when you get everyone back in the office, fire up the engines and get those positions in for Q4? I know what I would do for my clients. In fact, my clients would have already received phone calls telling them that they have nothing to worry about along with their Q2 performance and R.O.I report and a care package which includes a box of Gurkha Black Dragons, a bottle of Goût de Diamants and a giant inflatable yellow rubber duck named Winthorpe.

So as for the rest of us, as we head into these risk events, there are a couple of charts we should be aware of and some possible trading opportunities. The only caveat? I could be completely wrong and this year Americans don’t go on holiday so no one takes profit, earnings have no impact on securities and the market is not the least bit concerned about geopolitical tensions that are clearly getting quite serious between North Korea and America.

As always – no trade setup, no trade.

Vix Daily

When the Vix is low we know investors in the S&P are not hedged as they aren't concerned about volatility so therefore when there is a correction it usually means herd mentality takes over and everyone heads for the exit. We always pay attention to the Vix as we approach earnings season and other risk events. Note price came off MM2 giving us a target of MM4/ MR2.

S&P 500 Daily

MM3 down to MM1/ MS2/ MS3

US10Y Daily

MS1 to MR1 with top of range at MR1/ MM4. Note a break lower to MM1/ MS2 has a target of MPP.

Gold Daily

MM1/ MS2 to MPP with top of the range at MM4.

USDJPY Daily

114.00 (MR1)/ 115.00 (MM4) to 108.50 (MM1) bottom of the range with levels of support to watch out for at 111.50 (MPP) especially if coming off MM4 and 110.00 (MS1) if coming off MR1.

EURJPY Daily

130.500 (MR1) - 124.500 (MS1) with support at 128.000 and 126.000

GBPJPY Daily

Top of the range at 148.00 - let's call it MM3 down to bottom of range at MM1 with support eyed between 145.00 and 144.00.

AUDJPY Daily

86.50 (MM3) down to 81.50 (MM1)

CADJPY Daily

88.50 (MR1) down to 83.00 (MS1) with the bottom of the range at 80.80 (MM1). This one will be particularly interesting especially when BOC don't raise rates at their meeting this week. (You think they are going to raise rates?Really? With low business investment, low consumer spending and low inflation? Yeah sure maybe jobs are saying less slack though higher rates will further curb consumer and business spending... Maybe some hawkish comments though no hike, not yet... And even if they do, traders will take profit anyway - buy the rumor sell the fact)

3 thoughts on “Risk on, Risk off Daniel Son. Q2 Earnings, Summer Holidays and North Korea”

  1. Giveness Tshiimomo says:

    Lol Haha, very nice post. Banks and Hedge Funds are definitely not trying to flush client money down the toilet. I also think they’re going to take profit and have a nice holiday then when they get back it’s show time.

  2. Giveness Tshiimomo says:

    I think with the Yen pairs we could maybe see one more push up this week allowing price to move up and hit the take profit targets market participants had set then from there i see them skydiving with all the profit taking and people get ready to pack there bags to enjoy their holiday. But taking profit now also makes sense, perhaps they’ve had a good first half and don’t want to risk losing what they’ve made and will take their money and run

    1. Ryan Gandalf van Jaarsveld says:

      Yeah like comedy timing is the thing right – paying very careful attention to resistance at these levels…

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