Four days ago we timed the Nikkei short perfectly: after all we had the irrefutable top indicator - a Goldman "buy" recommendation, which hit the tape on Sunday night [7] when the Nikkei was at 13250. Here is what Goldman said. "Nervousness over local bond market volatility, amplified by concerns about Fed tapering, has raised fears about whether QE policies can be effectively delivered. We think those fears are overdone and are recommending long positions in Nikkei September futures (NKU3) with a target of 14,500 and a stop on a close below 12,700." Here is what we said: "Now the only reason we are not all in short on the Nikkei following this plea to buy whatever NKU3 Goldman's flow is selling, is that Tom Stolper did not endorse the recommendation." Indeed, we were cautiously optimistic on the imminent collapse in the Nikkei which however surpassed our wildest expectations, plunging by 800 points in under 4 days and hitting 12400 a few hours ago where the Nikkei closed.
[8]
One would think that following this horrible trade, whose catalyst never panned out ("Our central expectations for Tuesday’s BOJ meeting are relatively modest – we expect the term period for fund-supplying operations against pooled collateral will be extended to two years"), Goldman would have the dignity to spare the muppets further losses.
Alas, no such luck.
Instead, Goldman flagrantly ignores its own stop loss, and continues keeping the muppets in what is now a losing trade, and massively losing if one applied leverage.
The overnight price action in Asia has been extremely volatile, with all major equity bourses deeply in the red. The Nikkei closed more than -6% lower (and the Topix about -5%), with the JPY trading through 93 at one point (last 94.5). These sharp moves have also meant that the Nikkei September future traded through our stop of 12,700... Stay long Nikkei September futures (NKU3), opened at 13,215 on 10 June 2013, with an initial target of 14,500 and a stop on a close below 12,700, currently at 12,400.
Translation: Goldman has quite a bit more NKU3 in inventory to sell to muppets. And muppets, clueless as always, are gladly obliging.