This morning it was ALL Japan – not Viatnam – I admit, but I woke up with Robin Williams ringing in my head.
The Nikkei extended their losses after:
BOJ REFRAINS FROM EXPANDING J-REIT, ETF PURCHASES
BOJ LEAVES FUNDING TERMS UNCHANGED AFTER JGB YIELD VOLATILITY
This sent the US and European markets into a tailspin. Expectations were obviously not met. It’s not often you see a gap open in the S&P down 1%. A bit unexpectedly the ES has been working off it’s overnight fear all day. Remember there’s a big buyer stalking…
Considering a slightly longer term, I’ve been looking at some potential cycles that might make good targets. If you’re even slightly bearish this perspective might interest you. If you’re bullish these might make good entry points.
I looked at three of the last major retracements during this bull market on a yearly chart.
September-November 2012
March – June 2012
May – September 2011
I measured the range as a percentage and measured the duration between the high and low. I’ve written about it, here. This is what I come up with:
If history rhymes, the medium term levels to keep an eye on:
1558
1515
1400
And if this pullback continues we should be attentive around:
July 23rd
August 1st
October 24th
Even at these targets on the yearly chart, the market will still be trending upward. Count on the bears coming out of the woodwork.
The ongoing spat between China and Europe is heating up. In response to Europe imposing tariffs on Chinese solar panel manufacturers, China has started to target (“investigate”) southern European Wine Exports. Now, here in France that’ll touch a nerve, just when we finally get some sun.
Interesting. There’s a bit of deja vu here.
Europe claims Chinese manufacturers of solar panels are selling them below manufacturing cost, in other words, they’re dumping their product on Europe and killing local manufacturing. The European commission is claiming 25, 000 jobs are at risk without the imposed tariffs. Jobs are something Europe needs desperately. In the press there’s conflicting information on the real tariffs. Obviously, they’re in serious posturing/spin mode. Bloomberg, says tariffs as high as 67.5%, Reuters is reporting that they’ve created a ‘initial duty’ of 11.8%.
Last October the US Commerce Department did essentially the same thing (New York Times). Solar has been a political hot potato for the Obama administration. It surprises me that China wasn’t more sensitive to this risk, if they are in fact dumping. So almost a year later they’re taking on Europe. Or Europe has decided to react, depending how you look at it. In either case, it’s a very aggressive stance, and a bigger deal than most people realize.
This US-China Market Review from last Spring, articulates the strategic importance that China places on its Solar Industries.
China is prepared to invest RMB 3 ($480 billion) in the clean energy and energy conservation/environmental protection sectors over the next five years.
As well as its agressive stance:
To hold an advantageous position in future international competition, we must accelerate the fostering and development of strategic emerging industries, control the key and core technologies and related intellectual property rights, and enhance our capability for independent development.
It looks to me like China’s success has been putting pressure on both the US and Europe. Is it possibly the West has failed to innovate around renewable energy and now they’ve decided to rely on protectionist tariffs? Throw in the towel? If that’s the case, it’s hypocritical at best.
Or is China being too aggressive and dumping product to secure a monopoly in renewable energy? They’ve staked these industries out as strategic, and have admittedly a cancer causing reliance on Coal and Oil. I can see why China’s investing heavily. I can also see why they’re fuming. But hitting French wine…
I’ve been intrigued for a few years with solar companies, you can see my early posts on First Solar. So considering the latest spat, I was wondering if Chinese solar companies are trading differently than, First Solar (FSLR) for example.
The answer is: not really.
So is there a trade here? It’s worth thinking about…
Rambling about nothing is better than proclaiming some truth based on limited information.
And as we know, we know very little when it comes to predicting market moves. Just this morning, for example, terrible numbers hit the tape and the S&P continues oozing skyward. Good is Good, Bad is Good, the Fed is Good, indefference is even good. Until it isn’t.
So I thought I’d ramble about a few divergences which have me perplexed.
The first jumped out at me yesterday while the VIX was climbing on momentum WITH the S&P. Technically that happens but it was screaming ”look at me” yesterday. Options in general and puts in particular were getting bid up while the market was climbing. Fear of a rising market?
The second has been obvious all year, but it’s worth thinking about. The Gold Story – some would call it the Apple Story…
If you take the premise that gold is a hedge against inflation, gold isn’t worried, atleast paper gold isn’t. That surprises me, because there’s another argument: easy money from the central bank leads to inflation. This argument seems on firmer footing, every central bank in the world is printing. Yet it’s the divergence which has me looking for a trade.
Here are some other good divergences, credit/macro/vix/10yr, labeled ‘just plain silly‘ from ZH.
The contradiction of a rising market and morose sentiment, the Armageddon crowd and the permabull talking heads; where’s a guy to look for some clarity? I’ve been wondering how to get some perspective on the S&P futures market for a few weeks now. I’m not the only one, obviously. We’re all a bit nervous getting long at these levels. A few ideas and a few trades have come to mind. Be patient for a moment while I set the context.
One of the frustrations I have with my trading platform is that its charting implementation is relatively weak. My specific complaint is that I can’t ‘push’ the chart left to sketch scenarios on the right (future). This is constraining for obvious reasons, but please Interactive Brokers I make money on the right side of that chart, you make money on the left. Fair is fair… So I fished around, again, for a charting platform better adapted to prediction and playing with my lines. I was looking for a 3rd party charting platform like Sierra Charts, which in my opinion is weak. TD Ameritrade’s is good and I use it occasionally to visualise option spreads, but I’d rather trade with IB.
I did manage to find something which works for me on tradingview.com. I would prefer something I can manage locally and not web-based, but for quick and dirty chart analysis, as a “brouillon“, it’s very well done. Bravo.
Here’s the chart I’m playing with.
What stands out is the cyclical nature of this bull run. You can see very a fairly consistent cycle after the initial bull reaction in March 2009 – a. I filtered out some of the churn to make my point, but the cycle is still clear.
71 day decline
170 day advance
74 day decline
178 day advance
36 day decline
107 day advance
43 day decline
180 day advance (today)
That’s the time cycle, what about the price range? Well, what jumps out here is the second green bar starting in October 2011 – b, a 534 point advance to about where we are today. (Cloned from the 534 point advance off the 2009 lows.) The second advance, starting in july 2010 – z is a 360 point advance. That move makes me doubt the pull-back I’ve labeled 3 and 4 because it seems to fall between the two, and both 3 and 4 bounced firmly off the 200 DMA, so under another scenario you might ignore those two pull-backs, but if you don’t the 360 point advance off 3 in May 2012 also brings us near today’s levels. In other words the b and z advance, supports a pullback in the the short term. Assuming that started today, a big assumption, medium term downside targets should be 1517, 1480, 1350. Even if we pulled backed to 1350 on a 100 day cycle, say end of September, we’d still be in a bull market.
Calling a top is a fools game, still I think we’ve a good potential trade here, somewhere…
The objective will be to limit loss on the upside and keep the downside open to atleast 1517. I’ll be back after lunch to share a few trades.
I was wondering about insider trading today. Just a thought; a handful of people, Apple insiders, who are at this moment fully aware of what the market will do in 1 hr. Not just Apple. Lets say you’re in the know for the earnings which are due short(ly). Obviously you can’t trade Apple, but as a market moving stock could you just trade the index ahead of the announcement and be free-and-clear of any impropriety? A harmless quicky… I have no idea, but it’s a perfectly simple question. That question lead me to another market moving curiosity.
Did you see that ES flash crash after the fake AP tweet? I’m surprised it’s not bigger news. 260,000 ES contracts traded, $20 billion notational changed hands, and lots of traders got screwed as their stop losses got triggered. And that’s just the S&P futures market! Bonds, European Futures, Forex, VIX, Oil, everybody got hit for 3 minutes. Oh well… In those 3 minutes well over $1 trillion changed hands! Some serious commission…
Obviously most of those trades were algo driven, so maybe the weak link in High Frequency Trading (HFT) isn’t the speed, or buggy trading programs (Knight…) after all, but the social media resources HFT uses to drive it’s algos. Just sayin, if you’re a bad guy, why try to hack an exchange, a fund, a market moving enterprise, or bank? Hack a Twitter account.
They might just find the culprit by looking at who really, I mean really, profited from that tweet. We just experienced a modern-day bank heist. Hello good guys? Maybe you should be googling B099i3 & C1yd3
Have fun into Apple’s earnings, I personally can’t wait till it’s over.
The surprise yesterday was gold. We’re always looking for congruence within the paradigms we’ve learned to believe in. I had heard somewhere gold was a safe haven play. During periods of fear or worry, in theory, we should see gold rise while money moves away from risky assets (like the S&P).
That didn’t happen yesterday.
We’ve been told over and over gold is a safe asset, real money. Those rules are too simplistic and after getting burned a few times we start doubting our basic notions. And the press doesn’t bother with details. If gold is up they’ll say “The Fed” and if gold is down, “Cyprus”. In reality information we never see is what drives these markets. In the case of gold it might be sovereigns buying (or selling), Fed fear, short covering, muppet trading, shenanigans in a dark pool, an Asian holiday, or a sublime combination. Traders scramble for an explanation, they scramble to mount another paradigm, to justify tomorrows trade. I do it, you do it, that’s the game. The game gets easier though when you accept that you’re basing a decision on incomplete, simplistic, and probably false, information. I can tell you categorically, whatever your model is, it’s wrong. In all cases, even Goldman Sachs, a Central Bank, or a sneaky congressman will eventually find his assumptions, wrong. → Continue reading Something Is Always Parabolic
There are a few moves which don’t make much sense to me today, but after the run-up we’ve had a -0.5% doesn’t seem that painful.
The first wild swing which jumps out at me, is gold; but its true for silver and commodities in general today. How do I make sense of a 4% drop in gold? Trading was even halted for 10 seconds! One explanation might be that banks holding JGB have capital requirement issues, the recent volatility might be sending sellers to the gold teller. Goldman’s prediction of gold at 1200 didn’t help, but that’s been out there for a few days. Or it might be that Cyprus is coming under pressure to sell gold for it’s bailout, this I doubt is having any impact. $400 million sold into the market slowly couldn’t account for the slide we’ve seen. → Continue reading Hmm ohh, one of those days
Bubble, no bubble? The markets are in rally mode and Bitcoin is tanking. I’m sure there’s no link, but still… MtGox is suffering under the weight and the exchange is having growing pains.
So what’s a Bitcoiner to do? They just learned a few lessons, regular traders have been learning for decades.
What goes up goes down.
Weakness in the exchange creates a crisis of confidence.
One of the wonders of the human condition is creative intelligence and I’m constantly amazed by the ability to build perspective with simple ideas, thereby creating something inspiring or enlightening. Grant Williams is one of those people, whom I don’t know, but I admire. And with all the blogs, trash popular news, and ‘writing’ that we consume on the internet, finding smart people, that write, is surprisingly rare.
Yesterday’s TTMYGH must rank among his best. April 4th? Who’d a thought. I won’t deconstruct the little pathway he takes his readers along, but the framing of his idea was poignant. You shouldn’t miss this weeks issue (A Date Which Will Live in Yenfamy). As you know I’ve been debating this BOJ QE question. Who isn’t? I’m looking for context and perspective, what will the BOJ’s action have in the medium-long term? Grant helps a bit.
Bold, unprecedented stimulus and the Nikkei reacted, really reacted. 6% isn’t a number you see often on index moves. I started looking around for some reaction and I didn’t find much. The Fed’s Lockhart says he’s “unsure how the new policy will affect the US”. Ok. If he’s unsure… I guess I can go home now. Yet one line after on my Dow Jones feed Mr. Lockhart says, “the Japan experience explains the Fed policy stance.” Maybe this isn’t contradictory, but something about these two quotes, rings false. The Fed’s been using Japan’s decade of deflation as an argument for QE x3. And now the BOJ is using QE to fight deflation and the Fed says they’re unsure? Strange bag of worms, I’d say.
What about the other indicators?
Gold is going nowhere, no change. The USD JPY pair is up 3%, that would seem normal. Adding to the confusion Mr. Draghi, brought down the European indexes, by saying very little. And for the US markets, after a nice little pull-back yesterday, they’re flat.
Watching the schizophrenic twitter kids, you’d think we’re falling off a cliff today. Maybe today’s the day, but it’s been the same for about 2 weeks now. Risk-on, Risk-off – day in, day out. The momentum looks extra convincing today, or does it? The S&P futures chart is unique in my trading memory. It looks to have doubled-up in volatility, yet look at the VIX, we’re at 13, and holding lows, hardly panic. Option players are counting on the Fed’s steady bond buying. Even Gold is playing along with its consisitent downtrend. No worries, right?
My humble opinion is that the VIX is undervalued here, the 10 year bond has been churning as well, but easing upward. In fact, maybe Bitcoin has just taken over from the VIX as a more appropriate fear index! Parabolic…
If the VIX is undervalued, check out some long straddle’s here, the only caveat is that if this churn continues you’ll get burned, adjust quickly…
Talking media heads frustrate me because they regurgitate information they don’t understand. They’re like bad salesmen, but with oversized influence.
I’ve been playing with Bitcoin now, just trying to understand all the fuss. I remember the early internet and the first Mozilla browser, the technology was captivating and the idea simple enough. There are some similarities here. HTML (the internet) wasn’t a threat at the time, for example, to small bookstores.
If I’m going to criticize or advocate this thing, I’d like to understand how it works. So I installed my wallet and a miner.
When early HTML was making the rounds you played with it, came up with crafty uses for ‘refresh’, animating an image or loading other unique data. This miner I installed works with a server and a bunch of other miners to ‘discover’ Bitcoins, then the proceeds are distributed amongst the miners. Simple enough, creative enough… I get it.
Virtual objects, virtual pets, virtual lives have been common gaming currency since the inception ofMUDs and MMORPGs (massively multi player online role-playing games). Virtual property has been around for even longer. But, who owns my avatar? In 1999 Linden Lab’s were on to something, when Second Life recognised a gamer’s intellectual property. They even invented Linden Dollars. Warcraft in 2004, Flyff, and dozens of other games have created virtual economies by exchanging virtual goods in the context of a ‘game’.
Avatar chasers, lawyers, the tax man and gambling regulators have been observing these economies for over 10 years, yet rest well behind the curve. And the secondary market for virtual objects within the context of these games has been largely ignored. If you can’t transfer your objects to other players for a fee, it seems you’re safe from big brother, but that’s no fun. Where are my bragging rights? On the other hand if you start selling what you earned, things start to look more like commerce/gambling. Still the secondary markets for virtual game currency is alive and well. Do a search for World of Warcraft Gold. It looks like I can get 10000G for about $10 in 5-15 minutes (I’m not sure why the time element is important). The site I’m looking at even as live 24/24 help in 4 languages.
The biggest looser (after Cyprus) today has been the EUR.USD. This was the dream-fade-trade for Forex traders. The news flow from early Monday morning when the agreement was reached was handed easily to “Europe”. All is well, Cyprus is fixed. Then as often happens one of the members didn’t play by the script. The Eurogroup head and Dutch Finance Minister, Jeroen Dijsselbloem, says Cyprus is a Template for restructuring… That sent the market into a downward directional tizzy which it has yet to recover from. He’s since recanted, clumsily.
The bailout-bailin looks like this: Cyprus’s 2nd largest bank will be shut down and those insured depositors of <100k Euros will be moved to the Bank of Cyprus. Anyone with >100k Euros is looking at a nice big loss. Cyprus will have to find 4.2 billion euros from the uninsured.
Russia reacted patiently, they’re obviously playing a long game here but must be under some serious pressure from the rich and connected who keep funds in Cyprus.
So have we sailed through the worst of it?
I think my last post is still worth thinking about. Small savers have been protected, yet the Cyprus banks haven’t opened yet, and Russia hasn’t really responded. They are working on that strategy and probably giggling. Don’t forget the cultural ties to Cyprus, natural gas, and don’t forget Syria, the Russians are under pressure to stop supporting Bashar al-Assad and the west has effectively stolen 4 Billion Euros from well-connected Russians. That will be hard to swallow.
Might the Russian response to Cyprus add some more turmoil into the markets? I couldn’t say, but the reasons to stay cautious on the European “Problem” are NOT fading as quickly as the Euro.
Megan always does a good job, her article is worth a read.
This weekend a scary thing happened to Cypriots and anyone keeping money in Cyprus (think Russians). If you have under 100,000 Euros before the banks open on Tuesday you will donate 6.75% to the bailout of Cypriot Banks. In return they’ll give you stock. Now if you have over 100,000 Euros you can count on donating 9.9%. Solidarity…
What should you expect on Monday?
Lots of very pissed off savers and empty bank machines. Think how you would feel coming back from a weekend 10% poorer, because the government, the ECB, and your trusted bank decides to confiscate your savings.
Backpedaling might be on the agenda, in either case, this is sending some fear into the markets, it’ll surprise me if the markets shrug this off. As little as Cyprus is for the EU, the precedent will put fear into the Italian, French, and Spanish markets. Today the parliament was presumably going to ratify the money grab. But they’ve just postponed the debate until Monday, which probably means there is dissension in the political ranks… If the measure is rejected The Question will resurface. How does a country exit the Euro Zone? Presumably, Cyprus is the least painful to throw under the bus but that question has a consistent habit of killing the buzz. And that’s what’s going to happen this week. Buzz Kill.
In 1985 I graduated High School, in what at the time, I considered the sticks. In truth suburban Cincinnati wasn’t so far from London, New York, or Paris. Ask Nolwenn Leroy, all types of interesting people pass through Cincinnati.
I’ve found myself in the sticks again, I’ve left Paris for some fresh air and space. I’ve moved to a charming valley, called the Vallée de l’Eure. This change after living in Cincinnati, New York, London, and Paris is refreshing, and exciting. The trading strategies I employ have nothing to do with the stress and noise of Paris, I’m hoping to be more effective here. For those of you who have followed this blog, you’ve seen what’s probably a classic novice trader’s chemin. My interests over the last year have focused on index futures, and option hedges. This year I’ll continue with these products.
A lot has been happening since I last spent a few hours ranting here on Brandnet and I have so many ideas bouncing around in my head that this first post of March risks being incomprehensible, beware. → Continue reading Market Sentiment Like We’ve “Never” Seen It
This morning’s trading is as expected, weak. The semi-euphoric, all is well in Dodge, 5 year highs, and stock buying humor from Scott Adams – the creator of Dilbert – gives any sane trader reason to wait for a resolution of 1500 on the SPX. I’ll quote his whole post (here). → Continue reading Will Europe Find Center Stage (Again)?
Regular readers know I appreciate Grant Williams and his TTMYGH newsletter, his most recent, War Games prompts me to think out loud about Bitcoin.
Mr. Williams makes no reference to Bitcoin, but I’m sure it’s sitting in the back of his mind, much like OWS was sitting in the back of Lloyd Blankfein’s mind last year. Grant presses the dangers of global currency wars and presents an enlightening Asian example of currency influence on GDP, competitivity, even the rise and fall of corporate ‘empires’. He links central bank profligacy, inflation, gold repatriation, and paints an ominous picture of our financial future. As usual it’s worth a read!
I’ll come back to this later but I wanted to get the idea down.
I’ve noticed on my trade setups that the time for action doesn’t come twice. It’s a common occurence that I see a good setup, I hesitate or decide to sit-it-out and it tempts me a second time.
The second time is a bad time to take the trade.
Here’s the example from Friday which got me thinking about this. It falls into the ‘chasing’ category which I’ve learned the hard way to avoid. Parabolic rises trigger an alarm and I start looking for divergences and weakness, for a fade.
In a strongly trending market this is not a “safe” trade, but merits looking for another entry long, if you’re so inclined.
The right entry was just above Friday’s open, and 1497 was the number everybody was watching. The RSI divergence was just asking for a short entry with a target at the 50% retracement. If you made that swing trade, that was a smart trade. If you waited and stuck with the 1497 resistance/stop looking to fade a second time, it would never have worked, atleast on an intraday time frame.
If you haven’t watched Ackman’s presentation on HerbaLife, you should. It’s 3 1/2 hours long, but worth the time. Pershing Square is on a crusade to put HerbaLife out of business, yet his crusade doesn’t seem purely financial. Ackman projects a convincing argument of injustice.
The Executive Chairman of Google, Eric Schmidt may travel to North Korea and the US State Department thinks it’s a bad idea. See Bloomberg here for the gossip.
The State Department commenting that his rumored private visit would be unhelpful, leaves me perplexed. If Eric Schmidt and by relation, Don’t Be Evil, wants to visit North Korea, an Axis of Evil, why would this be unhelpful? It strikes me as a type of pilgrimage.
Coincidentally, or not, the FTC case against Google is being reported as settled. Maybe these two stories have nothing in common, probably they have nothing in common, but I’d be surprised. The politics around these two stories must make for interesting dinner conversation at the Schmidt household.
June 11, 2013, at 6:20 pm Paris
