The Coming Storm For U.S. Equities: An Active Trader’s Approach

U.S. equities markets continue to rally, breaking all-time highs seemingly every other day. Unfortunately for most retail traders, capitalizing on this uptrend is a challenge. For most of us, a simple “buy and hold” strategy for stocks is not the preferred option.

So, how can we get in on the action? Through understanding the relationship between currencies, economics, and commodities we can indirectly profit from the U.S. equities bubble.

U.S. Employment, The FED And What To Expect

Last Friday’s employment statistics painted a rosy picture of the U.S. economy. The U.S. unemployment rate for August came in at 4.3%, down from 4.8% in January of this year. Current levels are the lowest since March of 2001.

Weekly DJIA Chart-The U.S. Equities Bubble

News releases of this nature are great for intraday trading strategies. But can good news be bad in the long run? Yes and no.

It is already a foregone conclusion that the U.S. FED will raise rates during their September meeting. This will have several large impacts:

• Forex majors are likely to enter corrective territory from current levels

• U.S. equities will feel the “tightening” of the cash supply

• U.S. lending will begin to undergo a fundamental change, GDP will show the effects

Remember that the FOMC meets in September, October/November and December. This is likely to be a tumultuous period for the dollar and U.S. equities. Two rate hikes and aggressive balance sheet restructuring by year end 2017 are very real possibilities. 

As active traders, this will create ideal conditions to conduct business.

Today’s Economic Reports

Today’s data releases are not major market movers. However, they can be useful in gauging the health of the U.S. economy. The FED is watching them and public sentiment closely.

Report                                                            Previous         Projected        Actual

Redbook Index (MoM, July 31)                       -1.2%                 N/A            -0.3%

Redbook Index (YoY, July 31)                          2.8%                 N/A             2.7%

IBD/TIPP Economic Optimism (MoM, Aug)    50.2                   50.6            52.2

JOLTS Job Openings (Jun)                             5.666M          5.775M          6.163M

NFIB Business Optimism Index (July)            103.6                103.6           105.2

Be Prepared

Do not be confused, the U.S. is as politically charged as it has ever been. Members of the FOMC are not big fans of the Trump Administration and vice-versa. If policy and politics collide during the coming months, it can certainly be the end of the equities bubble.

It is never too early to prepare for the coming storm. The tight ranges we are seeing now across the currencies and commodities board will certainly expand. In trading, timing is everything. Be sure to preserve your capital until the time is right.