ED HARRISON: It is Wednesday, September 23rd, 2020. This is the Real Vision Daily Briefing. I'm your host today, Ed Harrison, filling in for Ash Bennington. In today's Daily Briefing, we've got Dave Floyd with us, of Aspen Trading. Dave, come on into the screen. Dave?
DAVID FLOYD: Ed, how are you?
ED HARRISON: Usually, we do an intro, but we're going to skip the intro because there's a lot on our plates today. I was talking to you just before about a ton of different markets that we saw some volatility in today. Gold and silver, of course, we saw S&Ps. We saw a lot that you're looking at in the currency market. Lots to cover, what's the big picture view for just what's happening right now that you're thinking about?
DAVID FLOYD: Well, what I'm thinking about, again, that these ideas can evolve on a day to day basis, but maybe there's a little bit of reality setting in terms of the equity markets. S&Ps are off 100 handles since last night. Luckily, we've been short them since last night. I think technically speaking, they probably have lowered ago. The argument, of course, has been made for months now that the market was so disconnected from what was happening economically or at least in terms of the economic reality, and that seemed to just get completely pushed off to the side, pushed off to the side.
I'm not saying that maybe we go all the way back down to like, 3000 or 2400, or some crazy level, but we certainly got way, way, way ahead of ourselves, whether or not that we stopped and whether or not we stopped in the next day or so, as anybody's guess. I'm more of a tactical guy. I'll take a fundamental overlay. If it lines up with the technicals, great.
I'll take the move lower that we had today as that's fantastic. That's what I was looking for. I'll reevaluate later tonight, and then tomorrow, how the market wants to assess it. Given the move in the dollar, given the move in the S&Ps, given the move in the NASDAQ, and in the precious metals, something seems to be afoot. I think in the days and weeks to come, we're going to have a lot of great trading opportunities. How we all settle out, I can't really say just yet, but there will be some volatility forthcoming or continued volatility for sure.
ED HARRISON: I think that word is the catchphrase volatility, because I've seen that, the volatility spike, and especially in currencies, there's some good volatility there, and we can get to that. Let me tell you what I'm thinking about from a fundamental perspective. I think you know where I'm coming from. I was thinking that September would be a shift, but it does seem like the momentum has just change dramatically. We had this whole momentum of gold and silver, S&Ps to the upside, the dollar lower.
Then at the end of August, it just all came to a screeching halt and the momentum has shifted entirely. This week, I thought it was actually a good sign yesterday-- well, on Monday that we didn't finish on the lows, that yesterday, we had a bounce. Then we come into today, and we're 3% lower on the NASDAQ. It seems like the momentum is lower. I was just looking at your chart on the S&P 500. You said that below 3289, that creates overlap and strengthens the bear case. Maybe you can take us through that.
DAVID FLOYD: Well, coming into last night or yesterday afternoon, I was doing my prep work for the day ahead and I let clients know, I thought that the 3308, 3321, those are some pretty key resistance levels that I was looking at. I wanted to sell any rallies up into that. I think the high overnight was maybe around 3318 give or take, 3320, so we built in short positions into there.
Yes, 3289 created overlaps from an Elliott Wave perspective, or even just from a basic charting perspective, is when you get a low-- prices taking out a previous swing high and what was to me a clear correction off the lows that we saw on Monday. Going below 3289 was like the confirmation that selling into that rally overnight was the right thing to do and heading back towards 3200 seems like at least for now, the logical near term target. Give or take, maybe we only get to 3210, maybe we overshoot 3200. That's how I was approaching it.
We might dance around these levels for a little while, but that was a pretty big move coming into today, markets are probably going to digest that but I think your point about a momentum shift is spot on. Maybe we'll start to see continued selling, meaning day after day selling as opposed to day after day buying. I've been in this game a long time. I traded through '99 in 2000, it's eerily similar.
Everyday ,things went up, everyday, things went up, and suddenly, everybody was an expert on buying stocks, etc., etc. Then suddenly, everybody got their head handed to them, at least the people that were new to the game and really didn't understand that markets can turn on a dime, and make it really, really painful for you, it feels very much like that again. I want to play to that momentum. If we continue to see that downside, these rallies will be sold and until you clean everybody out, you're not going to get much on the upside in terms of the rallies.
ED HARRISON: I want to talk to where the next resistance level is on the downside, but I want to go to your point about just the shift. I agree with you that it does seem like it's not just the momentum shift in terms of the numbers, but the narrative. The Teslas, the Nikolas, all of these, suddenly, people are spinning completely negative narratives on companies that were darlings just a month ago. All of that plays into the psychology of getting this down. When we talk about down, you're doing it tactically, what's the next level that you're looking at, at least right now, in terms of where there might be some major resistance on the downside?
DAVID FLOYD: Well, I think 3200 was my measured target. Again, we're at 3231 right now and after hours, we close the futures in about 40 minutes. Usually at this time of day, we don't get too much more follow through. We'll probably settle in around here. I think 32 is going to be the level that I'm looking at in terms of where you might see some equilibrium.
Then where we go after that, I'd be looking to potentially sell rallies. Until we get the daily close, I haven't really gone through and done the end of the day and look ahead to tomorrow. I'm still short some of the S&Ps that we shorted last night, I'm in no hurry to cover them, although, I've ratcheted my stops down quite a bit. In fact, down to 3256.
Once again, the chart work a little bit later, I'll have some better ideas. I think in the near term, 3200 is probably the floor. We'll probably dance around there for a little bit. A lot of it's going to depend on the dollar too. Again, I think the dollar might be on the start of a move higher but again, things even flow. Maybe we're just going to pause a little bit here. I do think that we could see the dollar pullback off the recent highs this week. If that's the case, that'll give the S&Ps, a little breathing room to the upside.
ED HARRISON: A good time to pivot then to that the conversation about the dollar, because a lot of people have been talking about DXY, dollar/Euro, but the chart that you showed me actually was dollar/yen. Why for you is dollar/yen more interesting, that's the chart of the USD/JPY, than some of the other charts?
DAVID FLOYD: Well, the reason I sent you over the dollar/yen chart was pretty simple. Again, from a near term, meaning a tactical perspective, I saw some upside and that did play out. I sent you that chart this morning. I think we're trading around maybe 105 and change, where 105.40 and that was my upside target. Again, we're not talking like a big play here. If the dollar is moving higher, and the S&Ps are moving lower, usually, you're going to get dollar/yen moving a little bit higher, at least in terms of recent correlations.
Why didn't I send you a chart of the Euro? I think the Euro could be putting in a top. You look at it, it's a classic head and shoulders, the dollar index is a classic inverse head and shoulders. Man, we've been chomping around those trend lines or those neck lines for weeks. I personally, I'm just a little bit hesitant to get in there right now and be short the Euro. It feels to me like I'd rather short the next rally up that tests that neckline and then wait for prices to move large. I just feel like I'm jumping into the party late right now. Dollar/yen just seemed like a better bet from a timing perspective when we first discussed this this morning.
ED HARRISON: The volatility thing that I wanted to talk about, because it does seem like volatility has come back to the currency markets and if you're playing it from vol perspective, that's interesting. What's your perspective there?
DAVID FLOYD: Well, thank God, it started to come back. It's like felt like we've been in the wilderness for years as FX traders. It's going to be nice if we can continue to see this volatility. I think given the complete lack of volatility in the fixed income market, it would be logical to probably have some of that volatility slip into the FX market.
Unfortunately, I love trading 10-year notes. They've been my bread and butter for the last couple of years, or at least a big part of it. The Fed, like they do with everything, they ruin it, by getting in there and just mucking things up, until something really changes dramatically in the market. It seems like volatility and fixed income is going to be dead. Probably, see it leak into the FX market, which is fine. We'll go swing our bats over there for a little bit.
ED HARRISON: When you mentioned the lack of volatility, I think that your chart on the Treasury market is [?] with the big-- you see this volt up to the 138, 140 level, or thereabouts, and then just like a snooze fest across-- all the way from really, March, all the way to today.
DAVID FLOYD: I'm trying to guess which way it's going to break. It's a coin toss of best. My instinct says we break them lower. I think the yield curve steepens, but again, if you look at the 2s, 10s spread, same thing, it's just a flatline. It makes it really hard to get anything done.
Pushing on a string never get you much as a trader. Maybe the best bet is to wait for that market to break, buy that pullback, or maybe sell that rally if we happen to break lower. I'm going to keep my eye on the rates market. I'm not going to give up on it just yet. Right now, it's not looking too good in terms of opportunities. There's few and far between.
ED HARRISON: I want to ask you about the fundamentals here, because the way I'm looking at it from a fundamental perspective, is that basically, we're near the zero lower bound all across the board. All of the guys who were not at the zero lower bound, Australia and New Zealand, Canada, US, the UK, they've all gotten down to zero at the short end. Now, they're telling people actually, we're going to keep it there for a long time. In fact, the Brits have said, we were even thinking about negative interest rates.
There's not a whole lot of upside, obviously, from here but if they're telling you that, then the downside, they're putting their foot on the scale to limit the downside by telling you, we're not going away from zero. How does that impact just knowing the fact that their hand is on the scale, their foot is on the scale, in terms of what you do on a tactical basis?
DAVID FLOYD: Well, the one thing that I will concur with in terms of the Fed or any of the other central banks is, if that's what they say they're doing, you got to respect that. I'm not large enough, collectively, most traders aren't large enough, organizations aren't. If that's what they're going to do and if they want to control the yield curve, and can basically, control prices, that's what they're going to do. I don't agree with it but again, they don't care what I think. They don't care what most people think. This is what their policy is.
You just have to, maybe pick up your things and move into a different asset class. Right now, FX seems to be picking up in terms of the volatility. Equities always seem to be relatively volatile. You can dance in and out of there, or let's say, index futures. God forbid, they start mucking around in those markets, and I don't know what we're going to do.
ED HARRISON: It can come, because--
DAVID FLOYD: Don't say it can't, exactly.
ED HARRISON: Last thing that I want to talk about is gold and silver. Just when you thought, because of negative real interest rates, because the Fed is getting into the Treasury market, that this was the place to be, everyone crowded into that trade, it sells off, and silver today sold off in a big way, what's the chart telling you?
DAVID FLOYD: Well, for me, I see two things that I'm still bullish on. I was early on silver back June 28th, I believe. We got long silver. I got long some call spreads that don't expire till the end of the year. Those are in good shape. Yeah, I've given back some profit for sure, but they've been great trades.
I think what's happened, again, this is speculation, and I think a lot of people get into silver a little bit later. I happen to be, let's call it, I call it a little bit of luck, a little bit of skill, but you need to tool them. I got in early, late June. I think a lot of people just bought silver and it did hang around that 25 level for a long time. It looked like the stock market. It never was going to go down again. All of the sudden, I think we're probably flushing out weak hands right now.
To answer your question, though, technically, I see support in and around this 21 level from an Elliott Wave perspective. From a quantitative perspective, there's a good study that came across my desk today that basically said, if silver's above its one-year moving average, and it puts in a two-month low, historically speaking, and that's the key thing, historically speaking, it's 10% higher three months out. What did I do today? Bought more call spreads.
Now, shorter-dated, I bought some October call spreads. Again, you go with what the data says. Right now, that seems like a pretty juicy trend to give up on, I added a little bit of better levels today. Then we'll see where it goes. I remain bullish on silver, and by and large, gold as well, but I think silver is going to be a better performer.
ED HARRISON: Well, let me ask you about that. Gold versus silver, because when you were talking about the levels, I was also thinking about the gold/silver ratio, does that play at all into your thinking in terms of basically, the gold/silver ratio, silver ran up so much relative to gold, that maybe that had something to do with where we're pulling back to?
DAVID FLOYD: Yeah, very well could. In all honesty, I don't track that too closely. Again, relative value plays that, that makes complete sense that you might just get a little bit of an unwind, and people might roll into gold and see a little bit better value there. I think gold and silver are probably bullish because of all the things that are happening, like we talked about previously, today. Central bank policies, maybe it's just an asset class that's been beaten down, people are looking to move into something that is actually moving, whole host of reasons but I think overall, I'm very constructive on gold and silver going forward.
If silver gets maybe below 20 bucks or something like that, maybe I'll reevaluate the thesis. I'm not going to be completely dug in the sand. I think this pullback might be nearing its end, we were off like you said in silver today, almost 7%, I don't know what we're off yesterday, but it was another 4% or 5%, so yeah, we're probably due for a little bit of a bounce. If we don't get it, then that's the market telling you something.
ED HARRISON: Gold, any levels that you're looking at there that you see as key support levels where you'll have to reevaluate?
DAVID FLOYD: If you can give me a second, I can pull up my gold chart. I didn't actually pull up any gold levels prior to that.
ED HARRISON: Let me just say that, for all the people who hate when I talk about soccer, we were talking about soccer. You got to give Ash a hard time next time you talk to him.
DAVID FLOYD: I will give him a hard time, although, I've been to a Tottenham-Arsenal game when they were at Highbury many, many years ago. They're a good club, but they're not up to the snuff like Chelsea.
ED HARRISON: For those who are listening, Ash is not a Tottenham fan so. He's on vacation, so he can't say anything against us. We were using that against him.
DAVID FLOYD: To answer your question there, Ed, very, very similar pattern in gold to silver. Again, a pullback that to me looks corrective. What I mean by that is that the price action is choppy and overlapping after a nice trend higher. Oddly enough, gold is coming right into a couple of Fibonacci levels here at about the one-- I'm looking at GLD, the ETF, I'm not looking at spot gold, 174, 175. If we're going to hold, this is probably the area we'd hold at. I think it's do or die here. Well, that's maybe a little bit too much-- too dramatic but I think we do need to hold these levels fairly quick if the gold rally and the silver rally are going to stay alive.
ED HARRISON: Excellent. I think that's the biggest takeaway for me, but wrapping it up, Dave, any last thoughts for you on today's price action?
DAVID FLOYD: Welcomed, very welcomed, because it resets the deck chairs so to speak. I also just like more volatility. When markets just grind up, for a guy like me, it's actually harder. I know that sounds really weird, but I like things to move around and be a little bit more fluid. A day like today where we're actually getting price action to move in a good degree, I like that.
For right now, I'm bearish on the S&Ps, but I realized that the dip stir mentality of coming in and buying these dips is alive and