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It All Starts And Ends With The USD
From Nic Lenoir of ICAP
There is basically nothing new to add to the picture. Maybe that is why the only thing going on right now is an unabated selling of volatility in both Fixed Income and Equities. The NFP number was slightly disappointing though not horrendous, just enough to convince people we do get QE 2.0 in November and not bad enough to send people into panic. Meanwhile we did get confirmation that 2009 employment figures were in fact worse than reported... in typical BLS tradition one might add. And I thought econometrics models were supposed to have an average deviation of 0 to the series they track! I guess you don't need a statistical backgroup to work at the Bureau of Labor Statistics.
The EURUSD and AUDUSD attached charts show that the recent trend is still intact. In that sense those two currency pairs will be our best indicators of a turn should it happen. As of now grains are all trading limit up and people are rushing back into commodities after yesterday's debacle so I would not hold my breath until we see a breach of the trend supports.
I remain bearish equities as we have not bypassed 1,154/1,165 for the S&P future, which was the recommended sell zone. However conviction is not intact especially since the price action looks more like a sideways consolidation than a reversal pattern. That being said I would not part with VIX November calls as they are a cheap insurance and we all know how quickly things can move when they head south. An excellent trade to go along with that position is buying the November 1,175/1,200 call 1x2 on mini S&Ps. You receive 1.25 ticks to buy the 1,175 and sell the 1,200 call twice. If the market grinds up in an attempt to bore us all out of our skulls irrespectively of the economic picture, you stand to collect up to 25 ticks. A buy stop on the future at 1,225 will help you sleep soundly without worrying of an upside blow-out which in my opinion is extremely unlikely to be forceful if it materalizes. And the beauty is that if the equity market rolls over you don't lose a cent because you got paid to put the trade on...
I also think a good way to hedge bearish equity positions or long VIX positions is to be long Fixed Income. I recommended to a few acocunts buying the 133.5/135.5 bund December call spreads this morning. So far it is working great, and the kicker is that if the stock market flash crashes you probably end up with higher bonds in general. The structure traded down to 31/31 and you stand to make up to 200 ticks.
On the radars should be Juncker's comments this morning that EURUSD above 1.40 bothers him. The Canadian Finance minister had some harsh comments for China, and Obama just called for the liberation of the Nobel peace prize winner (not himself, the latest one). That tells me at some point possibly soon we will see further deterioration of public relations and currency wars further ignited. Then there is always the mortgage disaster looming... Both require in my opinion a lot more attention than they markets have been paying to them.
Good luck trading and happy Columbus day weekend,
Nic
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It's one thing to be bearish, it's another thing to be short equities. Can't believe there are still people who can't see this for what it is: a liquidity induced melt-up courtesy of the Fed.
Been saying all week, you gotta be out of your mind to short this market. The deck is so stacked against you. Just gotta go with the flow.
yeah I'm one of those out of my mind. I just couldn't resist. Bought puts and got creamed this last week.
Fool me once, shame on my, fool me twice, um... shame on someone... fool me tons of times... well... I'm an idiot.
Yeah me too I just bought some puts on Las Vegas Sands - maybe it goes back to 1 maybe it goes to 70....
Wait a second, you can't be an idiot - I never see you at any of the meetings!
That screaming sound? Oh, that's just my premium evaporating! I hear ya, brother.
I was with you ned. Damn internals looked like they were setting up for a fall on friday. Since I was in weekly and found some heavy open interest on the put side, disaster. It was probably some dirty mm in the know with a lot of short puts open.
This is why, though, when it goes (and it will) it's going to be quick, hard and painful.
Bernanke, Geithner (AND Obama, for he must know now that most Americans are not being fooled by this) must be, forgive the phrase, crapping themselves.
DavidC
Regardless the reasons, let's look at the pressure on the markets...
Treasuries priced for Deep Depression?
Equity market priced for moderate Inflation (above trend) but somehow increased producer prices without increasing wages will not cause a loss in profits?
Dollar priced for US economic weakening, 2011 budgetary impasse once Dems and Repubs split congress?
Euro strengthening due to a lack of plans to QE? while PIIGS and periphery die a FX uncompetive death while Germany will start to sweat under inflationary pangs from interest rates too low?
Yen priced for the destruction of the Japanese exporter...Japan will need to show some real disregard for it's citizens savings if it wants to save it's exporters?
All the above is now tied together by a single entity...the Fed. None of this sustainable without massive ongoing props? Seems something, somewhere will slip sometime sooner than later.
Seems STAGFLATION (wage growth way below inflation, inflation of all conusmer neccessities, deflation of fixed assets (homes, CRE) that take financing, credit to buy) is here and likely to stay with us a very long, painful period?
Here's what I think Obama would say right now in a not-so-friendly fireside chat:
http://peakcomplexity.blogspot.com/2010/09/my-frantic-americans.html
And it was predictable in an election year. Even the stats get overboiled (even more than usual).
yeah yeah, and just when everyone is all in watch it crack to the ground. both faber and j. rogers are predicting downward moving stocks over the next month. im sure it will come just when everyone has been suckered in. im happy watching commodities go up, dont need any of these crap corporations stock.
The Russians planted YURI.
The Chinese planted Bernanke.
Someone stop this man from destroying the currency !
Risk assets all goose stepping...
That's quite an erotic picture Robo!
DavidC
So that is why mortgage insurers are running wild today...
let me guess, they're up, right?
Oh, a cool 8-10%
In a normal environment shorting equities would be the play...but when you are fighting the worlds largest hedge fund,with a printing press to boot, you might as well forget it.
Instead of burning the United States Flag in other countries, they will soon be lighting on fire our dollars and laughing at us. They may even call us stupid reserve world currency leader of losers who have no control over anything but how ingnorant and foolish we the people let dumbass money hungry power elite fools take control of our country.
I like your lines and graphs. Especially, the use of royal blue. That was a classy touch.
If I didn't know better I would swear this is a pomo day.
'I recommended to a few acocunts'
Thats no way to talk about your clients, Nick.
LOL
Everyone reporting that stocks are up because jobs report confirmed the Fed will act.
Like I said yesterday, considering every scenario with the BLS report, you had at least a 75% chance of a rally today. Nothing is ever "baked in". The laggards always wait until the announcement is made.
pretty obvious trend right now, dollar down and stocks up, just what BB wants.
Guess he even likes commodities and gold going up.
I just wonder how far he will push this...I still think we are very close to the line where a dollar rout becomes a sure thing.
So far Tepper is right: bad news is good news and good news is good news, so you have to be in stocks.
I have been range trading 1050 to 1150/60 but don't want to add to my core short pos as it looks like we'll go quite a bit higher before we go lower.
When this goes lower though, it will go much, much lower. I give it 2 months.
What would a "dollar rout" look like at this point? I mean, for Christ's sake, what's it going to drop against?
It can't move against the yuan. It's already down against the yen and euro? And there isn't enough volume in other currencies to be meaningful.
Sure, gold can go higher, but there are practical (as well as policy) limits to how much institutions can put into precious metals, and even commodities.
In fact, I think we might be near a dollar bottom, certainly against the euro. If the Fed continues its cheap-money policy for another 3 months (which it will, of course), the ECB will have no choice but to begin the same currency-debasing policies.And that will mean a dollar bounce.
The more probable outcome of all of this cheap money is a new bubble strategy, and I'm not talking about gold. M&A, and particularly the LBO flavor, will explode. You'll see consolidation like you've never seen it, with resulting "efficiences" that will take the jobless rate much higher.
No, I don't think a dollar rout is in the cards at all. It's more "economic activity" that will send stocks yet higher, and then result in an unemployment rate that will make 10% jobless look wonderful. After that, comes social unrest, big-time.
Anything tangible. Especially gold, silver, and oil.
i don't rule out your scenario just because i love to be a contrarian, and shorting the dollar just looks so obvious right now.
But...I see a dollar rout like this: vs Euro we break 1.40 and see 1.45 very quickly, then 1.50 and 1.58. When it breaks 1.60 things get very ugly very fast.
Same with yen, maybe down to low 70 s.
No move against Yuan. Gold to $1500 easily, very quickly, then testing $2000.
I agree, M&A and LBOs are obvious...I mean it's already happening.
Also commodities skyrocketing.
I am not saying this will happen for sure (the dollar rout), but i think it COULD happen, very easily.
I'm not betting on it at all...in fact I am slightly long USD against a few minor currencies at these levels.
However it plays out I agree, a collapse is in the cards, it's just a matter of when, and what route does it take.
How long can the debt-laden EU last with a 12.5% haircut on their already troublesome exports (1.4 / 1.6)?
Can China pull a "Crazy Ivan" by manipulating the EUR/CNY exchange rate?
How far can Bennie and the Inkjets demand-pull inflate oil before they back off (i.e. how many $100B bundles before gas prices pull the plug)?
M&A -> much higher UE, more defaults, less capital outlays. More leverage: great.
Second dip coming...Bernanke is out of bullets, threw the gun, and can't punch.
Because everyone thinks there is no way to go against the FEDs by shorting, therein lies the true contrarian, every good thing must come to an END, so will this FEDs induced sugar rush! Just show some balls people! If you are not IN and willing to take some pain you will miss the "showdown" which would be a great pity since we all had to step back from this madness to save some dough! Think of it! Most won't even have the time to look what to short on the way down, it will happen so fast, by the time you "wake up" it's done!
Absolutely; spot on TradingJoe.
DavidC
exactly.
that's why i'll keep my core position even though i am quite sure the market goes higher for a while here.
you never know the timing, and one bit of bad news (Hungary anyone? Spain?) and this market will collapse.
I day trade from the long side, but unload my position at end of day usually. I don't feel comfortable having any longs overnight.
If Hungary announces, short the hell out of the Swiss Franc- against everything.
Yes, well said. And if we don't, we're kind of responsible, we're kind of enablers, we're kind of co-defendants. The only weapon we have is our collective capital, collective labor, and collective squatting. As we contstantly point out on the first TARP, they don't listen to our phone calls
I agree, I am in, but it is painful to watch. I believe you are also correct in that when it goes it is going to hit it hard and fast.
Actually it all begins and ends with wages...
Anyone see the grains today???? If your short...you literally could be dead!
Me<---------------------Hating this tape!
Yeah, grains killing TSN...
I think we are close on the EUR/USD...aside from 1.40 resistance on a daily chart, on a monthly chart there is 36 SMA resistance...time will tell.
There is a long-term 68% Fibonacci resistance level at 1.39. The Euro has fallen back below this level. I believe it has failed to breach this important level and will now fall back.
The near-term downside target is 1.3680 and the next target would be the 50% retracement level at 1.35.
Time will tell.
Dow breaks 11,000 on terrible news & the assurance that the Middle class (and their children) will get raped again by QE2.
Makes me damn proud to be an American.
The middle class is SO overrated....
middle now means between a rock and a hard place
Read more: http://www.businessinsider.com/october-8-2010-the-day-agriculture-prices-exploded-2010-10#ixzz11mnOl0Wc
http://www.businessinsider.com/october-8-2010-the-day-agriculture-prices...
more charts at http://tfc-charts.w2d.com/marketquotes/
it would be interesting to see a forensic analysis on how exactly those futures popped up in tandem on a day before G-7.
Agreed - it may have been a coordinated warning as to what will happen if there is more crazy money printing - 42 million Americans will have to go on a diet...
KING DOLLAR.
How to lose 35% in two weeks by Nic Lenoir!
Long option plays are like Cobras - never engage the snake until it lunges. Trailing stop buy orders or bust.
amen, Minion!
Sadly I've only learned this after busting out too many times. Your advice could save a few novice option traders some money. But then again, PAIN is a valuable teacher!
thanks,
Beef
Nic and Orly seem a lot more tentative than a week ago.
There is a difference between being "tentative," as you say, and waiting on the trade to develop. It is the problem with most traders these days, I suppose, that there is some instant notification and realisation of trade signals and market movement and when it doesn't happen on the next five ticks, then you bail.
My style of trading is not instant and nor should yours be- even the day traders have to learn to watch the play develop. Far from being tentative or wishy-washy, in fact, I will say that I am sticking with my calls and will give you dates as to the completion of the movement. Notice the lag between now and then:
So you see, in that way, I am hardly tentative. Just patient. Waiting.
The signals are there and are a fact of the market. Being patient and waiting for the trade to come to fruition and having the ability to absorb the drawdowns in the meantime is the key to trading. :D
The signals are there and there is nothing Unca Ben can do about them. Others may say that it is I who is trading against the market and trying to force the market my way. I believe it is the opposite situation: the Fed are the ones fighting the tape. They are the ones throwing their "margin" at these losing trades, not me. It is the Federal Reserve going against the market and we all know how that ends eventually.
And in the case of these unwashed billions of dollars, they can keep it up longer than you would imagine, so patience is needed there, too. It seems when it ends- and it will because Mr. Market says so- the failure will be spectacular indeed.
The banksters are very patient and they always win. They average down their losers and sell their winners. This works so well that they loan money to speculators who chase price and must do the opposite. :)
There are speculators and market makers. Someone is there to buy the positions out of the weak hands......
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