Yesterday, I sat down with the group TOPSTEP TRADER to discuss ways I prepare to trade. Topstep is a private group that educates/prepares potential traders for a profitable existence. As the fourth quarter has begun, I thought this video would be beneficial as a review for my readers. Reviewing rules and concepts are important, especially as I BELIEVE WE ARE HEADING INTO A PERIOD OF INCREASED VOLATILITY. A rise in market volatility can be a time of great profit but it comes with a major increase in risk. The complacency of the market because of the central banks continued intervention coupled with the risk selling of the risk-parity crowd. I say crowd because it is not just AQR and Bridgewater involved in risk parity but there are many volatility sellers piggy backing on the power of the largest market players. Remember, when George Soros/Druckenmiller broke the Bank of England in September 1992, it wasn’t just Soros but many of the banks servicing Soros were tailcoating the Quantum Fund. But when the elephants leave the drinking hole many denizens of the jungle get crushed (Niederhoffer).

Here’s little market moving news in the past week:
1. The September unemployment report was very difficult to read because of the dislocations caused by two major hurricanes. The headline payroll number was very weak at -33,000 but average hourly earnings were very strong at 0.5 %, initially sending BOND YIELDS HIGHER, THE DOLLAR HIGHER and precious metals lower. All of these moves reversed by the end of the day as White House Noise unnerved markets going into the weekend.
On Monday (Columbus Day in the U.S.), markets experienced very thin volume. It amazed me that the S&Ps were higher in the face of the growing dissension between Trump and Senator Corker. The White House is searching for a major victory with a TAX CUT package. Bob Corker will have to be a significant ally so I am astounded that the tweet machine would turn to such pejorative parlance for a keystone of any tax package. And yet the S&Ps closed higher Monday and Tuesday. In an Oct. 1 BLOG POST, I noted that the S&P/BOND ratio had closed on an all-time high, taking out the December 1999 high. In the following eight days this spread has seen the S&Ps gain another 2% against the BONDS, giving this relationship a high level of validity. A sign of potential weakness in the equity markets will be if the RATIO were to retrace and trade beneath the previous significant 1634.0 level. Check your charts to determine your reference points.
2. Europe quieted Tuesday as it appears that the Catalan independence leader Carles Puigdemont “… stepped back from making a formal declaration.” Wednesday should bring a rally in the peripheral European sovereign debt market versus the BUND, as well as some renewed strength in the Euro Stoxx 50 as it has been weighed down by concerns over Catalan’s impact on Spanish corporations. Ten percent of the Stoxx is large Spanish banks and other companies. In two weeks the ECB will announce its recalibration concerns, which will become the central issue for investors seeking European debt and equity instruments. Former German Finance Minister Wolfgang Schaeuble was busy on Monday throwing up speed bumps for French President Macron’s plans for expediting a unified financial system with a harmonized fiscal authority. The road to European financial harmonization is dependent on Merkel gaining control over her new governing coalition. There will be political recalibration as well as ECB QE recalibration. Patience is as always advised.