Monthly Archives: April 2012

Good Questions, Asked

I like the questions this guy considers. Askers vs. Guessers or Introvert vs. Extrovert. Looks like his thinking got kicked off by a blog post on the Guardian, here.

The cult of just say ‘no’.

Friday’s Free Association

For anyone who follows the market over a long period of time, one thing becomes clear. The search for clarity is nearly futile. I say nearly because delusion works wonders for some. The markets are like a mirror not only to our current sentiment, but to our expectations. The recent bounce higher in light of weak GDP data, Europe’s morass, and depressed home prices, brings out our most powerful of delusions. Maybe the onset of Spring has something to do with it? The irony of a rising Euro under a potential socialist French president, and the ongoing implosion at the European core speaks volumes.

Lloyd Blankfein, this week (on a victory tour) claimed that success was a risk, things might actually work out better than we expect. The banks might snap out of their slump and start lending, Europe might find a way out, and political ineptitude might somehow evaporate. It was another way to say ‘this time might be different’. The problem for anyone risking their (or others) money in this environment is timing. Obviously. Apple will go up, Amazon will rise on hope, demand, and crafty accounting, until they don’t. Goldman Sachs GS reaches globally into politics, enterprise boardrooms, central banking, and investment banking, their version of risk management is very different than mine. The cautious optimism of Mr. Blankfein was both reassuring and freakily scary.

Lacking Direction

This upwardly trending market, has me looking for direction.

The range bound back and forth between worry and optimism, GS publicity tours and European electoral politics leaves my normal confident self, unsure. I’m holding S&P short spreads for May expiration, waiting and watching.

The good thing about this ‘pause’ is I’ve had some time to play with the IB Java API which looks promising, if I can get anything interesting out of it, I’ll let you know. My GoogleDocs experience has been less than rewarding, like a teaser.

Long Natural Gas Futures are worth looking at, this has been under the radar for a while and is starting to come forward in the press and politics. 3 or 4 days over the 200 day moving average is triggering some interest.

So I’m long Natural Gas and short the market…

Good Trading.

Ping Pong

Looks like we’re moving back into a ping-pong/ying-yang market.
Which way is ‘up’?

Channel surfing is the smart option strategy.

Good Trading.

SPY Monthly Chart

SPY Butterfly Trade Idea

Yesterday’s high volume correction helps me enjoy trading, but today’s low volume bounce is like sitting in a French cafe on a cloudy day watching people pass.

I’ve been looking at two possibilities:

  • One, we bounce of the 50 day moving average and continue our slow crawl skywards
  • Two, we get a CPI/PPI shock Thursday and Friday.

Lets take the second, what kind of spread on the $SPY could I put in place for OPEX next week? I’m going to propose a 131/134/137 April butterfly. The IV has fallen off of yesterday’s peaks and I find, ‘the day after’ is usually the better day to enter this kind of trade. You’re giving the market a chance to follow through, or not.

If the CPI/PPI numbers are good you’ll probably lose on this trade, on the other hand if they’re neutral or bad, you’ve got resistance in the right places and only 5 days until expiration.

The S&P chart looks like this:

SPY Monthly Chart

The risk profile looks like this:

SPY Risk Profile

Good Trading.

Economist Cover

Classic French!

In typical defensive posture, The Nouvel Observateur has responded to a recent article in The Economist with the headline:

The Ultraliberal magazine blindly lampoons french politics. But 6 months before the crisis they didn’t see anything coming.

They should have cut the headline after the first sentence.

I’m going to translate the tortured logic of that second sentence; “You, the blind ultraliberal English have NO right to lampoon us, the Gaulist French because you ONLY saw the crisis 6 months before it hit.” This insinuates that the French saw the crisis well before the English, of course… But chose to tell no one for their own secret reasons while at the same time flattering the English. Impressive.

  • For the Nouvelobs’ article (in french) go here.
  • And for the Economist article which upset the author, Laurent Joffrin (Directeur du Nouvel Observateur) you can go here.

I love the he said/she said so I’m not responsable banter of the French press…

In reality the cover image must have had more to do with Mr. Joffrin’s frustration, or was it a coincidental social call from one of the candidates?

Economist Cover

Mr. Joffrin calls The Economist, “Talibans of Liberalism”, and the “Pravda du capital”, classic!

Good Friday Comrade.

Sentiment and Divergence

I’ve been sitting out much of this recent market levitation for a few reasons:

  • My sentiment in February was that we were nearing a top at the 135 resistance on the S&P (here), hence some calendar spreads turned out to be badly timed. It was time to reassess what I was seeing on the charts. A low volume risk-on climb day after day and given reassuring corporate profits, employment, and sentiment numbers, the bulls had a decent argument. They still do in fact, even with a pull back to 135 on the S&P we’ll still be solidly trending upwards. As Europe (re)emerges the bears are finding their way haltingly back this week.
  • This parabolic rise in AAPL simply looks like a classic end-of-cycle bull market to me, as mentioned here. You can’t stop hearing/reading/watching AAPL pundits. That screams, ‘bail’. Nearly everyone holds and continues to buy AAPL. It used to be that the Apple faithful were geeks arguing against the behemoth Microsoft. Now the financial community has taken up the kool-aid. I don’t believe the two mix well. Where $AAPL goes the market is likely to follow.
  • I’ve also been watching Europe, while living here. Greece, Spain, and Italy are serious problems both socially and economically. Besides the obvious election year politics in France, pushing the periphery onto the media back-burner, and the LTRO, have clearly been market-risky. The sovereign spreads are starting to widen quickly again and we’ve seen this story play out before. Very recently ‘parity’ was being whispered, and quickly avoided with the X summit. I expect more summit’s this summer. The Euro is so closely tied to the peripheral-risk, that no-one has any idea how bad it might really get, how long it might take to rebalance, or what solutions have fundamental effects. The risk on sentiment is only being played out on the equity markets or in dollar lending. The euro and euro lending is on ice. What impact will this have on the US markets is unclear.

Yesterday the QE3 ‘reassessment’ was striking and missing the gold short trade was clearly a mistake and still resonates in my head this morning! Add the falling euro too falling gold, no QE3, high oil prices, a low VIX and I’ve plenty of arguments to hold off the bulls atleast until the S&P pulls back to 135.

I’m going to continue holding my 140/135 bear spreads I mentioned here. I’ll be also watching gold closely as the levels I mentioned here have been triggered. The $SPY feels toppy again to me, will I be right this time?

Good trading.