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Deranged Stock Buying Presents 10 ES Point Arbitrage Opportunity Via Daily Decoupling
When stocks go straight up as they did in the last 20 minutes of trading (and pretty much all day, see chart) all sorts of broken things happen. In this particular case, the AUDJPY - ES correlation is presenting a clear opportunity to pick almost 10 ES points. For all who enjoy making virtually guaranteed money (10 out of 10 past decoupling has converged), the time has come to short ES and to buy the AUDJPY, which is in fact the leading indicator of the carry-driven secondary dataset known as the equity market.Also, please ignore the market's straight vertical line all day. That's certainly part of Bernanke's new normal.
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Virtual monie... heh heh.
Can someone please explain this correlation to me?
I am a bit of a newbie and I am trying to wrap my head around this thing.
The green line likes to sit on top of the white line. It's no longer on top of it, so they'll prolly converge?
That's my expert take on it.
Dude, you nailed it! You should be like the Fed Boss Ceo of American man!
People borrow money at a low interest rate and invest in things with higher profitability (risk). Before, the correlation wouldn't be as close, because of the time involved in carry trades, but with HF trading, the correlation becomes almost 1. Essentially, large firms are using super computers and microsecond connections to short a given currency in order to buy equities. So, as the carry trade moves, so does the equity market. Taken to its logical conclusion, the currency either plunges, and equities shoot the moon. Or the correlation breaks down, and there is a massive short covering rally in the currency while, the higher risk enterprise crashes. I hope this helps, as I tried to simplify. Look here for more information:
http://www.investopedia.com
Have any of the experts come to the realization that borrowing money to invest in equities is destabilizing and will eventually result in a market crash? hmmmm
Nobody cares, it's short term unenlightened greed. They just want bonuses. There's no thought to longterm viability.
Oh but there is long-term thought. There are a great many people who have spent a long time thinking that Monetarism is a necessary, viable tool for stimulating economic growth. The shining example being the Japanese. There is no risk of interest rate fluctuation there because their bureaucracy is balls deep with their constant stimulus. They're the yin to australia/europe/america's yang.
This is the new stimulus. Greece is defaulting so they had to do something, so why not just go into the computers at NYSE and change the numbers?
Short squeeze... This gives a hint for tomorrows NFP (bomb)... robots were shorting ES while decoupling was taking place.
What's boiling up the markets is a decline in the discount rate. You have the widespread practise of naked shorting stocks, rather than really borrowing shares to hold shares short in lieu of the decline, because math's hard.
So when interest rates decline, you are forced to settle, whereas if you borrowed shares at a fixed rate of interest, then you could still conceivably hold your short position.
So the panics are settlement panics where people who sold shares short without owning a single share to their name, or borrowing any because math's hard and suddenly obliged to actually buy the damn things.
What follows is an inventory sell-off, because holding these damn things is hard.
In other news (since the market is following some game plan other than common sense) a broad area of low pressure in the GoM is starting to gather a bit of power around it with a 50% chance of formation. This is one of those that if it forms it's going to happen quickly.
http://www.ssd.noaa.gov/goes/east/gmex/flash-avn.html
What really caught my eye, but apparently has no chance of becoming anything is a massive low circulating off the east coast (east on NC/SC). It is impressive...
http://www.ssd.noaa.gov/goes/east/eaus/flash-wv.html
Did I ever tell you the story of when I went offshore SC (60 miles out) a few years back....low had been sitting there for days...not doing much. We had engine problems, but could do 6 knots or so back in. Got in at midnight Friday night and by Sat night/Sunday morning, the low was a Cat 1 hurricane and skirted up the coast with 100+ knot winds....
Gaston was the storm's name. Good times!
anything that brings cold air is ok in my book. It's been over 100 for quite a while now...
This is just more evidence that the market is broken.
F*** this
"....certainly part of Bernanke's new normal"
Bernanke couldn't get that erect if he ate a factory of Viagra.
ES AUDJPY is not a 1:1 like EJ.
Shouldn't it be more of a 3:2 ratio?
The equity markets recovered confidence today as GS, various politicians and pundits jumped on the bandwagon of "QE2 is necessary." Bad for T's and good for equities. The attempt to steam-roll it into existence has begun. The same applies concerning endless extensions of unemployment insurance and the bail-out of states. Investors sense that a loose money bubble may be back in retails sales, gasoline, jet fuel, and tech junk, and they went for it. No?
My friends at the CFR told me that there is no anticipated QE2, unless the shit really hits the fan. It's not really neccessary when the fed can crash the equities market at will and drive money back into treasuries.
CFR is poor mans Bilderberg. Every shmuck who appeared on TV a couple of times can get into CFR.
I guess you're right. But they still seem to have the ear of congress and some of the fed guys,
or do i detect a hint of...?
The SkyNet Stock Exchange will go to 36,000 if Nuke War breaks out. These robots will keep on trading through the end of the world.
This link may be old news to many, but I like its systems collapse approach. Plus, it has reference to many good sources/articles. I think that looking at the market as a dynamic system in the midst of potential (probable) collapse is very helpful.
http://bearmarketnews.wordpress.com/2010/05/20/avoiding-societal-economi...
The difference at the time was 10pts in ES or 50 in AJ so it's not the same as the ES:EJ trade where you could do 10pts on the ES to 100pips on EJ.
ATRs on AJ ratio to ES are about 2:3 so anyone doing this trade must adjust - shouldn't you point that out TD?
That is 10pts on the ES will be equivalent to around a 66pip move on the AJ.
I could be wrong but I think the way to do this trade is to take offsetting positions with nearly equivalent market values in $USD.
Since a single ES Sep10 contract is Mkt Val = $52k USD -
the closest equivalent offset position would be 60,000 AUD/JPY = $51K USD.
Please correct me if my math or logic is wrong!
I have a buzz word for you if you like that kind of thing: 'denoument'
You can use it. Pronounce it like you were French. Or even more radicale, Creole. Please try not to look imbecilic and pronounce it as if it were some sort of mint.
The 'crash' was the oil market-price corner in 2008, no small irony then, that we are contemplating the collapse of BP, and the collapse of finance related to oil in general, just like Enron.
http://dshort.com/charts/N225-SP500-deflation-series.html?N225-SP500-ove...
What I love is that everyone seems to have completely forgotten all of the news stories of "A Depression" that were on the front page of many MSM sites over the weekend. Not "The Greatest Recession", but the dreaded "D" word. Lots of these stories; it was the mood of the moment. Even Prechter popped up, and you know things are gloomy when he gets serious airtime.
Then, here we all come back from vacation, and poof! They are all gone. Happy days are here again.
Holy crow, that cocaine-powered train hit me hard!!! Wish I had access to the discount window...
nature of trading has changed - it is all out warfare where the HFTs battle other HFTs...trying to screw each other up in order to fuck up their respective fund performance and gain the AUM. This is a market driven by algos and predicted by non HFT traders on what the algos will do. Thus, its almost impossible to trade unless your an algo. Schonfeld is right.
Better algos are coming...
LOL...was in an IBM facility today in DC.
Poster: two computers side by side. Captions below them, "Bear," "Bull."
You know it's bad when the vendor is essentially advertising for it.
Sorry, you'll need an Econ PhD.
On a side note, I predict this ball will hit the floor when I release it from my hand.
But I have no idea what I'm talking about because I don't have a distinguished Physics PhD.
Tyler Durden:
Love the website. Lots of info and data points. Like how you hat tip others too. This makes your website a valuable source of information and opinion.
But, if I may, sometimes I think you're full of shit. I see the trap that bears and bulls fall into: be bearish for the sake of being bearish; be bullish for the sake of being bullish. Judging by the hyper-cynical points of view, not only do I believe that you think all markets will disintergrate, but that you HOPE that they do, and that you emphatically hope you're correct in the market's demise.
Now, I'm no fan of the world's embrace of neo-Keynesian economics of quantitaive easing. But let's be clear about one thing: this market is driven by liquidity. And if you seek for explanations on the downside, may I remind, regardless, that QE will drive stocks higher.
Do I agree that this is 'quality' returns? No. But can they still provide returns? Perhaps even to short its lack of qualitiy? Perhaps. But to totally ignore that this is a liquidity driven market is a serious flaw to the website and your content.
Was there any inkling on this blog that perhaps 1002 on the ES futures might have been a bottom, if not, in the interim? Was there any credit, 5% later, that perhaps Doug Kass might have called it correctly, if not, in the interim?
In other words, I'm convinced that even if sovereignties paid narrowed their deficits, economies rebound, jobs created, aggregate demand increase and corporate profits skyrocket ZH would be trapped in continuing to seek the argument for the perpetual downside, even 300 S&P points from now.
Balance yourself, because the day will come that this economy and corporate profits rebound. I don't know when, but it is inevitable, just as this bear market has been. No one knows the time frame. But if and when things look good, is ZH at all capable embracing it? Or will ZH be the pertual bear, like so many before you, and your gleem dissapate?
R/S
Chris Monoki
Brilliantly stated! Bravo.
If the stock market is a derivative of the carry trade, why do we care about the head and shoulders on the S&P?
Shampoo: http://stockcharts.com/c-sc/sc?s=$XAD:$XJY&p=D&b=5&g=0&i=p83616305867&r=5867
Does anybody else see the smaller, newer H&S forming with a much stronger neckline? Or am I totally out to lunch?
AUD/JPY blasted off right around 9:30 Eastern due to the much better than expected employment numbers coming out of Australia. Not exactly a "re-coupling" but the results were the same - or actually much much better due to the upside overshoot. Lucky trade tonight!
Thx again Tyler!
Ok, i've decided i can't put it off any longer - here it is ...
Scary DOW monthly chart.
http://stockmarket618.wordpress.com
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