Stock Market Update | Hedge Funds Are Putting Risk Back On

One of the markets I watch in order to see what the hedge funds are doing, is the AUDJPY currency pair (also known to forex traders as the “carry trade”).

The relationship between the AUDJPY and the stock market is a subtle and interesting one which is often wrongly ignored by traders. In fact, in many instances, the AUDJPY pair has acted as a leading indicator of the stock market, revealing whether hedge funds are putting on risk (rising AUDJPY) or taking off risk (falling AUDJPY).

The above chart shows this currency pair breaking out of a sideways consolidation. This is also accompanied by a squeeze signal firing to the upside (the squeeze is indicated by the red dots turning green).

The significance of the squeeze here could mean that the next move on the AUDJPY – and hence the stock market – could be an explosive and volatile one. A rising AUDJPY means that the hedge funds are putting risk back on, indicating further (albeit perhaps limited) upward pressure on the stock market.

The Dow hit the 12,600 level today and the S&Ps (ES) brushed the 1311 mark. The AUDJPY pair will face resistance at 81.50 level corresponding to the 200 Moving average (red line).


  1. I decided to sell almost all of my stocks when the s&p 500 hit 1315 yesterday. I’ll feel good about that unless it runs up to 1325 with no move to the downside. I know you’re looking to short equities and gold (they are somewhat correlated). If the s&p 500 breaches 1330 instead of moving downward like you and I think it will, should I then be bullish on equities, gold and silver? Also, how long do you think this downward trend in gold and silver will last? I ask this because i think it’s bull run is due this year with likely expansion of the monetary base probable this year when the market stagnates

  2. You guys gonna miss a huge move printing presses will be running on fullspeed slready do shorting this market is gonna be painfull the massive shakeout you missed no continue and wait for the next 1. Or rather buy the dips on some good retrace and go with the fed and the central banks then going against it or are you a amateur or a pro just asking?…

    And yeah this you get for free from a big trader but not goldman and sachs but i can move the markets if i want to..

  3. Seron – thanks for your comment. You’re absolutely right, any pullback or retracement to a support level is a buying opportunity.

  4. Alessio, if Goldman Sachs want the markets to collapse as you mentioned – then why the heck everything goes up but the dollar? Where is that flight to safety that would make the dollar jump against all other currencies?

    The dollar fell so much against all currencies, it looks such a bad currency now, and I’m like you don’t buy this Greece story and I know their prime minister ocmes from Goldman Sachs but what exactly is their interst, is it really financial collapse or perhaps they want to fool the whole world that the Euro can be a stable currency?!

Comments are closed