This page has been archived and commenting is disabled.
Monday...More Carry
Submitted by Nic Lenoir of ICAP
Very little economic data whether it's in Europe or the US today. Recently that has been synonymous with more carry trade: short USD long anything that has high beta. Today seems to be no exception so far, though the USD is not getting beat up all that much by recent standards. Expect dismal volume and an attempt to run the market up.
A few things are interesting. First we are quite significantly up on the day in European equities already. Second EURUSD appears to be drawing a bull flag, but just tested the upside resistance so we should expect consolidation for the next few hours of trading. Another sign is the recent break in correlation between USDCAD and crude oil. Graphically this looks like a dead cat bounce for the USDCAD more than anything, but it tells us the market is a bit tired and recent trends need a short break before pushing further.
In S&P futures we seem to be in a new channel with a slightly lesser slope (the market is tired...). The support is around 1,078, but there is an intermediate support level around 1,080.70 that I don't expect we would violate during today's session. On the upside observe 1,090.70 as the intermediate resistance, before the topside of the channel at 1,100.20.
A look at the Dax seems to indicate we now have an intermediate support around 5,738 in the future, while the topside resistance is at 5,925. Technically the graph is much clearer than for the S&P futures, so I would suggest using the Dax as a guideline playing equities in the next few days. Given the price action one could expect to retest 5,738 before pushing up to 5,925. Only a break of 5,738 would confirm a bearish tone and a more significant retracement towards 5,525. Without this break, we would play the range bewtween the 5,738 and 5,925. A retest of the support to begin with seems the most likely outcome.
We conclude with bonds, where the market stared the week weaker following a Barron's article. The piece seemed a bit naive, and we would not make too much of it. It seems to have been shrugged off for now by US fixed Income futures. Technically we continue to think the 117-20+/117-28 zone is where traders could establish tactical longs to play a retracement towards 119 in 10Y futures in the near term.
Good luck trading,
Nic
»
- 2570 reads
- Printer-friendly version
- Send to friend
- advertisements -
go USD
From an Elliott Wave perspective, USD has completed 5 waves down in the C leg of a large, months-long A-B-C. Trend traders are likely to get caught right where they usually get caught -- at the trend change.
Not the smart ones. The smart ones take money off the table, wait for the trend to change and then factor back in on the other side. Discipline and patience. Discipline and patience. Discipline and patience.
Well, there goes a USD purge to throw some cold water on this thread. All the TA in the world is useless in the conditions of free money.
71 here we come.
Really very easy to spot. EUR/USD in pips and Dow in points, correlation .80-.90 each and every time they try to pull a stunt like this. Pathetic.
So friday, the Philly exchange went down (no big deal, it was only OP Ex) and today I get a message that CBSX is "unavailable for trading due to technical problems at the excahnge."
Amazingly, today's failure led to an immediate bounce off the lows to a high (s&p futures).
This must be what it's like to trade in the third world.
technical problems accepting sell orders only? No problem accepting buys?
Under the carry trade, major institutions borrow dollars at near zero interest and use the funds to buy things like Austrailian gov. bonds etc. Therefore, I understand why the USD falls under this scenario but can someone explain why high beta stocks rise? That connection isn't clear to me.
The reason high beta rises is b.e.c.a.u.s.e. they are high beta. No relation anymore between price and value, do nog ponder the issue, get with the program.
In the broadeset terms high beta means highly leveraged to second derivative improvements to GDP. To see this in action in bond land see the recent divergence between LQD (high quality corporates) and HYG (junk). Those buying HY and high beta are chasing yield and growth RATES respectively with absolutely no regard for the quality of investments.
In my comment I guess I should have said equities vs. high beta. Perhaps the weak dollar makes US equities cheaper for foreigners and that is why the market keeps going up?
I am aware of the divergence between IG and HY. However, everyone is going for HY now without regard because the government will bail them out if the underlying companies go bust right? In other words there is no risk anymore - Barney Frank has your back.
http://www.youtube.com/watch?v=LO2eh6f5Go0
I see the decision to buy HY at this point going something like this: PM sees their portfolio has a very low yield. HY has fatty yields relative to the S&P and spreads are still wider than *normal*. The cognative dissonance for buying HY while recovery rates are falling involves either buying a basket to spread risk or discrete issuances after doing homework. So the PM can believe they're buying a security at historically cheap levels, at a great yield, with risks mitigated due to selection. And most IG debt would be trading at those lower yields the PM is looking to beef up in the first place, so the IG space is now lagging relative to HY.
Its not that anyone would buy in the HY space thinking govt will directly support any one player...folks are more buying into the idea of a sea of liquidity continuing to narrow credit spreads, with HY being the biggest benefactor of any such moves.
With regard to equities, a massive chunk of high beta stocks either have overseas exposure or are highly leveraged to finance or commodities. The overseas and commodities are self explanatory and financial equities benefit from the same liquidity driven narrowing that benefits HY (and more flood of liquidity = lower dollar). So its in that way that much of the high beta space benefits from the weaker dollar.
Early warning signals are vol (European volatility that is) and NKD (watch discrepancy). If confirmed by low bond volume (price is less important) EUR/USD and cash-Dow pre-market signal is valid for European markets. This is one hell of a sick market.
I keep rolling my index shorts to the next month..... painful and expensive, but can't afford to miss the move if it ever comes (Waiting for Godot).
Dollar was up a touch late Sun night. SP futures were down 7 points to FV. Magically there was a rally in the risk carry trades - on no fundamentals - and voila, the dollar was down after the London fix. All the futures show green by the time US wakes up.
Now let's sell off the USD a bit, and watch the market print new highs...
Calling Barron's naive would be - well, naive. Their pieces are more of an opposite call than GS Conviction lists.
p.s. The Euro Fin Ministers put a piece out this weekend trying to talk down the strong Euro. Pissing into Hurricane Ben at this point.
They may as well let it rise, it will do their job for them by killing manufacturing. Once that happens the euro will slump.
I've got a question:
I've been watching the Forex market with much interest for the last 3 years (being an American living in Europe will do that to you) and I've noticed this ridiculous trend -When Rueters or some other US financial info source claims the dollar is gaining when I take a look at the numbers the opposite is actually true.
The interesting thing is that the louder and more insistent they are about it the lower the dollar has sank against the Euro and the Pound.
What's up with that? Just flat out lying or are they taking stupid pills?
Occam razor in practice here
THEY ARE LYING. Every segment of an Empire does that. I can guarantee you, they are NOT stupid, quite the opposite.
THEY ARE LYING
succinct.and.accurate.
I am just wondering about this website. All talks are about doom and gloom, bear market, USD, etc. The fact is that the rally is happening out there and this is bull market and it will never ever go down until the next bear cycle which probably happen in 4-5 years. I always see article mentioning it's about time to go down when market pulled back a little bit, but in fact the market continued to rally. Look today, it's bull market, people!! Stop complaining and enjoy the market!!
And as I sat there brooding on the old, unknown world, I thought of Gatsby's wonder when he first picked out the green light at the end of Daisy's dock. He had come a long way to this blue lawn, and his dream must have seemed so close that he could hardly fail to grasp it. He did not know that it was already behind him, somewhere back in that vast obscurity beyond the city, where the dark fields of the republic rolled on under the night.
Gatsby believed in the green light, the orgastic future that year by year recedes before us. It eluded us then, but that's no matter - tomorrow we will run faster, stretch out our arms further... And one fine morning -
So we beat on, boats against the current, borne back ceaselessly into the past.