Tag Archives: SPDR Gold Shares

VIX Chart

Something is about to happen

Complacency is the adjective I would use to describe the current state of the markets. With the exception of GLD and SLV the markets feel less paranoid than they should, less afraid. Maybe there’s reason to be optimisitic, apparently the ECB has things back under control atleast in the credit markets. But there’s a few charts which are telling me, watch out…

Take the VIX which is sitting at nearly 1 year lows. Doesn’t it seem like something is going to happen which will motivate some insurance buying? Take Syria, Greece, the US debt politics, Iran, corporate earnings, etc. There’s a fair amount of risk still in front of us. Straddles might be the order of the day, or VIX futures?

VIX Chart

Look at the SPY and depending on your timeframe, some pullback here can only be healthy. We’re also sitting at some high range resistance. I wouldn’t be surprised if we bounce off this 135 level on the SPY.

SPY Chart

Tick, tick, tick

So everyone is waiting until 14h15… That gives me a few hours to think.

The pure futility of this press conference makes me think of Gold, yes, Gold. Strange, I admit, but there’s also a certain futility in Gold. And by way of Bloomberg I saw a quote from Warren Buffett. He was commenting on Gold (not the ETF $GLD but the stuff they dig up):

  • They take it out of the ground in South Africa, ship it to the Federal Reserve, where they put it back in the ground, if you were watching from Mars, you might think it’s a little peculiar.

What if we didn’t have this shiny competing currency? Would we (or could we) invent another ‘something’ to compete with government issued currencies?

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Monday 45

The CAC40 (-4%) is plunging but the DAX (-3%) and the FTSE 100 (-1.3%) aren’t nearly as bad. It looks like the banks are taking the worst of it with Societe General (-10%) and BNP (- 12%) under major selling pressure. You could even say crashing, on the ongoing Euro-ECB-Greece-Finland-Drachma drama. It looks to me like SocGen is in the worst shape. “SocGen set to accelerate asset disposals“.

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Welcome Back Europe

Today was the start of the school year here in France. Le rentrée. Welcome back DSK, welcome back BNP and Societe Generale. Wasn’t it better on the beach (or in prison)?

Merger Rumors? That’s a silly desperate long-shot: a lazy distraction.

The EUR.USD has broken under 1.40000. That’s a psychological level that’s held since this past July.

It’s Europe’s turn to scramble. There are parallels to the lovely little Republican -Democratic debt ceiling pissing match. But the obvious difference is that there are 17 members in the Eurozone each trying to cover their constituents proverbial backside.

It’s like 17 Tea Parties running amuck at the Republican National Convention!

American talking-heads say Europe is headed for disaster. Journalists looking for a story are like traders looking for resistance and breakouts. “The EU has to breakup, there could be civil war…” Count on UBS and ZeroHedge to titillate the gossiping financial classes with end-of-world scenerios. Here’s an example (link) and here’s another (link). And why not FT-Alphavilles “Who is the doomiest of all?”

Even if the end-of-world is near, it feels like we’re being “hard sold” a short position from a used car salesman. That’s a great sign to be sceptical. The unexpected move from the Swiss ($EURCHF) got me thinking about all that I don’t know. What other surprises might drop from the sky this week?

I have a good short position on the Euro but I’m starting do doubt it’s longevity. The Eurozone is a mess, agreed, but it’s structural. Therefore, fixable… Right? Who cares if the Greeks leave the Eurozone? Italy and Spain have huge black market economies, they’ll get by. Bridges and Tea Party extremists might save the US but you have to admit, consumption (demand) is maybe even MORE important… But is it AS important in Europe? They’re mostly Socialist, relatively poor, and good savers. European countries have historically dealt with far worse. Think German unification or Franco. But thinking about the US, since the civil war, what significant transformation have Americans’ “overcome”? September 11th? The jury is out still.

The perceived problems in Europe are potentially ‘less real’, than the perceived problems in the US. Just saying…

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Half Way Organic

I’m still perplexed… After the worst consumer confidence measure since 2009, the market is ‘rallying’ (it’s positive – barely). The SPY is consolidating as I type this around 121.50, GLD is holding up better than expected and the VIX is crumbling. Europe has closed at about even.

There was a commentary I saw pass that said “organic sellers” are non-existant and that headline shorters are all that’s left. Whomever “organic sellers” might be, I think there’s some truth to this. I mentioned earlier this morning that any positive news might hold greater sway than negative, this is playing out, even without positive news! To be fair there are whispers of QE3 and screams of, “duh”. What should we make of all this? Probably, sell straddles. Count on a channel until all the “organic gardeners” have come indoors?

If “organic buyers” are holding this market afloat, what would make the “organic sellers” come back to the party? They could look at their fibonacci’s and cross their fingers. They could even read ZeroHedge before they go to sleep.  If they haven’t come inside sooner, I’m guessing the ADP employement numbers on Thursday, and/or the non-farm payroll numbers on Friday might just do the trick.

GLD SPY Divergence

I’ve been watching both sides of The Gold Argument lately. Overbought or not – this is the question… It’s hard to say obviously, but in parallel there are high expectations for Friday’s Jackson Hole ‘speech’, gold margin hikes, and some optimism creeping into the market. (Thanks to my post yesterday, surely!) The VIX has pulled back to 38 and this combined will put downward pressure on GLD. At least in the short term I expect to see $GLD hold under 185.

I put on a bear spread  today with the expectation that we might be nearing a top on the GLD ETF.

As long as the SPY trend upward was following the GLD trend upward the underlying buyers of $GLD were still expressing their anxiety. In effect the reason traders were buying gold hadn’t changed, even though the market was heading higher. But when I caught this divergence (on admittedly a short time frame), it was signalling a confidence change.

The trade:

  • Bought September 183 Puts
  • Sold September 178 Puts

Macro vs. Micro

Playing this market recently has come down to two problems: debt (macro) vs. earnings (micro). On the earnings front, you’ve a lot to follow, even in a down market. Finding strong cash flow, strong balance sheets, small/mid/large cap hasn’t been so difficult. The issue is unemployment and the ongoing macro problems keeping a lid on the continued release of positive earnings.

If you read this blog you’ll know that I’m distracted by technology stocks.

Any good news on the debt (macro) front is going to boost this market. That’s the prevailing sense and logically, good news should boost the market. We’ve waited so long now that the pop will be a good one. The truth is good news could come from either the US or Europe. That news doesn’t even need to be ‘super good’, just ‘decent’. Whether it is valid/real or not is another discussion… It probably won’t be, but that’s for traders with a longer term vision than mine. The reality is that the US will have an easier time releasing decent news and sooner (or later) the Republicans will get off their high horse. I’m embarrassed with that debate. But again it’ll be ‘easier’ for the US to lead the markets here. The EU is turning in circles and it’s the summer… Here’s a good graphic explaining the risk of banking and trade contagion. (The Washington Post)

So what should you trade in this market? Fundamentally, any good news will have a stronger positive effect than normal. Earning plays are working very well now. I’d watch option volumes closely before earnings and play long straddles. WYNN was hot today and is a good example. GOOG was another last week. Three stocks that release tomorrow after the close: AAPL, VMW, and YHOO would be good ones to consider. YHOO though is seeing lots of short interest. Be careful. The run up in AAPL today gives you an idea of expectations. I’m staying away from Financials which are being strongly effected by the worldwide macro worries but playing SLV and GLD in response.