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Nic Lenoir On Starting The Week With A Bang
From Nic Lenoir of ICAP
It's always good to walk in with markets up over 1% for absolutely no reason knowing that the move for the day is behind us and there is nothing to look forward to all day. Good news range from "Banks are going to face tougher capital requirements but have 8 years to comply" aka they are broke but don't have to admit it just now, to dismissal to double dip theory based on one data point out of China. Leaving aside the obvious lack of credibility of any number coming out of China, it's interesting to note how the market learned its lesson from the Madoff debacle. 11% return every year like clock work? Sure no problem. +9% to +10% GDP annually like clock work anyone? Maybe a little similarity here no? Not even a bit? The top of the Chinese miracle must be close when Michael Douglas is out there touting he made all his money back after a rough 2008 by buing AUD bonds. He is to AUDUSD what Gisele or Jay-Z were to EURUSD. Watch CAC open tomorrow to see if today's rosy mood is here to stay as the chart attached looks a bit like an abandoned candle on the highs...
Besides all this great news though, the bond market did not buy the enthusiasm today and yields finished down. I attached the Tnote and Bunds chart. Both have very similar wave formations, and 10Y UST futures saw their downside target at 123-00 this morning. Bunds seem to have slightly more room to go with the key support / buy zone at 129.10 but they came relatively close overnight and next push should be the last. As I equate for now on paper a return to the bond rally with more flattening of the yield curve, I tried to revisit today conditional 5/30s flattener. Remember last time when we had pitched those bear flatteners when the curve was at its steepest based on the fact that the structure was virtually free to buy? Well today the 136 USZ0 calls X -2.8 121 FVZ0 calls traded at +45 ticks even though it is out of the money 8 basis points to the curve and 15 basis points in terms of yields. That tells us that volatility curves have adjusted to price in that more flattening is a lot more likely that was assessed early in August. For that reason though the trade is not very attractive, whereas buying FVZ0 121 calls outright is. If Bond calls are pretty expensive, downside for 5Y yields is a pretty cheap bet here. The calls, which once adjusted for roll-carry (see sep/dec spread in 5Y futures) are only 15bps out of the money don't even cost 5bps... Certainly worth keeping in mind if you buy into the economic slow-down theory as I do. A 20bps rally (equivalent to revisiting the lows in 5s) assuming all else equal would quadruple the premium invested.
I will conclude with AFSSR, America's Funniest Sell-Side Recommendation, today awarding Tobias Levkovich for his positive outlook on stocks based on demographics. When most focus on the 45/60 year-old demographic tranche to assess investoment outlook, he decided to pick a different tranche and conclude unlike everyone else who uses demographics that we are about to enter the next bull market. The chart he joined to his study, which ironically indicates that if the correlation is respected S&P should be at 350 in early 2012 before the big bull market (at which point he would no longer have a job), is simply the most amazing arbitrary 1-factor analysis of a several million variables economic system. The results are obviously of staggering stupidity. Meanwhile assuming a constant salary/age distribution, demographics imply that population will go from a +1.5% to +2% contribution to GDP over the past 30 years to only +0.65% over the next 15/20 years. Maybe next he can prove how budget cuts would be a boost to the S&P.
Good luck trading,
Nic
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Too many are trying to pick tops.
This market advance won't stop until the bears finally give up.
Case in point: Check out the Latin American bank stocks.
Nice charts Robo.....One thing Nic should remember is that it is a POMO day during OPEX. Feints and machinations intended to cause max pain for front month puts and calls is the major goal for Goldman's prop desk. That is not "no reason".....other than that Mr. Lenoir's analysis is crisp and funny.
My problem with you, Nic, is that you make statements like, "markets up over 1% for absolutely no reason," but still believe technical analysis works. Nic, remember why technical analysis works. Those reasons do not exist at this point, thanks to Uncle Sugar and his unlimited money and the political directive to use it in markets. Record correlation should be enough evidence, but just look at all the illogical moves on a daily basis, in equities, commodities, and Forex. When there is no technical rational, or fundamental either, the odd moves nearly always seem to dovetail in with the political agenda. Am I being paranoid, or observant?
You seem like a very intelligent and affable man that has made much hay when the sun shone. But as for today, it's gray and rainy for technical analysis. We all pray that sunnier days return. In the interim, read the philosopher Robert Nozick.
WOW, THAT'S A GOOD POINT ROBO, THANKS FOR THE INFORMATIVE CHARTS! YOU SHOULD BE A CONTRIBUTOR HERE!....................................... ............ ............ ........... ......Junk!
RobotTrader I'll bet you're a pretty good trader and ride this wave from both the long and short position. That is what I also attempt to do but am learning from the school of hard knocks. I'm bearish in general and feel pretty much the way most ZH'ers do about the economy and those who put us here, although my goal is to make money both ways. I mainly play naked call/put options and the triple long/inverse ETF's. You always share good info with us here and hope that you will continue to do so. Now, will this collapse please commence so we can get on with things?!
It may have a long wait Robo because there is NOTHING in the data/figures/factoids/lies that suggest to me that we're not in a bear market rally.
I've been bearish and losing money for the last year - if I say I'm calling it a day then Zhers can say it's the time to go short but it'll be a long wait. We are NOT in a recovery.
DavidC
See the 2 posts highlighting a ramp turn off the bottom, 10,000 Dow and 1040 SP; Tuesday, Aug 31.
http://www.zerohedge.com/article/nic-lenoirs-market-close-observations
http://www.zerohedge.com/article/last-minute-ramp-job-dissected
"Beyond noting the daily support for the S&P and concurrent support for the DAX tested and held today, the intraday volume and month end activity into tonight's close is worth noting: 200,000 ESU0 (mini S&P) futures traded in the last 10 minutes.
Not that Robot needs it pointed out, but Robot closed shorts (so I was told) and went long on seeing that 'fix' to get on the right side of price discovery.
Interesting.
I would say what I really think, but I am afraid of being called "rude" by AB (34-B cup).
34B - the perfect size.
DavidC
In all seriousness, that was the top today.
Down hard to end of the month, a brief bounce, then all hell breaks loose through to end of November.
Then QE2 is announced for a short sharp rally, before we head back deep into hell.
Write it down, it's not wild speculation.
Can't argue with the avatar...
Especially if earnings warnings commence in the next week or two....
The market has nothing to do with earnings and hasn't for the last 12 years. What's the saying, liars figure and figures lie...
True. But the pump monkeys make it a market mover.
Warnings will be a bummer.
I like the certainty in your voice.
I like stocks. I buy them with the VXX...
I like where your heads at.
I have to disagree. I think we'll definitely rise to the top of this range 1160's - 1170's before any topping out.
Remember, everyone ratcheted down their numbers for this Q. So when they come in "as expected" with the lowered expectations, the market will rally.
Watch what type of reaction Retail Sales gets. That will set your tone to mid to upper 1100's. After that we trend back down to the 1040 level again. Just a range with way more reason to break down than break out. Just not yet.
We will have a pullback 100-150 pts. in the dow and then the continued ramp up. IMO
I cant imagine shorting this shit after the last 2 weeks.
If what you are about to do makes you want to puke on your wing tips then it is most likely the correct course of action.
there be no shelter here
Spot on.
Except 'wingtips'. Seriously? Why not spats? I believe your codpiece might be on a bit tight...
Regards
exactly
Regarding numbers out of China, this Asia Times piece on provincial officials painting hillsides green to fool government satellites into thinking they were proceeding with reforestation as ordered ought to make anyone basing decisions on unverified Chinese numbers think twice, and then twice more.
http://www.atimes.com/atimes/China/LI14Ad01.html
My September puts are toast. Now moving to October...ugggh...
The man behind the curtain is a Juggernaut...
Never hold options past the mid point of the contract period. Try building a position in VXX. The lowest it can go is around 10. Keep Plugging, as we're fighting a regime with all the FRN's in the world...
"Try building a position in VXX."
A lot of people did that today, volume up ...
Getagrip: Please clarify. For Sept. 17 OE, you say fold by Sept. 8/9? I've heard this 'rule' before but did not know if it was meant to be mid-point of current OE month or from when the option was originally purchased. Any help would be appreciated. Thanks and take care, LooseLee
Haha, you got a real set of brass balls. I have given up shorting this market. I wish you the best of luck and hope your timing is bang on. I remember last fall when everyone was trying to short...
remedial homework, needed.
Rosenberg was overly pessimistic after the recovery began in the middle of 2009, telling Bloomberg Radio on July 23 of that year the economy might “relapse” into contraction in the 2009 fourth quarter. It instead grew by 5 percent.
http://www.bloomberg.com/news/2010-09-13/u-s-accelerates-in-2011-as-demi...
Ouch.
You are crazy to believe anything out of the totalitarian Chinese government, and ours isn't far to the right of China's on the "Spectrum of Credibility."
Still holding October PUT premium. I had an indication this would take a bit longer to realize. Hang in there...
So this is what, the 3rd time we are at this level? My money is we fail again and move slightly down into options expiration on friday, and then next week, we start the down move to test 1040.
Yea same ol. Going into oct will be ugly,
I share the sense of frustration in Nic's piece tonight. This is where we have come to... the market celebrates inaction and no progress. It celebrates that we can continue a farce of not really saying what everyone knows about bank balance sheets and lending. What a joke.
Was on the road today and heard an interview with Larry McDonald... his biggest piece of advice to the Fed: Start up the securitization machine again and it will create instant, more powerful stimulus. I guess ol Larry forgets that you actually need DEMAND for loans in order to make them, much less securitize them. Also, there are two sides to every market and I don't know who in their right mind would buy... oh! My bad.. The Fed. And throw underwriting standards out the window... what the hell do we need those for? Lastly, Lar, isn't that what got us into this mess in the first place? You certainly are a product of your environment. (And I feel sorry for all of the folks listening to you at Niagara Falls this weekend)
The signs continue to point out this market as a sick imposter of a strong market. Be it correlation of all asset classes or Pomo ramp jobs. For those making short term trading profits, the best of luck to you. I just can't trust these markets nor can I trust that this is = to the early 80's. Demographics, debt, growth and politics are totally different this time. We are still in the 30's playbook. just my .02 cents.
Hey, I think we found our old friend WallStreetPro - he's been hiding inside Nic Lenoir!
Hey, thanks for the analysis Nic/WSPro!
If bear market rallies end after good news I wonder what it's going to be this time...
"Banks are going to face tougher capital requirements but have 8 years to comply" aka they are broke but don't have to admit it just now
US banks were insolvent in the 80's due to LatAm lending problems. Volcker's solution was to extend and pretend. It worked. Get over it, Nick, we're all on your side, but fighting the tape is a mug's game right now. Why is this hard for the flat earthers to understand ?
I've noticed that for a while now... when the dollar index goes up, the Dow goes down and vice versa. The dollar index went down today and 'therefore' the Dow is up.
http://charts3.barchart.com/chart.aspsym=$DXY&data=A&jav=adv&vol=Y&divd=Y&evnt=adv&grid=Y&code=BSTK&org=stk&fix=
Just don't ask me why that is...
(And given the size of the dollar move I'm surprised the Dow didn't go up over 100 points - is that a sign of weakness in the Dow?)
The DX may go to 84.5 from 82.11 right now.
http://www.screencast.com/t/ZjdmNGIzMT
Very interesting chart, thanks for the link.
Welcome to risk on/risk off land Laura. Glad you escaped from the little house on the prairie..
lol
Now I'm just trying to watch out for rabbit holes...
I don't want to follow Alice and end up at a party with the mad hatter.
<chuckle> Well it better get on it, and hold that target for awhile too, or else Look out Beloooooow!
Regards
That would Bernanke's bucket going to the well again
S&P futures appear to have topped; bearish Wolfe Wave here.
http://www.screencast.com/t/ZDU5Y2ZjN2U
Levkovich... Shows what happens when you give a fat quant a calculator.
http://media.cnbc.com/i/CNBC/Sections/Video/CNBC_Live/schedule/images/2006/12/11/levkovich_tobias_120x90.jpg
"Watch CAC open tomorrow to see if today's rosy mood is here to stay as the chart attached looks a bit like an abandoned candle on the highs"
German ZEW dropped from 14 to -4 on expectations for 9. The CAC's negative now, watch the effect state zero tax days have on retail sales for further direction.
Nic thanks as always, and personally think your one of the best analysts.
Thank u, i found this for a long time.
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