The Pain Trade...

Tyler Durden's picture

From Peter Tchir of TF Market Advisors

...Is waking up in the morning.  The pain trade is making decisions in a market where moves that should take days or weeks to play out, occur in hours.  Going for a coffee at the wrong time can cost you to miss a 2% move.  Leaving a stop while going for coffee can get you triggered out in a move that completely reverses in a few minutes.  The markets are broken.  That is the pain trade.  Trying to treat the markets as normal is the pain trade. 

Yesterday, I was listening to someone explain the shape of the yield curve and the implications for the market.  I felt like Homer Simpson, as all I could hear was "blah blah blah, Fed, blah, blah, blah, Fed, blah, blah, blah"  I don't mean to disparage the commentator in any way.  The thoughts were intelligent, but I couldn't help but wonder how you can really glean any information from the shape of the yield curve when it is being totally manipulated by the Fed.  I stopped looking at Spanish and Italian bond yields as closely as I once had, because the ECB intervention had taken out most of the meaning of the moves in that market.  What can you learn about how markets view the credit worthiness of those countries, when the markets aren't pricing the assets?  Long ago, I stopped paying attention to volumes.  I never understood why so many volume indicators were based on shares traded, rather than market value traded.  More importantly, I believe that a lot of the trading that occurs is computers churning around ETF's vs the individual stocks trying to capture tiny arbitrage opportunities.  A valid business model, but one that renders volumes relatively meaningless.

Do I look fat in this dress?  Does that question ever illicit useful information?  There is really only one response to that question (trust me, I have given the wrong response once, only once).  So the answer doesn't really provide information that is useful.  So in a market that is moving so much, where the daily changes, as big as they are, don't reflect the manic intraday moves, it is more important than ever not to rely on some simple adages.  It is really important to figure out what information is out there that is telling you something that is useful, and what has been manipulated to the point of being meaningless.

The market still feels too long to me.  In spite of being down 50 some odd points yesterday, it did not feel like we had capitulation.  It seemed like the entire market was hoping we would get the "Europe went home" rally.  When that didn't work, it felt like everyone started to get hopeful and position themselves for the "last hour" rally.  I started to write about the 3pm rally hopes yesterday 3 times, but couldn't bring myself to do it.  It just felt like it was too stupid of a thing, even by my low standards, to write about.  I convinced myself that I was just imagining that the market was buying stocks a little before 3pm hoping to get a rally into the close.  The market couldn't be that broken, could it?  Well, I think it was.  We will see if the bulls capitulate today, though I doubt it, since they can also hope for the "you wouldn't want to go home short" rally. 

What to do now?  1125 was my target for my short.  I will cut some, but the only reason I'm cutting any is because we are down 80 points in less than 48 hours.  I think the market is in worse shape than it has been at any time in the last year.  The European debt crisis has now engulfed banks.  The biggest economies are struggling.  The Fed and ECB and EU have played so many cards that I'm not sure what they have left in the deck.  I can't understand why the market isn't at new lows, I can't understand how the market went from so strong to so weak.  What I can understand, is pain. 

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Ancona's picture

World markets are getting a thermonuclear bitch slap.

Damn......that hurts!

Ray1968's picture

It is fun watching them squirm on CNBC

Thomas's picture

Tell her she looks fat in that dress. A few of those and you will quit fielding that question. I used to get a series of two questions and gave the same two answers: (1) Would you ever cheat on me? No way. (2) Would you tell me if you did? No fucking way. They stopped.

He_Who Carried The Sun's picture

I have a rule: If I don't "understand" the market, I am out.

Another one says: When the market rolls over, get out and watch!

I am out now since mid-May except for two minor positions which are longterm anyway and I don't intend to go back in before the market has hit ca. 900.

Plain fun to watch! Good luck!

ZeroPower's picture

Lol gold going crazy, seeing dealers like ICAP and Tullett widen their spreads on the last drop. Went from 1876 to 1851 in literally a blink of an eye.

alexwest's picture

#I can't understand how the market went from so strong to so weak


well mr. tchir.. its very easy to understand .. actually you answered by yourself..



printing and spending  15% of GDP, or 80% of federal revenues IS MANIPULATION TOO..


market is only catching up w/ facts  that it can happen forever.. remember old adage 'CANT LIE TO ALL PEOPLE

ALL THE TIME' . moment of truth is here...


sp500 in low 800x is v..v.. welcome..




DormRoom's picture

It's what happens when quant hedge funds all try to unwind trades @ once, or deleverage from 50:1 to 5:1.  It becomes a death spiral into the eyes of an abyss.

disabledvet's picture

The feds a slut AND THAT'S Y WE LOVE IT! Fact is there is noQE so this article is total bs. This point however is very well taken. If youre on the wrong side youre running to John Paulsons of the world.

unum mountaineer's picture

you've been pavlov-ed to believe that qe in the format of qe lite, operation twist, qe 1 and 2 are the ways central bankns intervene and subsequently prop up the market ensuring the status quo is maintained. pan out to the macro environment and smell the desperation. i know you do, but your statement was naive. and to think, all of this because they wouldnt let a few banks fail...

chirobliss's picture

Too true!!  Now where the hell is my PPT, they were supposed to be here, my broker promised me...

MichaelG's picture

Do I look fat in this dress?  Does that question ever illicit useful information?  There is really only one response to that question


Please share!  In my experience there are NO good responses to that question.  When asked, you've already lost The Game...

KenShabby's picture

You look wonderful, Bitchez!

scratch_and_sniff's picture

If they are anywhere near 250lbs, you just have to level with them.

cowdiddly's picture

OT It hides your kankles stunningly my dear.

I was getting gas the other day and there was this rather large 450lb woman pumping her gas: you know the kind where they have become so large that they have to wear flour sack dresses they make for themselves. Well my coon hound Ole Blue jumps out of the truck and runs over to the lady and sticks his head up her dress while she is bent over and takes a long woof of her ass. Being that his nose is 200X more sensitive to smells that mine, he yanks his head out from under her bedsheet dress and starts running around snorting , shaking his head and rubbing his head on the ground. I was trying real hard not to laugh as I apoligized to the lady and was in such a hurry to get out of there I left my gas cap and had to go back.

snowball777's picture

Correct answer: I like you better in ________

Flakmeister's picture

This is clearly a man of experience....

Pay Day Today's picture

That's a great ass. Really. It. Is.

Imminent Collapse's picture

Good Morning Vietnam!

firefighter302's picture

Look at the price action in the silver SLV...

Hold on boys, she's a wild one !!!


CrazyCooter's picture

Obligatory Foster & Lloyd ...

... in case the metaphor is lost, cowboy==trader and horses==markets.



slaughterer's picture

Gold is merely leading up to the parabolic move right now. 

jcrows's picture

truth in suffering, to quote a phrase


EvlTheCat's picture

I didn't know Andy Rooney was a contributor here at ZH?

Freebird's picture

"What they have left in the deck" - a couple of jokers

Mr Kurtz's picture

More then a couple of jokers in that deck.

Meanwhile, Hilarity and Hijinx continues at the SEC:

"Grassley has asked the SEC to respond to these allegations, which he says were made by an agency whistle-blower decribing "the SEC’s unlawful destruction of the federal records generated in at least 9,000 informal investigations."


Matt Taibbi has a good piece addressing this issue in current issue of Rolling Stone. Boys, the shredders are working overtime.

CrazyCooter's picture

At the heart of this matter, its just a bad cell connection ... "ship the documents to the fed" probably sounded like "rip the documents to shreds" ...oops!



slaughterer's picture

Mr. Tchir, I do enjoy your commentary quite alot.  What is puzzling is your prudent management of your shorts:

"1125 was my target for my short.  I will cut some, but the only reason I'm cutting any is because we are down 80 points in less than 48 hours." 

Why cut shorts now?  Let em ride at least till 1050, which we reach intraday today no doubt.  If you want to cut, cut then for the "nobody will want to go into the weekend short" mini-rally.  But, hey, 990 before Jackson Hole Friday next week seems the perfect technical level. 

mynhair's picture

It's transitory....

Speaking of silver, does anyone know why smelters aren't buying concentrate?  Tired of waiting on the miners.

Ponzi Unit's picture

I'm too old and too dumb and slow to trade against hft algos. Uncle Harry, bob chapman, Martin Armstrong, Jim Willie, Ted butler, the metropole crowd, GATA, sprott, Kwn crowd, Harvey organ, Bix Weir, and Jason Hommmel and of course ZH generate a word cloud that says PMs. Own PMs. Private stash, CEF, PHYS, PSLV.

firefighter302's picture

I hear ya, Ponzi Unit.

Remember when CSCO was a sure double every year and BRCM, NTAP and EMC were perpetual monsters.... until.... well you know how the story ends.  Ugly and with much pain, and very very quickly.

Since around 2001,  my equity trading has ended and diversification now means among asset class not equity sectors. 

"A man's got to know his limitations"  Harry Callahan


Cdad's picture

Time for the WTI/gold gap compression trade again.

Flakmeister's picture

The spread is ridiculous...I agree, but we are in The Twilight Zone now, YMMV

Forgiven's picture

The new servers are EXCELLENT!

Freebird's picture

Blackberry agrees with you. Another great job ZH.

RiverRoad's picture

So is Obummer feeling our "pain"?  I think not; not in Martha's Vinyard he's not.  I hope all the people who voted for him are happy in the knowlege now that a black president can be just as incompetant as a white one.....Jimmy carter redux.

djsmps's picture

The American people don't begrudge the president spending time with his family on Martha's Vineyard.

oogs66's picture

I'm not sure why he needed a vacation, he only has about 16 months left and that will mostly be campaigning anyways.

Ponzi Unit's picture

How dare you suggest Obama is incompetent! He is flawlessly carrying out instructions issued by your friendly bankers at GS/JPM. 

Now, put your arms out to the side for me, sir.

Oh, and in case anyone thought the corporatocracy is not playing playing for keeps, what is the sigma attached to 9 BP Macondo whistleblowers dying in the space of a year or so?

Parallax View?

whirlybird rules's picture

can you cut the guy a break?  if he doesn't rejuvenate, he won't have any juice in him to take on the crazies...  he absolutely needs to take off the gloves, we need a WPA... the world is waiting for nus to make it right!

max2205's picture

Don't over think it. Thanks for you thoughts. Very down to earth. Get used to big moves for a few months....expect to make more so as to keep it 'fun' too

Mike2756's picture

Something is very wrong here, spx down over 20 and now down only 7? Buck was rallying and is now red? Is the Fed backstopping the euro now?

Smiddywesson's picture

So much excellent stuff Peter:

What can you learn about how markets view the credit worthiness of those countries, when the markets aren't pricing the assets? 

The only people pricing anything today are Ben Bernanke and his fellow central bankers.

So in a market that is moving so much, where the daily changes, as big as they are, don't reflect the manic intraday moves, it is more important than ever not to rely on some simple adages.

True, if I have one more acquaintance school me on parabolic prices and gold I will burst.  Gold and silver are rapidly becoming the only lifeboats remaining as the economy tanks and idiots like Robert Prechter continue to caution everyone to flee into treasuries.  Manipulated markets eat fundamental and technical traders alive and show most economic theories to be just that, theories.  You can have inflation in a deflation, and the argument that central bankers would sit by and do nothing so that the economy could naturally inflate or naturally deflate was always just an academic one.

It is really important to figure out what information is out there that is telling you something that is useful, and what has been manipulated to the point of being meaningless.

Sir Issac Newton would use a very simple trick to test his theories.  If he were here to assist us, he would reason that if the whole economy can be manipulated on a macro level, which we have seen in the last few years, and it can be manipulated on a micro level, as we see in penny stock operations, then it is likely to be true that it is manipulated on all levels, in all time frames, all of the time. 

Most people lose money trading because they think it is a market.  It's not.  It never was.  It has always been a game first, and a market a distant second.  The game is to rob you through price manipulation.  You see, if markets really were rational, then speculators could not make any money in the long run.  Real money isn't made cheating each other, (speculators take money out of the system not put it in, or they don't survive for long) it is made through cheating the public.  The only way to do this is through forming conspiracies and manipulating price.  All markets, in all time frames, are manipulated from the top down.

Ponzi Unit's picture

I salute you for surpassing my cynicism -- in the sense of hard-eyed realism, that is.

CPL's picture

Yup, I'm seeing that as well.  BUT, there is something else I'm noticing.  Oil, Gold and Silver, the physical aspects of it in terms of real price have completely decoupled from the paper trade.  As in the paper value of a barrel of oil is 90 bucks, the real value in terms of a gas pump is roughly 300-400% more.


IOW no one is buying that the physical materials are on the market price point.  Same thing for food as well.  Sprinkle in the collapsing USD, the pointless Ruble, the wonky Yuan, Junked Euro and we are in a position to start calling Oil, Gold and Silver currencies.


What everyone is currently looking at is the complete vapourization of central tax collection and central planning with the ivory tower paper vs street level understanding.  Economists have made the mistake since the 50's that they control the actions of trade, in reality economists are only here to record, document and unveil trends.  Sort of like a farmer saying they have control over how corn is going to grow, while physical starting conditions can be met to allow a crop to flourish, there are 1000's of other aspects that are required to make a crop useable.

I hope everyone is out of their trades and flipped as much as their capital to physical metals and has their house in order in terms of preperation.  As much as the world would love a doorstop to this collapse there are no longer any options left, even with a revision of currency valuation (like the Peruivian Sol), at the end of the day, when poor resource management, uncontrolled human population growth and just awful central planning happens.  The only other option left is to wait for the financial firestorm to end.

Ponzi Unit's picture

Reminds me, I gotta go to the store. For 50-lb. sacks of beans and rice.

mendigo's picture

market is being manipulated - withmore efffect than usual I think

where is this dark force coming from (aside from the white house and the media)?

in the grand scale, the fact that the fed is underwriting the whole thing and the banks (and europe) in particular is priced-in - rightly or wrongly 

ArkansasAngie's picture

And now ... we have morning melt ups.

Too bad the debt ceiling isn't in place to keep the PPT out of the market.