Monthly Archives: June 2013

Shifting Fed

Now we can explain why bad news is good and good is bad.

This morning the claims numbers missed slightly and the ES is rallying. Personal income rises, and spending falls. Ok. The logic apparently is: if the economy slows or stays flat, The Fed continues buying. A stock market methadone drip. This is now the only factor of any import, left for investors. How much have central bankers primed the system? (source: FT):

  • $12 trillion of financial asset purchases by the big 5 central banks
  • 520 central bank rate cuts
  • $33 trillion of fiscal and monetary stimulus according to the BIS1 (an amount equivalent to (46% of the world economy)
  • The lowest US government bond yields in 220 years
  • 50% (or $20tn) of global government bond market cap trading with a yield below 1%

The effect withdrawl will have on the EMs or Europe, is unclear. And yet I have gold in the back of my mind… Gold remains the outcast, only recently she was the prom queen. What to make of the paper selling in gold?

S&P-Gold Chart

All of last weeks worry was unwarranted. Really? That was quick. Is the VIX buying it? She can’t decide what to wear to the prom and gold is not in fashion.

VIX Chart

So when will QE end, slow, stop or be spun into such schizophrenic confusion that rehab is the only option? Never? I find that hard to believe. When the economy starts working on its own? That’s vague. Maybe they can take it in 12 steps. Friends of Ben.

The risks of shock to the equity euphoria are huge. Being long here feels dicey to me, but based on the charts it looks smart. We met one of my pull-back targets, but I personally traded it poorly. I was expecting more time to pass, end of July was my target time horizon. Here’s the chart and my logic is here.

S&P500 Chart

Leaving aside the BOJ, ECB, and Fed, the most confusing action for me is gold.  Is it not a safe haven investment after-all? Have we been mislead? Where’s the simple reasoning that gold will protect against inflation? Is that no longer a major risk? Check out the gold chart. Ugly.

Gold ChartGood Trading.

 

Al Franken John Oliver

This is absolutely worth watching!

Credible Confusion

For those watching the gyrations of the S&P Futures, the sceptics are being vindicated. How long will the weakness last is unsure (though I have an idea), but; fear is seeping into the market. The strategy I’ve been following is written about obtusely here, here, and here. The list of red flags which have been raised over the last month is long, and taken individually the market might have easily overlook each. Yet even as the elephant in the room, Mr. Bernanke, tied the lose ends together as optimistically has his communication strategy would permit, traders started looking for an exit.

So that’s all well and good, but what now? The elephant has spoken. Continue reading

Good Morning Viatnam – S&P Retracement Levels

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:

Retracement Targets

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.

Good Trading

Robin Williams

Sun and Wine

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.

FSLR-SOL-JASOThe answer is: not really.

So is there a trade here? It’s worth thinking about…