Tuesday, March 24, 2009

Quarter One Assessment on Curreny trades: March 30, 2009

Skip to the "Overall" Section if you want the general summary of Q1 performance

As Quarter 1 comes to an end It is time to assess performance of pairs that I had entered trading positions in January. I will assess this firstly, in terms of my analysis and secondly how my performance in trading was.

Summary of analysis done in January:

This is the general summary of calls I made during early - mid January on four currency paris; (early first quarter; ill save you the pain of having to compile the scattered blogs).


January 6, 2009: I had very specific calls for the month of January. Overall I had a bullish stance. For the month I expected bullish moves. I made two calls for January alone:

1. My main stance was that prices would hit around 1.49 from 1.46, due to bullish indicators within the next 2-3 weeks.
2. If my assessment was wrong I said I expected prices to stay at 1.45

Lastly I made a call that the trend for the first quarter would be bearish (hence I thought January to be a whipsaw to the upside).

January 12th, 2009:

On the 12th I did a brief assessment: through out the week the pound traded to the upside but returned back to it the same levels from the start of the week. I still maintained a bullish stance.

January 14th, 2009:

On the 14th I still maintained my bullish stance due to continued bullish pattern formations.

Analysis Assessment:

After January 6th, prices hit highs of 1.53 however by the end of the week ended up at 1.45, hence my first call was wrong and my second call was right. However prices did not trade at 1.45, but moved down to 1.40 by the end of the second week. Though by the third week prices had bottomed and experience a significant rally all the way up to February 9th 2009. Despite two whole weeks of bearish prices moves I still maintained my bullish stance, which paid off by the third week where prices bottomed at around 1.35 and went to 1.49.

Overall, I would have to say my performance for January was horrible. I had been in a long position since January 8. After the end of the first week I should have closed out, and waited for the prices to bottom. Overall, my analysis was correct in that a bullish price correction was due, but my timing was horrible and interim analysis and timing needs much more improvement. However, this goes to say these trades are all passive, and active hands on management of my positions were not done.

However, I would like to point out that my long term analysis was much better. Overall I made the call that quarter 1 would be in downtrend and indeed that happened. From the time I made my call January 6th, prices were at 1.46 and prices are now at 1.42. Though the quarter 1 high was at 1.53 (much more significant than 1.46).

The strategy I should have implemented was holding a short position on the pound overall. If I wanted to max profits I could have done employed a semi-hedge strategy where I would go long when prices bottomed which occurred during the 3rd week of January and the 3rd week of March. However, I still would have made a decent profit by holding short overall.


I would like to point out I had been trading the EUR/USD prior to the first quarter and had made good on shorting it (though I will not be examine prior to the first quarter). January 12th I had closed out on a short position due to belief that a bullish move would happen by the end of the first quarter and continue into the second quarter. As I quote:

“By the end of the first quarter we will see possible bullish trends into the second quarter 2009 for the EUR/USD.” – January 14th , 2009

I went long from 1.33 for the rest of the quarter.

Analysis Assessment:

After January 12 for the next two months prices did continue to drop, however my analysis and timing were much better than the GBP/USD trade. Prices shot up to 1.37 from my 1.33 trade for the 3rd week of March. Looking at Quarter 1 my analysis was little off as prices have now dipped to 1.32. However, I argue that we have a strong support at 1.24 and what we are seeing is a bullish upwards stepping pattern. Back in October 2008 we see solid piercing of the lower BB followed by support at 1.24. I believe that I will stick to a bullish outlook as I stated before for the end of the first quarter and into the second quarter. For future assessment I will base this off my 1.33 long position I made January 12th.


From new years eve I held a long position on the Aussie. I have been long at .68 since.

Analysis Assessment:

The Aussie was in down trend for 2/3 of the quarter, though I have not lost money in the eyes of some people who have a different trading philosophy would say I missed out on two months of a great short opportunity. Though it was an opportunity, I still have not lost money on this trade as my outlook was further than the first quarter. The third month of the first quarter showed that there was a significant rally and prices are at the same levels from the first quarter.


I have been short at 1.19 since January 6th, 2009.

Analysis Assessment:

I loonie traded stronger for the first two months and by early march the loonie did start to weaken. Overall, this is a poor trade as I have bad timing with a good analysis. I maintain expectations of the loonie to go into downtrend as I see continued bearish pattern developments.


OVERALL: (Short term is defined in monthly periods within the first quarter and long term is the overall first quarter and into the second quarter.)


Short Term Analysis: Bad
Long Term Analysis: Good


Short Term Analysis: short term analysis was not really considered as I had good better entry timing with this trade and my long term analysis was realized. Despite prices continuing to go down when I entered long the gains made in the long term out weighed the intrim losses whereas my pound trade which I had remained in a bullish position throughout.

Long term Analysis: Good


Short Term Analysis: Bad
Long term Analysis: neutral/good


Short Term Analysis: Bad
Long Term Analysis: neutral/bad


As my trade showed, I expected dollar weakness for the first quarter (I was bullish on all its counter pairs). I had been wrong overall for the first two months of the first quarter. What I believed happened was relative weaknesses of the different economies. Leading into the New Year there was much uncertainty for the European and Asian markets while the world knew all the financial instability stemmed from the US financial sector/economy. As the first two months unraveled economic and financial situation did not get better. As more bad news came in, the non-US economies were forced to lower interest rates inline with the US hence we saw the relative decline in the UK, Australia, and Canada economies (which was also reflected in their currency moments). However, as the world have coordinated interest rate cuts, sentiment seemed to have temporarily restored at the end of the first quarter. This is evident from the bear market rally we have been seeing in the equity markets for the past 3 weeks.

Much skepticism is going on how long the bear market rally is going to hold. If there is a correlation between the dollar weakness at the end of the first quarter and equities, I would expect the bear market rally to continue into the second quarter. In other words I maintain my bullish stance on all the GBP/USD, EUR/USD, AUS/USD, and short on the USD/CAD. I expect dollar weakness to continue as economic fundamentals have not improved and there are bullish formations on all the major pairs (bearish for the USD/CAD).

I would like to point out for Australia despite all these rate cuts, the Aussie is now back to levels were it traded. As this is a commodity currency, this may point further support of a continued weak dollar. Indeed if the dollar weakens further I would expect rallies in the commodities markets. This rally would have to indicate probably strength in the Asian economies. As long as sentiment can remain more to the bullish side, this scenario may play out. (for some this also be further extended that an economic bottoming may stem from Asia before western economies bottom out).

In short:

I am bearish on the dollar for the second quarter. Current trades show that I am more suited for long term trading. Currently due to poor timing, my trades for the pound, loonie were very bad. My EUR position is neutral and my AUD is arguably neutral to good. I believe longer term trends will unfold as I analyzed from the early first quarter. The positive side trend trading is that it is preferable to be wrong at first in order to be able to adjust trades according to the new trends.

The second quarter assessment will be based off these prices:

GBP/USD: a long at 1.50 from January 7, 2009
EUR/USD: a long at 1.33 from January 12, 2009
AUD/USD: a long at .68 from New Years Eve 2008
USD/CAD: a short at 1.19 from January 6, 2009

Current Prices:
GBP/USD: 1.42
EUR/USD: 1.32
AUD/USD: .69
USD/CAD: 1.23

Tuesday, March 10, 2009

M&A ~ Didn't see this one coming

Wow, I don't follow the M&A and Private Equity too closely, but I couldn't ignore this once I read it. I mean I knew Merck was huge! But I would never dream that they would try and outright buy a company like SGP. I am surprised at the amount of M&A coming from the Pharma industry despite the worlds "economic woes," Last time I remember the Pharma industry wasn't exactly booming, looks like someones been keeping cash under a mattress...

Well I'm certainly not complaining considering my holdings in SGP ^^

Sunday, March 8, 2009

Gold for the haven?

The Economist recently published an article on gold, which I find very interesting. A very nice quote sums up everything that I will be talking in this article: "the beauty of gold is, it loves bad news". Looking at the Gold commodity price, it has gone from $800/ounce before Christmas to close to $1000/ounce February, and currently is at $937.30/ounce, while the stock market has fallen to the lowest level since the Great Depression. Citigroup for example has fallen 95% in value compared to this time last year (fallen from $21/share to $1.03/share, data 6/3/2009). Gold is up 6.6% this year while the whole world is in deep recession. Last week Gold gained 20 cents, and is advised by more and more analysts to buy.
The reason:
The explanation is probably because people have long viewed gold as a hedge against high inflation and weak dollar. Historical data showed that a rise in the value of gold often comes when there was a fear of inflation, like when commodity price rose last year triggered the fear for inflation, which caused gold to break through the $1000/ounce mark; the weakening dollar in 2002-2005 also caused gold to rise. However, at the moment when the dollar has gained strength and the fear of inflation has faded, the gold still remains strong. The article pointed out that Gold's recent progress seems to be a response to generalized fears of economic turmoil. When safe savings vehicles such as bank deposits look somehow unreliable and offer low returns, gold has greater appeal. Gold also helps each way when the government cuts rates. If rate cuts are successful, inflation is fueled, which is hedged by holding gold. If cuts aren't successful, assets will lose value, and by holding gold investors stay unaffected, or so they think.
The estimations:
The article showed that price might reach $2300/ounce, which match the peak in January 1980 in real terms, according to gold bugs, and already god price is above its average since 1972, calculated in today's money. It seems like, exactly as what I said earlier, gold loves bad news, and with the grim situation of 2009, gold will be gaining value still during the year.
Why don't we all buy gold now?
Even though gold production is not likely to change in the near future, and the recent news suggests that we should all be switching to gold now, there are some concerns. The supply of gold is limited, while there are lots of potential buyers, and this is an ideal condition for a bubble-says an expert at Morgan Stanley. The global decrease in demand level should also be considered, with the fear of deflation and the rise of unemployment, the price of gold might be as well affected. Some precautions should still be taken when we consider buying gold, but it seems like a very promising investment at the time of crisis such as now. We should watch and see if gold price really shoots up to $2300/ounce like the gold bugs say, or will it be just about this $1000/ounce for the rest of the year.

Thursday, March 5, 2009

12 Year Lows on the Dow

Just following up on my previous post.

This is an interesting chart by JP morgan I found on ritholtz's blog. I am still a bear for 2009, however, this provides some possible compelling evidence for 2010. Although, considering the past two times you had 12 year lows on the Dow, conditions were much more fundamentally different in terms of systemic structures, economic strongers, financial structures etc ... as a fundamentalist would point out. For you big fundamentalist this chart may mean nothing after all. Though it might be worth considering since I know a few long term investors who actually believe stabilization will come in at the end 2009.

Over the next few years it would nice to revisit this chart to see how sound DOW Theory is or possible evolutions of it, or to see if this chart will be supporting evidence for it.
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