The most volatile sector for Q4? Here's how our experts see it

The month of October has a history of big moves. While stock market crashes come to mind there are many sectors that may be at the crossroads. The U.S. Federal Reserve is set to complete tapering from QE3 this October while other central banks are looking to add stimulus. This has the potential to push interest rate and currency markets.
 
Also there  numerous geopolitical hotspots around the globe that have the potential to escalate at any moment and create a supply disruption in energy and other commodities. And geopolitical crises have historically created volatility in gold and other precious metals. 

With so much going on we decided to ask successful traders the following question: What will be the most volatile sector for the fourth quarter of 2014 and why?  

Here's what they said.

 

Bill Baruch @iiTRADERbill

The most volatile sector in the fourth quarter will be currencies. The Federal Reserve has been lifting their foot off of the easing pedal by tapering bond purchases. While this taper is set to conclude in October other central banks around the world are just pressing that pedal down.

For instance the European Central Bank has just begun new easing measures by lowering rates this summer as they now look to enter into a bond buying program similar to what the Fed executed. The ECB is fighting deflation and has room to introduce new measures as the year unfolds. We at iiTRADER estimate that this puts the Eurozone at least three years behind the United States in recovering from the financial crisis.

Furthermore, the Bank of Japan has been able to allow the yen to depreciate without introducing new or drastic measures because of a strong dollar but are still full steam ahead with trying to stimulate growth. We see volatility continuing with the Australian Dollar because of our tremendous doubts about growth in China; Australia’s number one trading partner and a major driver of the Australian currency.

The U.S. Dollar has been in a 10-15 year downtrend and a continued close above 85 on a weekly and monthly basis will support a bullish breakout from this trend and thus bring tremendous volatility to the currency sector.  

Bill Baruch is a senior market strategist at iiTRADER with more than a decade of trading experience. He focuses on developing trading strategies for clients that present a clear objective for both long and short-term trading approaches.

Carl Larry @oiloutlooks  

I cut my teeth in the Eurodollar pit in Chicago and think that interest rates are going to be the most volatile in Q4. Crude oil on the other hand will continue to be quite boring and stuck in our range. Thanks Futures magazine for rekindling my memories of interest rate trading and that I’m old enough to revel in the good old days of open outcry. To my friends still chopping it up in these rates markets, good luck. This Q4, nothing like knowing “the turn” is coming and hikes are ahead.  

Carl Larry is the president of Oil Outlooks and Opinions LLC. He provides daily oil market guesstimates with a dose of pop culture.

Alan Rohrbach @MacroMeister

Foreign exchange will remain the most active asset class this forth quarter.

The U.S. Dollar Index may have already had a major rally since the beginning of the second quarter. Yet it is up near another major technical threshold at .8600-50. As an index it is sometimes driven by a particular other currency’s movement rather than a broad trend of many other currencies. That can be especially true for the heavily weighted euro currency.

Yet when it does move against most other currencies at the same time it is referred to as a "secular" price move. And what we are observing right now is indeed secular U.S. dollar strength. Even if it reacts from that major technical area, it is likely to remain very active and maintain the potential to exceed it later if global economic conditions continue to favor the United States.

What is also very important about that secular U.S. dollar strength is the degree to which other currencies can all be at their own critical levels against the greenback at times. That is what is transpiring now, reinforcing the critical nature of already volatile foreign exchange tendencies.

Without attempting to provide an in depth technical trend assessment, the confluence of key technical levels in some of the major US dollar exchange rates is striking. EUR/USD has failed major 1.2750 support and tested key 1.2575 interim support (major weekly down channel "Up Break" from September 2012.) Next major support is down in the 1.2150-00 area.

 

Alan Rohrbach continued...

Weak Asian economic indications have seen AUD/USD fail major congestion support in the .8900-.8850 area for a test of the .8700-.8650 area January lows of the previous major down trend (from the April 2013 1.0584 high.) Much below that the major up channel and Fibonacci support is in the .8500 area. Also in Asia USD/JPY has pushed above 109.00 resistance, and is thereby close to challenging more critical 110.00-110.70 resistance. Again in this case the next major resistance is quite a bit higher, in the 120.00 area.

The violence of the recent rally after such a long period of the U.S. Dollar Index stagnancy in the .7900-.8100 area tends to encourage continued volatility. The previous September 2014 four year trading high is back down at .8475, and next major resistance is not until the .9000 area (albeit with interim levels along the way.) Look for continued volatility in Q4 that likely outstrips other asset classes and most equities sectors. That is especially true in light of the key technical trend levels confluence across many of the other U.S. Dollar Index component currencies.

 

Alan Rohrbach is Lead Analyst and President of Rohr International Inc. He is an international equity index, interest rate and foreign exchange trend advisor. His forte is ‘macro-technical’ analysis of how fundamental influences blend with technical aspects to drive trend psychology. Clients include international banks, hedge funds, other portfolio managers and individual traders.   

 

Dan Gramza  

I am looking for the NYSE ARCA biotechnology sector to be the most volatile for the fourth quarter of 2014. The reason why I feel this way is that the sector has been consistently volatile since 2009 and there are mergers and acquisition deals that may culminate or be moved forward by year-end and there are potential new releases of drugs covering a broad range of medical issues.  

  Source: kaibara  

Dan Gramza is President of Gramza Capital Management Inc. and DMG Advisors, LLC. He provides daily market updates from around the globe on subjects ranging from the Nasdaq and currencies to crude oil and grains.

Rod David  

Ever-present geopolitical controversy always makes the Energy Complex a natural candidate when seeking volatility. Crude oil has become especially vulnerable as the U.S. reverses its military drawdown from the Middle East region. And a new kid has moved into OPEC's neighborhood.  


Source: Terence Wright

There's no reason to think ISIS is any less motivated by profit than other producers. But threatening to play its anti-West wildcard can spike oil's volatility at anytime. Meanwhile, Natural Gas appears to be completing a major base that has begun breaking higher ahead of autumn temperatures.  

Rod David develops analytical techniques that are designed to efficiently identify targets and turning points for any liquid stock or market in any time frame. He primarily analyzes S&Ps, generating several round-turn candidates daily. 

 

Be sure to check out all the other interesting slideshows in our "We asked traders" series here And if you'd like to be a part of our next "We ask traders..." series, please e-mail social@futuresmag.com to be added to the question e-mail list.

About the Author

Lauren is the editorial assistant for Futures Magazine. She graduated from DePaul University in 2013 with a degree in English.