JKonFX

"Adventures of a former currency strategist turned full-time trader"

THURSDAY, MAY 23, 2013

LONG TIME COMING – There have been a number of bearish reversal days in equity markets over the past several months, but none of these reversal days has shown any promising follow through. Wednesday’s intense S&P bearish reversal off of fresh record high levels is arguably the most compelling of all of the reversal days during this long gravity defying stretch, and it will be interesting to see if this is the one that truly opens the door for a very necessary pullback (global equities too). As I have said many times, even the most bullish of markets need to go through periods of correction, and this market is long overdue for such a move.

EXPOSED ILLUSION – Fundamentally, the stars are certainly aligning, with risk correlated currencies already coming under relative pressure as these currencies’ respective economies are quickly realizing that they need to act fast or get caught way behind in the race to the bottom (race for the weakest currency in a record low global interest rate environment). The markets that had been so well bid on the paradoxical draw of both yield and safety during the most stressful US and Eurozone crisis periods, are now starting to fall in line. Much of the yield attraction is quickly fading, with the perceived safety being exposed as the illusion that it really always has been (a very good one at that).

THE THIRD PHASE – I have talked about a third phase of the global recession which stars risk correlated assets, with the commodity bloc currencies, emerging markets, and global equities all seen pressured. Phase one was in the US, phase two in Europe, and now finally, as the whimsy of artificial free money central bank proponomics wears off, phase three is finally starting to take hold. So what does this all mean? If you haven’t already, and if you have been smart enough to play the amazing ride in risk assets over the past several months, time to get back into cash. And when I say cash, I believe the US Dollar is your best bet.