Monthly Archives: September 2011

Weekend

Have a great weekend. Keep your eyes open for the spinning of distracting news. The Europeans will be working on brand improvement. They’ll be working on press releases, brand marketing, and spinning some form of “good” news this weekend. You can count on it. The Americans will be looking for a distraction.

I’m imagining the meetings…

“Let’s leak/invent some good numbers, talk about terrorism, nationalism and find a good distraction for the open on Monday.”

My suggestion would be co-opting the wall street protests for the Democrats, and something more puritan for the Republicans, a sex scandal maybe.

Enjoy the circus.

Here’s something worth reading from Bronte Capital, anti-end-of-world. Thanks!

TIF – Reflection Volatility

Now is the perfect time to sit back and reflect a bit on a trading style. That’s the reason I bought this book by Michael Martin. I like to focus a bit on one or two specific trades/spreads and take some perspective on the environment we’re trading in. It’s an especially good time because it looks like the market (SPY) is trading in the middle of a range.

One of the names I’m concentrating on for this exercise is Tiffany & Company, TIF. I’m watching October expirations and regular readers will have seen the entry on TIF and the follow up.

The context, atleast as I see it:

  • Europe is scrambling and optimism obviously will be short lived and sporadic. This scramble is a good news, it starts to feel Eurocrats are getting the message. What’s interesting to me about Europe is it’s parroting of QE x under vastly different circumstances. The complexity of the problem surpasses my grasp, but I do enjoy observing the parrellels and contradictions. As often the case, the US press is pedalling an end-of-world catastrophy while the European press ruminates over less extreme scenerios. I’m sure the reality lies somewhere between.
  • Copper and Commodities are falling. People are looking for cash?
  • Trends are moving downward on a 3-6 month time scale and surfing a channel on a 1 month time frame.
  • Volatility is holding up over 40. The positive headlines, are having less and less impact.

So back to Tiffany & Co.

It’s fallen about 7% today even on an up day. This trade is working out well so far. The question now is how should I protect my profits? Do I want to add to my position? I’m not ready to close this position because I see some great lower resistance around $57.50.

The 65/55 spread is worth ~ $3.00. I picked it up for ~1.80.

I’m watching 57 and 73 as my exit and bail alarms.

 

Inner Voice Trading Review

The Inner Voice of TradingThe Inner Voice of Trading by Michael Martin

This is a book to read with your coffee in the morning. You won’t learn anything particular, but you might be reassured. It’s a warm and fuzzy book for new traders.

I can’t tell you the number of times Mr. Martin refers to Jack D. Schwager’s book Market Wizards, but it’s too many. More than once, I’m watching subtle product placement.

It’s a book which affirms, reaffirms and affirms again that psychology and balance play the greatest role in successful trading. This is surely true and very interesting, but like the best (or worse – depending how you look at it) self-help book, we read over and over how important it is to find balance/well-being internally and externally through yoga or other ‘meditating’ activities. I appreciate the point of this type of book, but tire of hearing the same point berated over and over.

Writing a book isn’t easy, I appreciate the effort and energy Mr. Martin has taken. (Some of my best friends are authors <— shameless product placement!) It’s hard to write a self-help book for traders, any active trader learns over time to find a balance and takes stock in their mistakes. Some are better at this than others, but like all self-help books, with a simple message, there’s little reason to keep the message simple. It wouldn’t be a book otherwise, there has to be examples, ample reiterations, anecdotal conviction, etc. Risk management is obvious after a couple good mistakes, and admittedly new traders need to be told this, potentially taught (though I’m skeptical of teaching ‘balance’).  The examples are vague enough to make the point, and complicated enough that we feel someone with experience is doing the writing.

I enjoy the journey as much as Mr Martin does and he sounds like the type of trader/author I’d like to have a coffee with. That’s a strong compliment considering all the ‘bad’ books on the market.

It’s Gandhi meets Wall Street with a commercial tossed in.

Get The Inner Voice of Trading at Amazon

TIF – Update Trade Questions

I’ve been trying to figure out how to manage this TIF spread I wrote about yesterday. That bear spread would have been better today. It would have cost about ~$1.40.

$TIF topped out at a resistance of $73 today, then pulled back. It looks like you might see resistance at $78 in the short term and it filled a gap today. I still like the short setup.

The question I was asking myselft today was: do I wait for this to test the $73 resistance before adding to the 65 puts? Or do I add some more, at $72? I might be wrong, this is a bit of a long shot, but I’m looking for $TIF to retest the $65 level and fall below.

I don’t buy the bull’s argument today, and expect some more downside. The rumors and optimism out of Europe seems pre-mature. Nothing concrete has changed, no plans have been presented, nothing but a press conference and property tax increases in Greece.

As I’m writing this I can see the correlation to the S&P, and in fact you could play the S&P as well, but…

TIF – Trade Idea

Tiffany & Company ($TIF)

Judging from the volumes on the October contracts for $TIF it looks like there were two relatively large Bear Spreads open.

There’s a 70/62.50 and a 65/55.

I like the 65/55 spread, and the 6 month chart below will give you an idea why.

The trade will cost you about ~$1.85 and the max profit if $TIF closes under 55 would be ~$8.00.

Both of these might be hedges against a long stock position, but I still like this trade. The headline risk which Tiffany faces at the moment, will be any weak news on upscale consumer spending. That seems more and more likely to me, especially if we’re going to tax the rich… The other element which I find curious is the extreme divergence with Nordstrom ($JWN) today. ($JWN up 4%, while $TIF is down (2.3%), this is uncommon. Look at the divergence today on the 5 day chart.

Greek Bank Exposure THEN; Eurozone Crisis NOW

What’s going on with the Euro? Early this summer the question was: do banks have a dangerously large exposure to Greece? In June the numbers were very maneagable. Now “all of a sudden” they’re un-maneageable. What’s changed? If anything you would think, European banks have been managing their risk favorably since well before June. They were warned.

This June article from Reuters cites between 40 and 100 Billion but with little consensus.

  • “The main conclusion I draw from all this is that no one really knows what the effects of a Greek default would be — but that non-Greek banks are unlikely to be the main vector of any contagion. And while Kash is worried about US banks’ derivatives exposure, I’m pretty sanguine on that front, too.”
So I went back to Kash, who seems to follow this unravelling seriously. He’s asking what caused the crisis, and whether there is a local or systemic problem with the Eurozone, whether capital flows or budget deficits have played a role. We’ve moved on from the banks. But his conclusion is interesting.
  • “The eurozone debt crisis is big enough that there’s plenty of blame to go around, and some of it certainly should go to the crisis countries themselves. But it must also be recognized that as soon as those countries adopted the euro, powerful forces were set in motion that made a financial crisis likely, and very possibly unavoidable, no matter what the governments of the peripheral euro countries did. Irresponsible behavior by the periphery countries did not set the stage for the eurozone crisis; the common currency itself did.”
The common currency set the stage for the crisis. As a trader how should I consider this? Is the common currency starting to die a slow death? I find that hard to believe given the budget deficits of the US, and the rise in Gold as a popular safe haven. Alternatives make for good competition and taken together the Eurozone budget deficit looks small in comparison.

 

Atleast in the short term, shorting the Euro ($EURUSD) in favor of the dollar feels counter-intuitive after it’s recent decline, even in-light of the Eurozone problems.

 

American bloggers and the popular press like to scream that the Eurozone countries are unable to work together and as a result the common currency is destined to implode. At the same time, dear pundit, look at the pissing match in Washington…

 

I’m still not sure where the risk is higher.

 

ZeroHedge has a great article on current risk perceptions. My favorite quotes from this posting are on Margin Debt:
  • Although margin debt is coming down it is still historically high and at levels that preceded major selloffs such as September 2008. In fact margin debt is now higher than that of the dot com boom.
  • As long as stocks like AAPL continue to set all time highs I believe there is no real fear in the equity markets and thus no forced equity liquidations yet. AAPL may be the best company out there but there is little to no short interest to support selloffs and with everyone all in on the long side and leveraged once selling begins it will be fierce. Remember AAPL is the ATM and when people need to raise cash to meet margin calls they are forced to sell their most liquid position.
This is very true for $AAPL investors. Watch out.

Einstein and the Neutrino

Art Cashin is right about one thing: We can throw the book out.

The markets are reacting like Kim Delaney, they’re in semi-panic mode. Thanks to ZeroHedge and like-minded sceptics worldwide, the global financial and political systems are being called into question.

Then, out-of-nowhere, Cern in Switzerland finds a partical (a Neutrino) that moves faster than the speed of light.

I listen rarely and barely to pundits and a Neutrino sounds more like a breakfast cereal than something able to move faster than light, but maybe my scepticism is misplaced.

I just don’t understand how you can doubt Einstein? It’s ok to doubt Gold, I did it only yesterday. It’s ok to doubt Obama, he’s juggling fanatics. It’s even ok to doubt Goldman Sachs ($GS) and BofA (BAC). But Einstein?

What’s next?