Tag Archives: EUR.USD

Market Sentiment Like We’ve “Never” Seen It

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.

Me

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.

Here are some of the contradictions that get me thinking:

  • Europe, and it’s place in the world economy – for that matter in my economy…
    • Italy and it’s comedy, specifically
  • Youth, Unemployment, Ambition
    • Subway
  • The media’s handling of politics and the economy
  • Bitcoin, Wealth, distribution
  • Market tempered euphoria
  • Trading strategy

Admittedly the white smoke, the pope, and the historic deconstruction of how Francis will move on 4 wheels takes a certain effort to avoid, but this too will pass, as Vatican punditry fades.

2Paragraphs has a refreshing perspective.

Dow_EURUSDStarting with Europe’s Spring head fake, Europe still hasn’t paid the piper. My last post, Will Europe Find Center Stage (Again)? rings true, still. The economic numbers continue to disappoint and the European markets continue to levitate, following the US markets to recent highs. Ten straight now. The flagrant disconnect in the EURUSD defies logic. Manipulation? Obviously. This divergence is tradeable, but when? You would expect euphoria, and all you sense is apathy, as if the smart money is dumb, and the dumb money is in hibernation.

The founder of Subway, Fred Deluca claims regulation would prohibit the creation of Subway if he tried to start-up today. The spin around this story, puts me in papal avoidance mode, yet the premise strikes a chord. I’m reminded of a grandparent saying how hard they had life, wearing that struggle as a badge of honor. That tale is turned on its head today. In fact life was easy for our Grandparents, or so we’re told. Ambitious youth, educated and indebted face an increasingly difficult journey.

Yet if you compare American youth to their Italian, Spanish, Greek, French and Portuguese brethren who live with nearly insurmountable under employment (though less debt), I have to ask where and when the social impact of this horror will appear on the nightly news. What would our Grandparents say? Or what should we say to our Grandparents?

The EURUSD chart above reflects a manipulated market and a manipulated currency. The ECB and the Federal Reserve are responsable, politicians are complicit, and many argue fully justified. Yet, since we left the gold standard for a fiat currency, currency manipulation, QE or whatever lever central banks choose to employ, is fully accepted as prudent economic theory. The gold standard debate is a can of worms, lets avoid it. But PhD’s assert sans fin, the brilliance behind financial structure, and the strategies employed to manage employment and inflation. That alone raises questions. The simple idea that currency shouldn’t be manipulated by central banks is a powerful idea. Simple = Smart?

Bitcoin is constantly catching my attention, I’m trying to grasp the disruptive potential. I absolutely love the pitch, but struggle to grasp the reality. A recent ‘bug’ caused major stress in the bitcoin market. (here) On the other hand, Argentina’s capital controls are a boon to bitcoin… This  just gets more interesting. My personal experience so far is limited and a ‘wallet’ that just never seems to be synchronised. It’s going to take some work to understand the utility, but the fact that we can buy cupcakes, and trade bitcoin as a unmanipulated currency keeps my attention. (One of my recent posts on Bitcoin.)

Good Trading.

After the elections, spy and CAC40

A Curiosity

Unexplained phenomenon are frequently observed during highly skewed (or expecations of) market moving events.

Monday was one of those days where the weekend expectations for turmoil in Europe, particularly France and Greece were highly anticipated. The market fell all day Friday with the assumption that Françoise Hollande would be elected president of France, which finally he was.

The strange thing happened on Monday. Here are two charts from Monday: the S&P and CAC40.

After the elections, spy and CAC40

The weak opening was expected, a socialist French president and neo-nazi Greeks on the front pages would be enough to spook any market, so all seemed normal. Strangly, the market climbed on both sides of the atlantic all day long, little by little it climbed and climbed. How could you explain this? Short covering all day? I really looked on, perplexed. There was no way I was going long, but it continued to climb. I sat out Monday. In fact I often sit out Mondays, and though I have no data to back up my argument, Monday’s are bad entry days for me, this was just another example.

I was feeling confident the EURUSD wouldn’t hold $1.30 and markets were in for some downside action. Here we are Wednesday and the downward trend has quickly taken over again. The CAC40 is rapidly aproaching 3000 again and the $SPY looks to open under 135. The $EUR.USD is now solidly under $1.30 at $1.2936. All of this is good for my trading but leaves me still unclear on Monday. What or why did the market behave this way? I’ve yet to hear an explanation. My thoughts at the time were that the markets like clarity and now that the elections were decided, the market might continue it’s oozing upward. It’s an unconvincing argument.

Good Trading.

France perd AAA

OK so now we know what we’ve known for a while and the markets are reacting. I’m watching 3 charts: The VIX, ES_F or the S&P, and the EURUSD for a little consolidation.

If you look at the VIX which has just passed 22.

and then the $SPY which is bouncing off 128 (I’ve left my levels)

and finally the $EUR.USD

The divergence between the $EUR.USD and the $SPY is relatively surprising. There’s been a lot written lately about the decoupling (since mid December) of the US economy and the economies of Europe, though after the employment numbers and retail sales numbers released yesterday, market participants are starting to show some doubt. And now a French downgrade… Hmm. After the dust settles on the downgrade we might get back to fooling ourselves that Europe’s problems won’t effect the US, but don’t hold your breath for too long, eventually these two charts will start to find a stronger correlation.

The lower Euro will eventually boost export data in Europe, and put pressure on that same data in the US. As a side note, and in principal your BMW or Mercedes should cost you 15% less today than in did 2 months ago. Does it? I’d like to say the same is true for Renault, but that’s another story.

I’m expecting a consolidation in the $SPY around 128.50 and will be selling a bit of this volatility.

Good Trading.

 

CSI

Bouncing S&P

CSII’m disoriented.

A 5.2% bounce in the CAC40 and a 3.0% bounce in the SPY ? It looks like the IMF-Italy rumors from Europe and the Black Friday sales numbers (fabricated numbers) sent a wave of euphoria through the markets this morning. Again, nothing has changed. Rumors might have some truth to them, but european sovereigns are still a huge mess and contagion management is still absent. It’s been 2 years.

Is this an opportunity to short the EUR.USD? It’s up only about 0.5%. Doesn’t that seem a bit weak given a 5% rise in Paris and 3% rise in the $SPY? It does to me.

My ratio spread idea that I proposed last week is performing well. I added a 120/112 bear spread now that 115 has appeared as a potential resistance point if the market decides to head south. Unfortunately, I continue to get burned with my ES trades, I’m not working with the right time-frames (for me). I know that and have made this error more than once. I’m writing that here for one reason, so I don’t forget, again.

I hate reading negative headlines day after day without an alternative point of view. We’re fed politically motivated rumors attempting to reassure, though these attempts fail miserably because they’re UNBELIEVABLE, think ‘super committee’. We’re fed ‘viral’ Black Friday sensational pepper spray fights and occupy protests – which sadly are MORE BELIEVABLE. You really don’t have to wait for consumer confidence numbers to understand the mood on the street.

On French television last night, by pure coincidence I watched a pepper spray-human combustion-aluminium lady rerun of The Experts (CSI). It wasn’t agency issue water based pepper spray, but butane. Ah! The person that selects these reruns must have a sense of humor, if only Grissom had a financial column…

Monday JCP and ACN

Trying to get the month off to a good start today, and I’m mostly on ‘pause’.

We’re sitting at the bottom end of the range on the SPY, the biggest risk for my short positions would be a technical bounce here.

The other number which worries me today is 1.30 and the EURUSD 2% drop. It’s sitting 1.325 which feels very oversold. I was expecting 1.30 ish, but now that we’re here we should start to see a bounce. Will we?? The sentiment is still negative out of Europe and the reason this bothers me is that Europe is just a distraction! The strength in the dollar makes even less sense to me than gold at $1900. The markets have shifted from a flight to gold to a flight to the dollar. Frankly, I’d rather be in gold.

There are two unusual names which I’m starting to watch JC Penny, JCP,  and Accenture Ltd., ACN. JC Penny Company Inc. is holding up better than I would expect, and Accenture has earning scheduled for October 12th.

Accenture caught my attention because there’s huge open interest on the October 44 puts. Accenture is trading at 52.75. I can only imagine someone’s expecting a very weak earnings release next week. The put/call interest on ACN is 0.91 so the sentiment is fairly bearish. This is something to keep an eye on as we run into earnings next week. If earnings and their outlook are weak this would be another bad sign for the SPX.