Wednesday, December 31, 2008

End of the year 2008

Unfortunately I've missed quite a bit of time blogging.

However, it is always interesting when you take a break from intensely following the markets. All the changes in the markets seem much more exaggerated and certainly can bring new insight that one might miss by getting caught up in daily events.


One of the events that sticks out to me the most was the rapid drop in oil prices. Considering I was trading oil securities back in October (which i have yet to post my final trading results) the speed at which crude oil feel is quite shocking. If one were to consider that long term oil charts were in an overall down trend, and that macroeconomic fundamentals were weak; this move may not be surprising at all. Even if an analyst were to consider oil prices from an equities perspective, if industries heavily on oil were expecting poor earnings or even if one were to follow the general job market could have all found support for shorts on oil. Considering these events separate or connected all still shows evidence of continued falling oil prices, but this may all seem quite useless since everything is clearer in retrospect. Though, one can take this experience and apply it to future analysis.


There is much to blog about currencies, I will briefly summarize some major pairs. Prior to 2008 the EUR/USD from around 2005 to July of 2008 was when the trend changed. July 2008 seems to be a break in trend for most pairs. The pair trended downward for the whole year until about December when it almost returned prices levels of the beginning of the year. This would not be a surprise if one were closely following weekly charts. Another chart that experienced a similar pattern is the AUD/USD ( upward trend prior to 08/2008 then a reverse trend in 12/08) except price levels did not return to similar levels of the beginning of the year. what worries me is that many other major pairs are just as extended as the EUR/USD and the AUD/USD however have yet to change downward trend. However, into 2009 i certainly expect most major trends to reverse from downward pattern. Weather it be a whipsaw or a true change in trend will depend on economic situations.

I feel that from a brief look at the economy, if there is any reverse trends in major pairs it would have to be temporary considering the job markets, which will probably also strongly affect the equity markets and in turn also major equity indexes. Unfortunately I do not have much more time to explain all of this as I must catch up on other works for school...


Lastly I will briefly mention the S&P500, the past 3 months have not been to surprising, though if one were trading the actually index it would be quite a ride as I myself did not do too well trading S&P500 futures. Price movements in the shorter term charts (1 year charts) seems to show bullish patterns of possible support and serious of higher highs and higher lows.

Quick Close for 2008

I would like again to emphasize, such movements of upward bullish moves in currency markets (reverse trends in EUR/USD and AUD/USD) along with short term bullish formations in the S&P500 shows that economy does not equate to financial markets. Though as I have mentioned before in bear markets the correlation between economic activity and financial market is stronger. If one can find more divergence between financial markets and economic data might suggest changes in trend and/or sentiment. This might lead to enough evidence to use a contrarian approach to trade in the first quarter 2009.

Wednesday, October 29, 2008

Entry for 10/29/08

As usual, I do like to comment on the Fed Reserve. I must say again, I am disappointed in decision making policy coming from the US federal reserve. Another rash decision of cutting rates pushing rates to 1%, I find this quite rediculous. People argue the Fed is doing this for lidiquity I may give some leeway to that arguement, but I will not accept the fact that the Fed is doing this to "restore confidence" for investors. The Fed Reserve has strayed far from its jurisdiction to an extent, though, yes indeed this is systemic, but should they be taking the lead in trying to fix this mess we are ?

What needs to be changed is underlying fundmentals, real change in the structure of systems in place. All the systems need to be reassesed in order to find a better solution to the current "crisis" we are in. Dumping lots of money into markets with a bunch of skiddish investors will solve no problems. With a sound system in place that people can trust will take some what years to accomplish. I feel that many investors (middle class investors) have been scarred from event from the early 2000's, and feel they are reliving the past. Many pension funds and 401ks are taking hard hits, while some are holding cash now some are biting the bullet and waiting it out (though if there are a large number of people in cash positions, this may have large implications to come in the future, but I will have to discuss this later) After the 2000 crash, Sentiment probably wasn't restored about 2 and half years later after the crash as this is reflected in Fed Fund rate cuts shown against performance of the S&P500.

If one were to follow previous Fed policy in the past we will see that Janurary 3rd 2000, Fed Fund rate was cut from 6% to 5 and 1/2. Soon after that 1 about year later on Dec 11 Fed Funds rates were cut to 1 3/4. This was not even enough to restore confidence in investors as the S&P500 continued its slide all the way up until around march 2003. Prior to March before the S&P500 started its 4 and 1/2 - 5 year rally, the Fed Fund rate was cut to 1.00. Considering long trends, cutting rates so low was quite ineffective. Some will argue that Greenspan was at fault for our current situation from such policy decisions. Though, I do not suscribe to such a belief, there is some truth to it. From what I can tell 1.00 in the Fed Fund rate is way below the average (though I would have to calculate the averages from all the times the Feds Changed rates which the available data ranges from 1971 - 2008, which I have not done. Wheather or not this is an acurate average or a statistical blunder I am not sure, though Im sure we can pull some general truths from it). 1.00 is below the average and has been only seen at times when there have been crisis. If indeed, people want to believe that Greenspan is at fault for our current situation, I think everyone should be extremely worried now. Whereas in it took about 2 and half years to reach 1.00 Fed Fund rate from 6.00 from the 2000 crash. Bernake may manage to get rates from 5.25 June, 29 2006 (the begginings of the subprime problem)to 1.00 in 2.3 years. If one were to actually use the more dramatic effects of the credit crisis as a starting point, the rate at which bernake has cut rates has been much higher than greenspans cuts. Also, I would like to note that over the 2 and half years of cutting, the S&P500 has a more gradual down trend, while in 2006 to 2008 we have an uptrend, and then from the start of 2008 to october 2008 we have a sharp drop. The different trend patterns may suggest that one cannot compare the two crisis accurately in order to predict market performance. Though it is possible to gauge investor behavoir based of policy.

As we saw in the past crisis of 2000, investor confidence may not have been restored based off rate cuts and may have been something that needed to be fixed over time. This may suggest Bernake should not be cutting rates at this point, as it will be ineffective, in a matter of time fundamentals will improve themseleves. From a historical perspective Fed Fund rates at 1.00 maybe too much and something below the average (whatever that may calculated to be) and holding rates there might be more effective as it might stave off uncessary future crises since rates would not be extremely low at the point of causes future crises.

Though on considering the difference performances in the S&P500, such a fast drop in the index may mean a faster recovery. Though this will have to be examined at a different time...

** I will have to reorganize or summarize this later as my arguement may not be clear or organized well enough for comprehension.
Another quick morning update, it seems thats all i can be doing these days. Some interesting thing the index and energy markets. Since October 20 I've been short ICE brent and Gasoil. I've experienced about 3 whipsaws on the ICE brent though nothing major. I just want to mention that the recent whipsaw from the second OPEC meeting is superficial reasoning as to why this whipsaw occurred. It may seem like a fundamentalist excuse as to trying to explain the occurrence. I would attribute it to more of short sellers covering gains, or the recent jump in equity markets. I consider the equity argument to be more valid since that is what the majority of the world is watching now (whether it be central banks or opec). Financial market performance is leading many decisions on a policy basis. Though overall trend in my opinion is still down, though if the US Fed decision to cut rates actually does maintain any stability in the equity markets (which I highly dought), perhaps crude will trend side ways a bit before deciding a new direction.

I still maintained my short, As I am still participating in the BP trading challenge, had I not been, I would have considered increasing my position a bit. Though, since i could not afford in depth analysis, the risks out-wayed the returned as if I leveraged more capital, any small movements in teh wrong way would have knocked me way down in the ladder. Throughout the week Ive fluctuated from rank 15 - 20 out of 200 people or so. Luckily I've been able to maintain such a high rank on two short contracts only. I am surprised I was able to maintain such a tax effective discipline, though since I took such a conservative role, I did sacrifice some possible huge gains as there were at last 3 whipsaws that took large portions of my gains.

Last night before going to bed I lost quite a bit on my equity position, I was at highs of gains of 20,000 pounds, though at the time I was somewhere around 10 - 15,000 of gains from my SP500 futures contract. Luckily I had a nice stop, though I wouldn't say it was exceedingly tight but certainly prevented losses. I still made a decent profit of 5,000 pounds from a short position from oct 22 or so. Though, last night I was not convinced the trend was over, and re opened a short position which is still positively gaining now. Though i will have to watch the trend through out the day as it maybe just attributed to bulls taking short term gains.

Overall though, this has been good practice in trading longer term charts for me, as my prior experience in forex only allowed me to trade in short-term charts in a undisciplined fashion.

Monday, October 27, 2008

Just a quick post today, Ive been doing really well on two short positions on ICE brent and gasoil, along with a short on s&p500 futures, based off a quick analysis last night there is no need to cover as yet, though as the day progresses I will check to see if i need to adjust my positions. According to 3 period simple moving average analysis there was still downward momentum, this confirmed a squeeze in the BB of 2 standard deviations. I also used the RSI as seeing if the market was over sold. Considering the RSI I showed markets still have room to fall, though I would not weigh this indicator as heavily as others. The MACD showed large enough volume to accompany the recent falls in the markets. This still confirms the extremes bearish sentiment and poor fundamentals in the economy.

On another note, currencies, I made some great shorts on a few pairs tied with the dollar few days ago (AUD/USD, USD/JPY, EUR/USD) As I don't have time to go into the details I will briefly explain. Only a few of the them were based of shorter term chart analysis using 60 min charts, while others were inline with overall down trends. However, I closed my position short since there seems to be strong conflict on the monthly charts vs short term charts on all these pairs. The last time I've seen such a divergence was during the summer on the USD/JPY, which eventually lead to a piercing of lower 2 deviation BB, and a long term rally that lasted through the summer with highs hitting around 110. I will sit out on the currency markets for now and hold cash since these markets require much more constant monitoring vs S&P500 futures, or a down trending oil market.

Though, this may be interesting since I do feel currency markets are good future indicators since they are most liquid and 24 going. Any big moves in the currency markets maybe indicative of whats to come in other markets.

Wednesday, October 22, 2008

entrry for 10/22/08 - BP trading morning update

It seems that my over night position considerably increased. My logic was right in my two shorts, or at least it was echoed on the morning wireds as i read some headlines, "Crude Oil Falls as Waning Demand Outweighs Prospect of OPEC Cut," the article written this morning says that an OPEC may have already been "priced" in. This is exactly part of my reasoning for shorting brent and oilgas. I almost for got to mention, I only shorted oil gas as the charts showed a pretty tight correlation on the recent charts. If I do not know much about brent and energy trading, I know far less in terms of oil/gas other than that it is related to oilgas, and that it maybe tied closer to seasonality patterns. However, such news would make me want to watch my position closer as more people on the fence are now hopping to the bear camp. I get the feeling whipsaw maybe due soon, and that it may take a significant portion of my profits as i cannot hedge against adverse movements and I have no options for stops or limits, and I must be at school all day today. Let us prey to the oil gods that nothing to drastic happens today... (then again... these are commodities I'm talking about).

Hopefully tonight I will be able to reiterate today's happenings in a more organized manor.

Tuesday, October 21, 2008

Entry for 10/21/08 - BP trading game

Day one concluded of the BP trading games.

Login Name: Chart Pride
Current Rank: 20/157

I believe it was yesterday night that I entered two short positions on ICE Brent and ICE gasoil -1 lot each. At the time I entered my trade prices on ICE Brent were around 71 - 73. Currently the bid is at 68.92 and the offer is at 69.72.

My rational behind the trade is as follows:

Considering I do not know in depth the driving fundamentals of the energy markets I used what I knew. I know the basics that oil is at most times supply driven, ( though recently the media loves to attribute the fall from 140+ to current levels on "slowed consumer demand"), has geopolitical risks, and susceptible to Marco conditions.

Primarily for last nights trade my model included macro considerations, geopolitical in the sense of what I read from the media, and lastly basic technical analysis.

1. macro considerations

Overall fundamentals of the world economies in general or obviously not sound at all. Every industry is craving for capital and business earnings are expected not to outperform previous quarters (though Im not to sure on the equity side totally). But in general, macro fundamentals due to effects of financial systems, in general will tend to slow business down. Production will be less and transportation costs will would also decline. Now much in part production can be slowing down as a fucntion of "slowed down" consumption. Which I will admit to some extent is affecting overall consumption. Though I will have to say from the US perspective, the Middle middle, and the upper middle class are still relatively well off. If consumption however is driven from the lower end consumers then peaked off demand could quite reasonably be a reason for oil prices dropping off (though however i don't see people eating of of garbage's and walking around in rags yet). The point being that on the fundamental side macro conditions if correlated to oil prices to some extent, would indicate that oil prices should be in a down trend. And that is the point to the macro analysis. Overall trend Should be down, and that any whipsaws to the upside are just temporary as overall conditions have not fully stabilized.

This brings me to my second point. Whipsaws... As I was reading the news last night, a whipsaw should have been ready to happened before I entered my trade. The media kept hounding how OPEC was going to "cut production," to maintain prices around 70. Now anyone sensible seeing that oil is highly supply related would have used this rational to enter on the long side. However, I felt that to be too simplistic in nature for that assumption. Though I am not too sure when OPEC makes their official announcements I felt it was something that they still needed to discuss as there are many market risks still were present ( though recent expected earnings from oil equities make pacify these market risk worries causing a cut in production to occur sooner). I felt that considering this is a bear market, you will get strong reactions to media reports, the type of heard mentality. Thinking this I felt it was a good idea to consider the contrarian perspective (a little nice view i learned to apply from the old Fund I worked with). I felt that all this news and media quite could possible already priced in the markets. And that instead that this would produce opposite affects of the normal news of production cuts (as the news wasn't that "new"). The point being is, though geopolitical risks said for me to go long, a contrarian perspective said otherwise. Adding more solid reasoning for me to go short.

3. My last consideration, considering this is short term trading I tend to give more weight to charts in the short term. Though the BP platform does not provide me with as many lovely charts as my FX platform. However, i scrounged google and found some basic futures charts on brent and gasoil. Though the functions were basic in nature, it was more than to suffice for the time being (in fact simple often works quite well for me). I confirmed the downward trend with a simple BB on a standard deviation of 2 and average of 20. The general charts (oct, nov, dec 08) showed continued movement along the lower BB. I also used the RSI and MACD indicators, though I do not think the RSI would really fit into this system as I am not sure how responsive it is in the oil markets. Though, I gave weight to the MACD as indication of movments of momentum and volume. Overall, there seemd to be indications of continued downward movement as volume was still relatively high. It is unfortunate, but I am not exactly sure what contract I entered as it does not say in the BP trading screen, and I am still very new to this all. Hopefully I will get some support from BP later.

I would like to comment on my current position on the ladder. The first and second trader have 136 trades and 205 trades with $31,780 and $28,085 mark to market respectively. Considering the number of trades, these guys must have lots of time on their hands as this only started yesterday. Secondly, there strategy I would think is really ineffective as the number of trades is so high for one day. Though, I am not familiar with the total amount of taxes for short term gains, Im sure a considerable amount of their money will be going to taxes. Where these top to traders are students, I would like to high light two BP traders. Ranked 15 and 16 are to BP employees playing the game. They have 10 trades total each with $8,240 and $8,185 respectively. In the top traders these are the two traders with the least amount of trade and highest amount of money, excluding myself. I am the 20th person with only 20 trades. Though I would like to point out that Cambridge Hedge has 2 trades as well and is ranked 22. I believe these trades to be more profitable, or if not at least shows better discipline. Sticking to a sound reasoning and following through. Though of course part of this discipline will need to also follow through when any position turns sour.

At any rate, I hope I will learn more about the fundamentals of the oils as my technical abilities are quite stunted with the current platform. It is too bad that the platform also does not have any limits or stops which would help me trade with more. Anyway, I will have to follow up again to see if I need to readjust any positions.

Thursday, September 25, 2008


After finally arriving in London...

It would seem Im jumping back in after missing the greatest events of summer... I wouldn't dare say history, but that is just of my opinion.

Only a few words, as I am in the middle of orientation still and still not fully organzied, Im half on Vietnam time and Half on America time trying to sleep on UK time.

For the US...

A fed's fund rate cut from a liquidity standpoint makes sense. There is no capital in the markets at all. I spoke with my mom recently, Wachovia literally cut all unsecured loan lending. I don't know what took them so long, but they finally did it and Im sure many other banks will follow suit or have already. though i was surprised to here that some banks are still lending at prime minus... Im sure that won't last long either...

It seems that sentiment will be reigning king for sometime even if fundamentals of the economy picks up... Im sure the economy will certainly pick up before any recovery or bottoming of the financial markets. Which would exemplify that economy does not equal financial markets... though these days this is bloody hard to distinguish with all these governemnt interventions and the Federal Reserve stepping in to " " save " " the financial markets.

Which brings me to my next point, from a historical perspective as the job of the Fed reserve, explicitly a rate cut does not make sense since it is not their job to baby the financial markets, though it would appear that this job has changed with out any written change to the Fed charter.

Which brings me to my last point ( only for the day, as i must leave to orientation soon), from a monetary policy stand point cutting the rate would not make sense as there are only about 4 more possible rate cuts assuming bernake will be cutting at 25 bp intervals. Leaving no more weapons to stave of crisis...

Of course another cut might as well be considered good since the genius's in washington won't be coming up with any better solutions...

- "so about short-selling"
politician: " well aww gee... i guess its bad n all..."

Wednesday, July 23, 2008

entry for july 23, 2009

July 22, 2008:
This past week is a perfect example of a contrarian perspective at work. However, my timing again was way too premature. Along, not having enough time to follow up on the markets, I missed one of the biggest shorting opportunities for oil recently and a nice rally in the S&P500.

July 23, 2008:

Today’s morning is a great opportunity to show how sentiment can move markets, but not in a traditional sense. Early trading in the futures market showed significant bearish sentiment with the markets pricing in the bad news for today’s early trading with fair value at -8% or so. However, this became a large divergence as markets opened today 1.35% higher on the S&P500. Interesting the oil and equity markets inverse correlation is still holding. The continued drop in oil despite bearish sentiment in the futures market could have been a good indicator for a bounce to the upside in the equities market. (However, I have yet to calculate how strong this correlation has been for the past few months). The many divergences in between different markets maybe indicating stronger moves to the upside in the equity markets on the longer term charts.

From a Vietnam perspective, I will take a position on steel prices. In general, due to high inflation seen across the world demand central banks will be forced either to hold rates or to increase rates depend on the regions economic situation. I am in the belief of that steel prices are still correlated to the strong growth of emerging markets. As markets need to take a breather from all the speculation and high amounts of FDI inflows to these emerging markets, the price of steel now should be decreasing in the short term, the short term of slowed growth experienced possible through the end of the first quarter 2009 or even second quarter 2009. The growth prospects in general for Asian markets for 2008 seem much bleaker compared to its past years of growth, however looking forward the prospects for growth in Asian markets are still very good considering majority of Asia is still undeveloped and is lacking infrastructure. If the Asian markets can reign in inflation to reasonable levels, continued development will push the price of steel higher as demand picks up again. However, risks to this model are the continued inflation from food and energy prices. Which may make inflation continually prevalent.

In terms of inflation, for the US, it seems the Fed Reserve has put themselves in a very difficult position. As the continued weakness is coming from the financial sector along with its contribution to the deteriorating jobs market, along with other industries who are also now contributing to a weaker jobs market, due to economic slowed growth, the Feds have rashly and pre-matured lowered interest rates to 2%. As many other analyst argued, when rates were at 4-5% were still considerably low compared historically. Now with high inflation, and prospects of weaker growth or continuing problems from the financial markets, the Fed has to look to other means to provide liquidity and price stability as its main weapon, the Fed Fund rates, has almost run out of ammunition.

Perhaps this information may be of use for those hedging interest rates or for those trading interest rate futures. It is unlikely the US will lower interest rates any lower, unless they plan on going all the way to zero, like Japan for some time. With US interest rates this low, this is just an economic boom waiting to happen, what is preventing this scenario is the unstable conditions from housing, the financial markets, and other weak macro conditions. If conditions can stabilize in the year 2009, the year 2010 maybe looking better for strong economic growth and possibilities for increase in interest rates if inflation is not yet under control.

Friday, July 11, 2008

Entry for July 9, 2008

Reviewing my performance as to what I missed, I think I need to look closer at the open high low close and volume relation for my analysis to be clearer. It seems that I there would a holes in my previous analysis for discounting some obvious information that would could have possibly made for a better more accurate analysis. Though it is not yet Friday, it is hard to believe that the close the s&p500 on tomorrow Friday will move 2.15% in the upward direction, thus making my last week's analysis wrong even if Friday is another up day. However, if volume does decrease to around low 4 Billion or 3 Billion range another big move maybe in place for the following week. If my previous analysis of support developing is correct the move should be the upside. However, considering the wide swings and whipsaws in prices it might be hard to call this week a week of trading sideways, as also the range i stated of 1350-1380 was broken below as the close of July 9th was at 1244. If anything prices are still forming a downward trend channel. Uncertainty from the fundamental side along with bearish sentiment for surely would seem to indicate further downward movement, however I think Friday's volume will be key to see where the start of next week will be (though i have not yet analyzed volume vs price open close and highs for weekend periods leading into the next week).
I would like to happily say that oil did indeed revisit levels in the 140's at the highs of 142, though currently prices retraced back to 141.84 as some investors were taking back some gains. For oil, I will remain bullish into next week, and though I will have to re-analyze oil during the next week as fundamentals may change.

Wednesday, July 9, 2008

Entry for July 9, 2008

On Monday, Bearish Sentiment indeed carry on through from the previous week. The extra holiday might have lead into Mondays trading as the S&P500 lows hit around 1240 and closed at 1252, which is a -.7% change from the close at last Thursday before July 4th. However, yesterday (the 8th of july) the markets were up 1.7% at 1273. Based of the close the S&P500 indeed are trading within the 1250 and 1280 range I previously mentioned. Though as I also previously said I expect the S&P500 to end on the high side by the end of the week of at least 1280 or more. I would consider the S&P500 trading in the stated range to be "trading sideways." Though these swings in my opinion are quite volatile (large and fast moves).

^--- written during the day in Vietnam or night in America

Continuing at night in Vietnam, during next trading day in America...

(ll:50 pm Vietnam time). Currently the equity markets are sending mix signals again. the DOW is down -.07% while the S&P500 was up a few minutes ago but now is down -.15%. If the S&P500 can end on a higher close than yesterdays close and the DOW closes lower, this could indicate further movement down for Thursday trading if there is a long enough lower shadow with a shorter upper shadow at the close of Wednesday today. Fundamentals certainly warrant further downward movement, however if the s&p500 does end up higher this may be indicative of bigger moves to the upside to come, or indicative of improving conditions.

There is much weak data coming economically and from financial sectors and a divergence of these fundamentals from the markets and economic may show a decoupling of the bear mode the markets have been with poor economic data equaling poor performance in the equity markets (wheres in bull markets you can see more divergence of economic data and moves in markets). However, this analysis may be a bit premature of naive as this is very short term and some more consistencies of this trend may need to be established before unfolding.

So currently I am waiting for the results of Thursday and Friday to assess my performance from last weeks analysis...

However, on other note, I unfortunately had neglected to follow up on oil, making it hard to gauge my performance as I missed out on a very large decline in crude oil prices. While my call of oil being in the 140's range was correct, which now may be meaningless since I did not follow up and missed a nice shorting opportunity. However, I feel that oil will be revisiting the 140 range again over the next two weeks, though this call is not coming from any analysis of the oil markets or economic analysis...

Recently I have been able to access some currency charts which I missed so dearly, since I have had such a poor internet connection here...I did have some analysis for last week but, now the the environment has changed and I need to revisit the charts again. Unfortunately (when busy)and fortunately (when bored) such is the nature of the forex marekets constantly changing making hard it hard follow when busy at work. I think I will go to bed now and hopefully sometime at the end of this week or next week I will be able to start covering or shifting to currencies...

Thursday, July 3, 2008

Entry for July 3, 2008

Ok, another lessoned learned: as I quote myself from my last blog, "Fundamentally the financial sector and many soft spots in the economy are still looming. this tied with strong spike in volume with todays drop in the equity markets makes worried that a bottom may not be found in the 1270's range. Fundamentals, technicals, and current sentiment do warrant further movements downward along with agreement from the max time frame chart on the s&p500 (which is still in a down trend)..." And it is so that within the past this past week that the S&P traded at 1280 and 1284 at the close of Jun 30 and July 1st respectively with lows going as far of 1260, as the candle sticks will indicate though the bulls did indeed defend support of the 1270's range for two days that there was more bearish momentum as indicated by the shadow of 1260 on July first, which would have been a good indicator of further downward movements. So overall I would have been wrong as this have not stabilized at all but are quite volatile within a range of 1250 and 1280 for the past few days. The lesson learned is that one should stick to what is shown, as there were weak fundamentals with agreement on technicals for further movements downwards. The psychological effects of supposed support of 1270 was of a short lived nature, as more clear support of 1260 maybe forming now. The correct move would have been to short on 1300 levels, of the time from my last blog, and then to have covered in the 1250 range however covering at current levels of 1260 still would be profitable (assuming no taxes or trading fees).

And so now...

I will have to take a contrarian stance for the upcoming week. I say the S&P500 may reach or break out of levels of 1280, however for the month it will probably trade in a similar range as support needs to be performed. Its possible by the end of the week or into the beginning of the next week the s&p500 will have a small rally. Though, in the beginning of next week the s&p500 will trade sideways or will experience further downward movement as bearish sentiment may carry into the beginning of next week.

I'm putting more weight on the contrarian approach for the upcoming two weeks since there what I believe to be too much of a build up of bearish sentiment. Between extreme downward movements from oil, jobs reports, and more worries stemming from the financial sector, would seem to indicate further movement with again agreement with technicals, however I think it is at a point where the cards are so low that a bounce of good is going have to come out of the culmination of bad.

Overall, all this bearishness is making me see more hope for the faster recovery in the economy. If the economy keeps getting beaten down, its just preparing to stand right back up, the faster and harder the beating the sooner it will probably react in opposite direction. (one can only push things so far before it pushes back).


Thursday, June 26, 2008

Entry for June 27, 2008

How exciting the markets are...

Once again I have underestimated crowd sentiment and its ability to exaggerate movements. My thinking that people would rush in to defend the S&P500 1300 level support was wrong as in probably most people are looking to real support at 1270, however due to short covering I believe the a trend reversal to happen before touching actual support. From June 24 - 25 the S&P500 took a breather before todays fall going from 1314 to 1321 after the Fed's announcement. Unfortunately I was not able to follow the markets that day, but goes to show how reports or news sentiment can temporarily disrupt an established trends. It looks though as if I correctly said that on June 11th more bad news and pent up bearish sentiment may lead the s&p500 to 1270's range. Though I must admit I must improve my discipline as I would have covered a short earlier due to temporary whipsaws, and I would have missed out on the further drop.

Since I was not following the markets on the day of the Fed Announcement, I would have missed a chance to hedge on the whipsaw or trade a temporary counter trend.

I think its pretty obvious now that the Fed may be on a series of holds until they can get enough stronger data to use to warrant any increase in Fed Funds rates. Because of this the equity markets may stabilize in the short term (the third quarter), in the sense that the economy may possibly improving. As to what range and what time frame is appropriate will be hard to assess. Fundamentally the financial sector and many soft spots in the economy are still looming. this tied with strong spike in volume with todays drop in the equity markets makes worried that a bottom may not be found in the 1270's range. Fundamentals, technicals, and current sentiment does warrant further movements down along with the max chart on the s&p500 (which is still in a down trend). However, in the short term looking at the 2 year chart i find it hard that people would not defend such a clear line of support of around 1270. Its quite possible that through the third quarter that the s&p500 will stabilize and though its fate may be more unclear in the 4th quarter .

There is one thing i would like to note that i noticed on the day of the Fed, though it might mean absolutely nothing or maybe an interesting indicator.

The day the Fed rates, which I believe was on the 25th of June, the s&p500 rallied though the DOW remained negative. Due to the nature of the DOW, (it being price weighted and only 30 companies), I always feel the DOW is a better gage for sentiment or has move that are over-exaggerated than the actual fundamentals warrant. I was thinking that day, that the divergence in the two indexes could either mean a further drop or a reversal to the upside. It would seem that this in a bearish environment a divergence with the s&p500 to the upside with the DOW to the downside could indicate further movements to the downside. I should also note that volume for that day was not totally abnormal as it was still lower than the day of the 22nd when the s&p500 dropped from 1340 to 1320. Also, by examining the actually candle stick pattern for the day of the 25th would confirm bearish sentiment as there was a strong up shadow but eventually the index closed closer to its open (though the bulls won that day the bears seemed to be getting a foothold).

So maybe this may mean something or not, I obviously need to review many more charts and confirm this, though currently I'm lacking resources to do so, the main one being mostly time, though i think it would be a nice idea to entertain the next time i see it again.

Moving right a long let us talk about crude oil...

I can just imagine my dear friends who are currently trading oil. All's I can hope is that they are using their stops wisely, or more tightly should I say, as the past weeks have been a roller coaster.

It would seem that oil markets touched the new 140 range and retreated, I see this as quite natural before any new range is established. In part, a lot of it has to do with speculators taking back some gains, preparing for the second wind. I think tightened regulation of crude oil in the from US House of Reps will have only temporary or minimal effects on the price of oil. It is true speculators do push levels higher, but if prices stay in the range it is probably due to fundamental reasons. I still maintain that oil will reach into the 140's range and stay.

Though its possible that due to high inflation experienced by all nations, there will be forced slowed economic growth and demand from emerging nations may diminish temporarily. Though I am no expert in oil, its possible that inflation effects if its a real problem probably won't start to surface in late 4th quarter or into the next year. I know, currently by working in Vietnam, that Vietnam and its neighboring countries are experiencing exponential increases in inflation. I know the government has already taken measures to curb inflation which will naturally have to result in slowed growth, though interestingly the rate of FDI inflows are not seeming to diminish...

In inflation continues for EU, United States, Japan and Emerging Countries, Oil will definitely have to peak out temporarily.


About what I wrote about the dollar last time:

If oil does indeed continue to trend up and stay in a new range, above 140+, there should be strong inflationary pressures. Compounding this inflation could possibly no slow down in the commodities rallying as many staple commodities will still be demanded from emerging nations despite economic slow down. Due to fear of slow growth in the US along with Housing problems a series of holds from the Fed will be in place until the conditions stabilize. Once conditions stabilize the Feds will be able to focus on fighting inflation. This could happen in the late fourth quarter into the first quarter 09. I do not believe the Feds to be aggressive during election time. Though I believe the dollar to strengthen in the 4th quarter, earlier strength may be seen from political affects. After the elections, it is possible consumer sentiment maybe temporarily renewed and along with possible increase in fed funds rates if inflation is still a problem. With this should come a rally in the dollar...

Monday, June 23, 2008

Entry for June 24, 2008

I was surprised to see yesterday that the equity indexes dropped significantly. It seems that my call of next support of 1300 - 1315 on June 11 was correct with there being enough momentum to continue a downward trend from back then. However, the bigger question is if I would have been able to have enough discipline (or guts) to hold on to a losing trade for 3 days as the slide unfolded after.


From June 18, if I had bought oil and held I would have probably broke even as prices slide down to 133 and are back now to around 137 a barrel. A lot of bearish sentiment is coming form high oil prices. The perception is that business are cutting production or experiencing slowed growth due to high prices. Despite high oil prices, the ppi seems to indicate that companies are feeling the pressure strongly enough to pas it on to the consumer. Though if oil prices do maintain in 140's range, which is yet to be seen, some bigger adverse affects on equities may be seen. Prices might be passed on to the consumer and one can expect some noise from the Federal Reserve.

Though the Fed is indeed "between a rock and a hard place" as inflationary pressures with bleak prospects for inflationary growth. No increase will be seen in my opinion for the next Fed meeting. Though a series of holds maybe in place. For certain a raising of interest rates in an already tight credit scenario would not help business grow and would only worsen the housing situation. For the 3rd quarter I do not think there will be any interest rate raising, though it maybe more possible towards the end of 2008 as inflationary affects may be more apparent.

If this is this is certainly the case, the pre-emptive upwards move in the dollar will be seen even than current levels, and new levels on the dollar will be establ

Wednesday, June 18, 2008

Entry for June 19, 2008

It would seem for the past four days following my last entry i was wrong as the US equity markets rallied for 3 days and stalled on the 4th day. I underestimated the power of some interim reports like retail sales that added to some bullishness for those days. However for the past to days the markets have taken a sour turn. It seems though as of now, the support of 1328 on the S&P500 is holding, and the bigger question remains is if there is enough to momentum to push th equity indexes lower to 1300 or 1315. These market fluctuations are in part tied to sentiment pertaining to oil prices or at least correlated. it seems those four days that the market rallied prices of crude pulled back to 133 and now is currently back around 137 per barrel. The EIA petroleum status report may have a impact on the upward movements if data contradicts it, though if consensus is inline with the supply reports, new levels will be seen. As levels of 139.00+ were reached levels in the the 140's is more likely.

Other possible economic reports that may affect equity indexes are jobless claims or possibly the leading economic indicator (LEI). Though i have never been a strong believer in the accuracy of the LEI, though it may add to enough bearish sentiment to continue any downward momentum.

Though, overall equity index performance may be nonsensically skewed as this end of the week is quadruple witching. Reading into any economic/finance signs this weak may be no indicator for next weeks performance.

Wednesday, June 11, 2008

Entry for June 12, 2008

Though I was expecting further drop on the S&P500 I didn't think drop so rapidly. I was thinking the S&P500 was going to find an average support of around 1350 however, it seems I was wrong and the markets wants to find lower support. The next support levels I'm looking to is 1328 from April 08, however due to the large volume accompanying yesterdays 1.69% drop, I will be looking to levels between 1300 and 1315, I do not think support should break 1300 as it is more of a psychological level. Jobs reports may be key for indicating the effects of consumer sentiment. If a better than jobs reports is reported , it may soften the affect of the consumer report on Friday. However, poor jobs report along with the building up bearish sentiment throughout the week, may as well carry the s&p500 below 1300 in the 1270's range by the end of the next week.

The dollar has been due for a rally, the question is how much longer can it be sustained. It was interesting as how when the equity markets were at higher levels the dollar remained weaker. However, prior to the drop in equity markets the dollar was stronger. It will be interesting to see if this trend/correlation continues.

On the sentiment side and on what people perceive as the fundamental condition of the economy the dollar should be weaker. However, I believe that wall street is wrongly expecting a rate hike in the Feds Fund rate. In the short term I would like to check to see how much farther the dollar can extend based of technicals, but a shorting opportunity on the dollar may come around the time of the next fed decision.

One must account for housing, as the housing reports still have significant effects on sentiment and may have caused a diminished wealth affect. Its possible that by raising rates, you make the housing situation more difficult as the credit markets are already tight as ever. Raising Interest rates might as well choke consumer spending over the next few quarters. As of now maintaining liquidity in the markets is still important.

Though, based of the past, many observers like to argue that the fed decisions were being directed by market movements. In this traditional sense perhaps wall street would be right in thinking the Feds would raise rates. However, I think, as indicated by bernakes speech, that the stock market volatile fluctuations will not be weighed in as much in Fed decision.

Sunday, June 8, 2008

Entry for June 09 2008

It seems that I have underestimated market psychology and sentiment. Resistance level of 1375 were broken at the close June 6 at 1360.68. Considering the tone of the close I would not be surprised for continued momentum to carry the markets to lower levels this week. Pending home sales will certainly not help current sentiment unless investors were able to price in much of the bearish news last Friday. The oil report on Wednesday will be a important as to keying in whether or not prices will head higher. I would not be surprised to see crude oil hit around 145 by the end of the week. Trying to think about the weaknesses in the economy, is possible to see many industries slowed growth from lessened consumer demand. In part, by higher oil prices but, much of these affects will not be seen in the month of June. With the Job's report for this week, I don't think there will be a significant increase in jobless claims, though I don't see the situation improving much either (as another better than expected decline might happen). Core CPI numbers probably will not be significant, though there seems to be more of a hoorah these days on fighting "high energy and food prices," so it begs the question if central banks will continue to focus on core numbers or will start to factor in headline inflation as well, as current policy is critical for sustained growth or a prolonged recession. Retail sales, i expect maybe better than expected, though i hate to attribute to "tax rebate," and its limited multiplier effect. I would expect most of money to help pay down debt or for people to hold on to money considering poor economic conditions and poor consumer sentiment. If better retail sales are indeed from tax rebates primarily I would certainly expect extended poor performance for the 3rd quarter.

Though considering my performance in the short term, perhaps one would do well by taking a contrarian perspective on my analysis ;)

Thursday, June 5, 2008

Entry for June 06, 2008

After a better than expected jobs and retail report all the fence sitters fell to the bullish side. For a long time sentiment is will be a good indicator for how the financial markets will do for the rest of the year, though overall for the economy much of the bad news seems to be priced in or furthermore being priced in. Despite high foreclosure rates and crude oil returning to levels to $128 per barrel seemed not to deter the bullish sentiment. However, the close of today might be a good indicator of where the markets will be next week. So far the us Equity indexes are acting as I predicted as no support levels were broken, with better than expected news. Though, in my opinion much risk is still looming that may come from the Asian markets and high inflation levels across countries. Watching monetary policy will be essential in order to predicted economic performance which still may be tightly correlated to financial markets as a full bull market is not yet underway, despite an early mentality (of bullishness) which is what is needed to start a sustained rally.

As for news in Vietnam:

A continued short term bearish sentiment is weighing down on the VNI as it is continuing to hit lows. Though, long term support of 400 is temporarily holding, though momentum would seem to indicate longer support at 300 from January 2006. However, since Vietnam is developing rapidly with 7-8% percent GDP with year to day inflation levels above 20% with a widening trade deficient, I would not give weight to a traditional reading of technical charts. The fundamentals of the economy are stronger indicators, and are closely tied to untested inexperienced policy makers. The government has taken action to slow down growth and cap inflation. Much expectation is weighing in on June, I believe that these are premature expectations and the financial markets will take a toll and it will not be unexpected to see the stock reach the 300 levels again. Any policy, if effective, will not be seen till the end of the quarter or the end of the year due lag effects. However, government intervention is also possibly for short side (though short side doesn’t exist), to float markets if volatility is too much. Also, the trading band should minimize some risk as well, though one should not count on this as downside protection.

As for the currency, the free markets the dollar is trading at all time highs of around 18,000 + vs the VND; while the banking systems are still trading around 16000+. Strong demand on the dollar can come from a number of reasons. Due to high inflation of the country and lack of faith in the government, many people maybe seeking dollars. Also, curbed growth should weaken the VND if interest rates are raised enough.

Despite this, there maintains medium term to long term bullish outlooks for Vietnam. Despite short term volatility, there has been increased number of companies wishing to be listed on the HOSE and the Hanoi bourse. Furthermore, FDI inflows have been strong from the start of the year.
In general, gold prices have been soaring as people are hedging against inflation. Though oil exports have been helping the country in actual output, this does not offset the other petroleum imports needed to grow the country. This is only one example of much growth within the country will little output. If growth continues in this manor the economy will not be sustainable and might possibly see a crisis.

Monday, June 2, 2008

Entry for June 03, 2008

After a two hit blow the US equity markets has dropped 1.06% on the DOW and 1.05% on the S&P. Leading this trend is mostly attributed to the weak economic data coming from the ISM, with is 4 monthly decline and construction spending has dipped for the month of April. This trend of bad news and bad economic data still suggest the bearish environment investors are facing. With bearish sentiment still loaming, more bad news will only hurt the financial markets further. However, I believe that economy will improve much before anyone believes quite possibly towards the end of the last quarter 08 or into first quarter 09. There is not going to be an amazingly strong recovery but markets will have stabilized. With the revisions of GDP and some solidifying of labor markets, I believe it’s possible to have better revisions, and this past news for April is not indicative of the present environment. Though, I do believe to see equity indexes to remain within a range for the rest of the year, on the S&P500 between the range of 1375 and 1450 a support line may form for the S&P500 to reach levels back around 1500 into the end of first quarter or into the second quarter 09. However, the only thing that can hamper this is another crisis or unseen affects from previous crisis. Overall, credit conditions have improved in the US, though tight lending will remain for awhile due crisis psychological affects. Other risks are that the full credit crisis has not unraveled such as more developed Asian economies have possibly yet to see the full effects. Furthermore, the financial sector may add to some instability to the labor markets, though the worst of layoffs may have already past. Though some see it as worrying as Ken Thompson, Wachovia’s CEO and Washington Mutual’s Kerry Killinger CEO has been replaced. Though, this is more of a positive sign for Wachovia in my opinion, as Wachovia management has been poor and is in need of better managers. By the time the economy is in a bull market, the financial sector landscape will probably completely different between collapses and M&A between banks and PE companies.

Along with these possible stronger fundamentals, I see the dollar rallying to higher levels from a fundamental perspective, though I have yet to double check the technicals.

Tuesday, April 22, 2008

Entry April 22, 2008

With oil in a new range this certainly sets the stage for the equity markets to break resistance levels and hold. For certain a double top with a failed momentum top, on a 5 year chart, it would seem to indicate further downward movement on the S&P500 however there appears to be consolidation of around 1250 that can certainly has been acting as support. Inflation is a key factor that will be affecting the markets. Further fundamental support for a break in resistance is the affect inflation has on bonds. If commodities continue to rally along with high energy prices, this inflationary environment will take its tolls on bonds. Confirmation of high oil prices staying within the hundred range along with continued consumption of gas can keep oil prices in this range for awhile. However it is possible a lag affect will certainly come in later and demand may not be enough to add to rising prices. Although I am no energy expert it seems that prices as fundamentally driven on the supply side currently, although there has been some sentiment in the past months strong enough to have pull back in oil prices from demand. My point being is that with oil in such high ranges it makes an inflationary environment which makes equities seemed overpriced. Once you account for inflation Im sure prices levels will warrant further movement up as equities are not that expensive. Adding to the upward movement will be investors leaving the bond market if inflation keeps up. Added fuel can also come form a weaker dollar, where foreign investors or sovereign wealth funds will be bargain buying. What makes this scenario very possible is that we are in current poor market conditions, for a contraian all this evidence certainly must be positive. However, the big question remains... in what time frame? If economic data can continue to surprise, a movement in the equity markets can quite possibly happen by the end of 08, however if this is a legit move is also another question. To the extent that the markets still may feel left over affects from the credit crisis, as some may claim that the credit conditions are improving, but across the board world wide, things will take longer to truly fix itself out.

Tuesday, March 11, 2008

Entry March 11, 2008

Early morning Fed action is quite justifiable, however one should see this as a preemptive measure to allow for a lower rate cut. However, to the extent that people are pricing this in may be minimal. Though it is good that the Fed is seeing that Fed Cut rates are ineffectual and are exploring other means of monetary policy, it is apparently damaging their reputation. With the Fed's constantly catering to the financial markets, the Fed Reserve charter should be rewritten. However, such economic conditions tied closely with financial conditions do warrant such measures as Congress seems pretty inept with dealing with financial crisis's.

The dollar experienced a significant rally, Which is quite lovely as it fits in nice with the weekly chart of the USD/YEN. I expect it to rally about to 104 before it resumes its short trend. However, I have not double checked with momentum. This will probably mean the dollar might not break resistance of 101.5 on the weekly chart from Jan. 2005 until March 2008. Obviously this will be in Japans best interest for this support level to hold, if the Japanese economy wants to improve recent slowed growth.

More after class...

Entry March 11, 2008

With two months to go before an official recession, there is not much light left at the end of the tunnel.

With the S&P 500 just hovering its 52 two week low of 1270, what i see as oil possibily establishing a new range, a rally in commodity prices fueling global inflation, and weaker economic data continue to poor in. I was a bit too optimistic in revisions in economic data. My previous thesis was premised on a strong job markets. But as the labor markets begin to loosen, especially with the delayed affect of reports, there seems there will not be enough time for a significant recovery. As previous times, any Fed Rate cut will lead to a superficial rally in the Domestic equities, but the overall trend is down. Though trading the overall trend on future indexes should lighten their positions or consider possible hedges.

I read the other day that the bond markets were pricing in a 1% Feds Fund cut. As usual the bond markets are being overly greedy. However, the I believe the Feds will concede 50 basis points minimum and 75 basis points maximum point cut. Now obviously if a 50 Basis point cut surprises markets, there will be very interesting results along with lots of volatility.

If a 50% basis point were to surprise, I would expect to see a neutral day in the first half, and then probably a continued down trend through out the week. (this is discounting any surprise news you will hear such as bailouts or better than expected reports, one has to watch closely to trade the temporary counter trends).

If expectations are in line with the cut at 75 basis points to 100 basis points, one can expect to see a rally in equities for a few days. However, of recent past cuts, rallies have not lasted more than a week before downward trend resumed.

Obviously the bond markets should be moving contrary, to the equities markets however, I have not followed the bond markets as closely as i have in the past. Other news of liquidity relief on the Fed Reserver side and bailout news, and further defaulting of Loans should also be weighed in.

However, I do have to say more about oil. Though I have never been an expert, I think oil has broken into a new range. The previous range which did not last very long at all which spans from October 2007 until Feburary 2008, between 85 and 100 dollars a barrel. Such a rapid shift in ranges is only indicative of the poor economic conditions we are facing right now globally as oil prices is something all nations must face whether 3rd world or top of the world.

Not only does it weigh down GDP of the economy, it supports my hyper inflation idea that the Fed Reserve in part has created from the massive amount of cuts in a short period of time. Looking back at past economic policy during times of crisis one will not find such drastic actions. Although, one can argue e conditions we face hearken back to the days of the 70's or even to the depression. Inflation is also just not stemming from the fed cuts and high oil prices but as well as high commodity prices which is created from as a global problem. Strong demand for commodities can be seen from the appreciation of the Aussie and Kiwi. As Asia continues to expand exports from Australia and New Zealand are going up and GDP growth continue grow higher. Further more, due to global weakness in economies, the inflationary problems cause people to bid up gold, which has seen huge volatility and rallies in the past month. Considering the Aussie is a commodity currency tied with Gold, is another reason why the Aussie will be higher, as long with Gold price.

Included in this commodities rally is oil prices which are tied with the Canadian dollar. Interestingly one can correlate the futures contract on crude to the Canadian dollar contract. The Canadian dollar seems to rally with oil as it enters new ranges. However it tapers off as probably the dollar will respond more to economic news in Canada. Based off sentiment readings, Canada seems to be more worried about economic growth. Since they are tied closely with the US dollar, the Canadian Dollar will stay range bound for awhile.

One can argue all these problems we faced are due to the fact that the United States as trade imbalance for so long. And now, the US economy is in a mode of fixing that problem, while other countries such as the EU will be the ones who face trade imbalance problems as the Euro continues to appreciate and the dollar continues to weaken.

What surprises me further is that the BOJ or the European Central Bank has taken no action to stop the decline of the dollar. In either case, economic conditions are not best for either Japan or Europe either.

For time frame, I expected continued slow growth through the second quarter. Even if things appear to get better in the 3rd quarter such as a tightening of labor market and picked up consumption. It won't be enough to negate the overall poor macro fundamental problems, of housing, credit/liquidity issues( lack of markets), sub-prime continuing in Australia and Great Britain even more so than the US, inflation, high commodity prices etc...

Wednesday, February 20, 2008

Entry 2/20/07

I would like to make one interesting comment for today. The environment we are in is very interesting for the dollar. Specifically the USD/JPY. With slow growth and perceived inflation it appears the dollar has been range bound for sometime. On the monthly chart it appears a rally would be in order, based of support levels. However, of the two lower BB (1st and 2nd Deviation) prices have reached outside the 2nd deviation BB. One can argue it is only a temporary whipsaw and is still in an overall downtrend, and considering there was not a full close below the 2nd lower BB, and as the bands continue to expand. I would have to agree that in a macro fundamental sense the dollar is indeed still in a downtrend (persistent financial sector problems). However for the bearish argument to hold there needs to be a significant short term rally at least up to the lower first standard deviation BB. However again, the bulls will argue based of the monthly chart there has never been a full out close when the lower second BB was pierced over the past 11 years. If the bearish argument were to hold, all this sideways trading should lead up to a significant rally followed by a short. Now, the direction of the breakout in my opinion can come either way before a significant rally. On an overall fundamental standpoint, a breakout to the downside to find lower support before rallying makes more sense. But, with recent inflation data, if all other economic/finance conditions remain some what static or are priced in, the breakout can very well be to the upside.

Then there is also the theory of the BOJ/Ministry of Finance of Japan.

The BOJ/Ministry of Finance will maintain the currency pair above 105 to insure somewhat healthy exports. For short term bears this means they will be shorting on every lower high to support of around 105 before, being bullish.

I will omit any consideration to bargain hunters rallying to save the as of yet.
1. Because economic conditions are still quite unclear
2. No clear trend has been established in the short term.

If one is bearish overall for the economy and financial markets for this year, one will expect the dollar to end around the same levels as they are now or lower. But if economic conditions and sentiment can substantiate a short term rally within this overall downward trend. The dollar may end up range bound below the rallied inflection point. But it is in my opinion that the worst of the financial news is to come so the latter scenario is more likely, unless I am over estimating the speed of the currency markets.

Overall I am bearish on the dollar for this year. But may expect a short term rally to 110 to 111 that make occur from improved economic conditions or tied to possible inflationary environment to come from all the recent Fed Rate cuts. This rally may occur possibly start somewhere in the second quarter and go into the 3rd quarter).

The reason why I am not considering the technical bullish argument is because fundamentals do not warrant a rally. If housing, sub prime, credit markets, GDP growth can all bounce at once, to me obviously the bullish argument would be more probable. However this is not the case.

Tuesday, February 19, 2008

Entry for 2/19/07

What an interesting day today. It seems the bulls take the lead today despite relatively unchanged fundamentals. It seems as the Feds were pounding in bad news into the media in order to adjust sentiment. After a 3 day decline however it is only natural for on the fence bulls to live some confirmation bias and take todays news of the Feds willingness to baby the financial markets some more if conditions warrant it so. Based off recent past monetary policy I don't blame the financial sectors in believing the Feds job now is to protect the financial markets. Some people would attribute this rally to effective monetary policy but id argue its more of a pure speculative sentimental expectation reaction.

Weaker economic conditions should have made people naturally expect WMT to have better than expected earnings report, however the stock being down overall, but is in my opinion to end up higher by the end of this quarter. Either way, bulls can be reading into this news all wrong. Adding to this upward momentum (as using WMT as an indicator).

However, I feel tomorrow will be a big day. Unless today overall ends in a down day. If todays rally sustains to the close of today, I believe this rally won't last into the next day. Firstly, I expect housing starts to continue to disappoint or remain some what static. Obviously a static report will give more way to more bullish sentiment. However, I will not think this to be the case. This will not be the case if one looks to commodities. The extremely volatile commodities have rallied significantly over the past week and will only perpetuate a softer consumer. With weak consumerism and softer labor markets, I don't see housing starts jumping out to surprise anyone. Tied to these recent rallies in commodities will be inflation. As we see oil already back up into the 98's along with the rest commodities, Headline CPI numbers should be higher than expected killing any sentiment for larger FED rate cut reductions. If CPI numbers are not higher, as in if people are focusing on the core number, the CPI #'s are lagged and one will see higher #'s for the next month. However core number should not be considered as more important than headline inflation. It is headline inflation that is currently hurting the consumer (energy and commodities).

Furthermore, with expected supply cuts from OPEC I would not be surprised if oil heads into $100+ a barrel. However this would only be short lived as the consumer would simply not tolerate such high prices and demand side would bring it back down into the 90's range.

Eitherway, Id recommend short positions on US domestic equities since I don't buy into this rally.

Based on what I have written about, it would be natural for me to expect commodities to continue to rally.

With Gold rallying with the argument as people hedging against inflation: It seems that inflation is prevalent across the board from Asia with Japan and China to the US with Australia etc... This rally in gold can be substantiated from the fact that the US keeps cutting rates adding pressure for others central banks like the ECB to follow suite (perceived inflation). However you have countries such as Australia where rate hikes are expected to bail out banks, and Japan where they are worried about choking their growth which does not totally substantiate this gold rally on the inflation arguement. With CPI numbers coming out for the US I expect the numbers to be higher than expected but I don't expect them to be a huge surprise in terms of inflation.

Much of this inflation sentiment can be reversed due to oil. As mentioned before the consumer will not tolerate oil prices in the hundreds for very long. Gold and oil have seemed to correlate well with each other in this new range only to diverge when there was significant poor economic data reported.

If anything one could profit from shorting these two commodities with tight stops as it highly possible for the commodities to continue to rally.

However from my view point these commodities maybe a bit over done.

More demand based commodities should however continue to rally unless we see significant world economic slowdown, Which has not been the case throughout this whole sub prime, credit crisis, and poor financial sector conditions mess (I'm not arguing decoupling, as there every country is affected across the board from these problems, however strong demand is still seen from developing nations along with the nations who are exporting these commodities who are fairing well).

In terms of the USD. More rates are to come irregardless to what you think as financial conditions will not be fixed for a long time. Which means the dollar is in an overall downtrend. However, I feel the dollar is due for a rally as soon as financial conditions stabilize, which may only come about from a significant downturn.

Tuesday, January 29, 2008

Entry for Jan 29 2008

With perceived rate cuts tomorrow, much volatility is occuring in the FOREX markets. With tomorrow rate cuts the yen will appreciate more vs the dollar. Since the Japanese economy is perceived to be slowing down many investors flooded and possibly will continue to bid up other currencies such as the Aussie, the Kiwi, and Euro. Also, it is very possible that due to a perceived bottoming in the US equity markets that a better expected 4th quarter will cause investors to flood back to the US as it would be a great buying opportunity if indeed a bottoming occurred. This would be great for US equity or currency investors who bullish on the dollar.

Indication of an improved US economic conditions can be seen in the US durable good orders. As this also ties in to why the dollar is trading higher today. With a better possible outlook for the us economy and with mixed signals and possible slow growth in Japan the dollar is trading around 107.09 right now.

With such a high percentage or rate cuts priced in, the yen should appreciate more tomorrow. I do not believe the Feds will cut another 50 basis points. If they did,they would be losing face, their reputations are at stake. Who is leading who? Are the Feds doing their job maintaining stable prices and full employment, or are they there to cater to the financial market needs every time they are in trouble. Sooner or later the Feds are gonna realize the markets are crying wolf, as better economic reports come in.

Either way, I currently have an open short position on the USD/JPY pair expecting any cut will cause the dollar to weaken against major currency pairs in general. Although, I have a limit order just above support around 105.3, as i expect support to hold since the US economy is not as horrible off as perceived as indicated by the US durable good orders today.

One possible trade I am considering after this current trade is a long position on the USD/JPY. If 4th quarter results do surprise, I see a good buying opportunity for the dollar. Obviously I will have to get in before, so i will wait and watch news and politics for the next few days...

With this in mind a rate cut is will be expected, I feel that a 25 BP cut is what they should do. But, with recent actions of monetary policy it wouldn't be surprising if another 50 BP cut is decided upon. The Fed's hope of spurring spending is something that will happen, but with a lagged effect. If the feds keep cutting this will possibly lead into a hyper inflation environment with a bubblish bull market phase. Without letting the effects of the 3/4 of a point cut set in, along without letting the financial markets work out the problems, the feds would be crazy to cut more than 50 BP. Obvious speculators in equities would love to see another massive cut, but this is something that is not fundamentally warranted, but desired partly out of greed.

In reference to a time frame:
I will be more bullish for the end of the first quarter through the second quarter as of now. Obviously, I will update/maintain my position as more economic data and financial news come in. Although I am bullish, it is somewhat artificial since it is going to take along time before financial, housing, sub prime, or credit problems improve, as i must ultimately admit they will affect performance of the economy, but perhaps as not as bad as we all believe since people tend to get in herd mentality and get sucked into the bearish news the media focuses on and live confirmation bias.

So to make clear, I believe that US equities will perform well towards the end of the first quarter into the second, with low interest rates, and a better perceived economy, with possible lagged effects being felt from lower rate cuts (I would discount any tax rebate plans as they will have a limited multiplier effect, since most people would use the money to pay down debt or save in this bearish environment, and plus it would only be a quick fix, for a longer term solution investment must be stimulated to create jobs, labor market being key for consumption).

Monday, January 28, 2008

Entry for 1/28/06

It seems as the rest of the world got cold feet the Fed got scared. At least everyone wasn't afraid in the FOMC, everyone but one person. In part, whether explicitly said or not, in order to aide the financial markets the Fed cut radically 3/4 of a basis point. And to no avail the markets continue to slide downward. Although today there seems to be a slight pause in the downward fall. It seems the Fed will never be able to satiate the wall street cats. Give them 3/4 quarters of a point cut, and they already are pricing in another half basis point cut. I wouldn't be surprised if the Feds toss in another 25 points to appease the masses. Though, do not be surprised if the Feds hold. The reason why the Feds might hold is due the fact that they would run of ammo to fight real problems. If you keep cutting rates, when a potentially bigger problem arises, how will you fix it? Bring the Feds Fund rate all the way to zero? Even though wall street would like to see a negative fed funds rate, that will never happen. I am just waiting for inflation to rear its ugly head, catching everyone by surprise, which presents a great shorting opportunity when those cpi and ppi numbers come around. Despite the continuing contracting housing market, bearish sentiment around the world from fears of slowed growth, even a technician can tell you that the fundamentals aren't there to support any upward movements. One of the main reasons why in the past I was so bullish also was due to the labor market. With weaker numbers coming in, I wouldn't expect any significant improvement as the rest of the world, just not the United States, is being affected by slowed growth in the US. Furthermore oil is heading up today despite all the bearish news! This does not bode to well for up coming inflation numbers as I expect the headline inflation to be a major component that people have been tending to ignore. In the end the world still has to eat food and drive cars...

Thursday, January 17, 2008

Return from 1 month in Vietnam

After a long winter break, and missing much of the action in the States, I have now returned...

As schools is back into full swing, when I get a chance I will write a full review on conditions in Vietnam and where it may be heading...

As for domestic news, as my micro theory teacher professes, "We are on the cusps of recession,"

I would like to point out the key word "cusps," For sometime now we have been slowly edging close and closer to "recession." Although I have been a big proponent for the resilience of the US economy and the vigilance of the Feds, I have become more bearish upon my return to the States. The problem is stemming to of a more global issue that will weigh everyone down as the affects are seen across the board (Asian European emerging markets etc...) The vigilance of the fed seems to have deteriorated into old men worrying about the reputations more than the actual economy, although not to minimize the difficulty of their decsions they must make. It would seem superficial political factors are affecting monetary policy, if not affecting giving the Fed's some excuse to act in a more nonchalant manor. But, if anything, this would be the most critical time for the Feds in their decisions that may set the tone for the rest of the year. Any economic plan offered by some politician whether it be rebates or tax cuts is ridiculous as by the time they are instated to presidency this perceived recession to come will have passed already. Most interestingly the bond markets experienced a substantial rally in my absence, with the ten year being around 4.12 when i left to it currently being around 3.71. Perhaps again we are seeing exuberance in the bond markets as many people are pricing in a 50 basis point cut. I would like to remind everyone that yes it maybe possible that inflation maybe decelerating as indicated by the cpi and ppi, but wholly not benign. As shown with the first 50 basis point, solved no problems, with the feds constantly pumping liquidity into the market, I feel another 25 basis point cut will suffice, as the financial and economic problems the US markets and economies are facing are long term. 25 basis point cut allows enough liquidity in the short term for problems to continue to sort themselves out while keeping inflation in check. 50 basis point cut may lead to superficial bullishness in the markets which will lead to unwanted volatility, in prices. Stability being one of the key factors the Fed's must maintain. Although in this volatile environment, predicting what the Fed will do is harder due to political external influences with sentiment being the Fed is now "focused on growth." I expect a 25 basis point cut, but will not be surprised if the Feds opt for a 50 basis point cut, as a show of "being there" for the markets (since markets may cause further problems for the economy).

On a technical stand point, support lines are being broken through on many equity indexes, with many indicators point towards a bearish outlook into the first quarter.
I expected bearish performance to continue all the way through the first quarter. Support at 1374 as been priced and closed under at 1373, which indicates the next level of long term support at 1222-1236. Currently we are around the same levels of the second quarter of last year. On a technical standpoint, shorting S&P500 futures contract would be beneficial as technicals point to further downward movement.

This Blog has been developed by Analyze Capital LLC, and as an independent organization we provide “AS IS” information without warranty. The ideas and opinions expressed by the contributers of this blog are personal and do not represent the actions or policies of Analyze Capital LLC. The contents of this blog do not intend to assert recommendations or to offer advice of any kind. We are not responsible the consequences, be they gains or losses, that may result from using any of the information from this blog.