Last week Daily Recaps - 2nd week DEC 2011

DEC 9, 2011

Last night I filled an order to short K200 (Kospi 200) at 251. I wanted to do this trade to take advantage of the Asian lag in equities. Double top confirmation. Very negative carry through from the ECB rate cut. Unfortunately interactive brokers was being very stupid and didn’t verify my trading permission for some reason. Kospi dropped 244. One contract would have given roughly around +2,600plus USD.

The general trend for today was some what typical:

1. Asian Hour consolidation from and slowly trading in a tight range continuing the trend (DX peaked of mid day yesterday then traded lower until asia opend, WTI traded lower small range, EURUSD traded a bit lower, USDCHF traded a bit higher).
2. European/UK hours hit and STRONG risk on trend. lots of covering perhaps since US hours seem strong in the opposite direction of europe. It seems a strong consolidating range before another big move to come.
3. US hours hit and completely reverses and erases most of European trading range.

USDCHF behavior inline with my expectations. What would seem to be going on is perhaps strong swiss franc buying during european hours and then strong treasury buying during US hours. At least rationally this would explain what we saw today.

The werid thing is, EURCHF has been tightly ranged bound. Perhaps not enough swiss franc buying has occured yet. Largely the effects of the USDCHF safe haven has all worn off or is priced in since its giant correction. Perhaps risk aversion seems to be the correct trend to play. People perhaps mostly are in cash. And its mostly USD driven price action. Though the swiss franc was ranged vs the EUR, the US treasuries were down today, indication perhaps short covering. Or new risk appetite coming in. Either way, it was clear this was what was driving the dollar weakness today. Not any flight to quality in the Swiss Franc. Perhaps people stopped with the swiss franc play due to the Central Bank warnings. 0.89 would be a good range to avoid getting spiked by central CHF selling.

Lowered the stop on the USD/CHF to about 10 pips above the previous high before todays European big drop. Hopefully the prices stay below and USD selling picks up or CHF buying starts up...





DEC 8, 2011

Markets are getting dominated by the news of the Eurozone rate cut. Again the risk affecting my USD/CHF trade materialized and is primarily driven from flight to quality trades + strong selling action due to interest rate impetus. The thesis of quantitative easing for the EU is no longer a viable rumor buying trade, past monetary policy has shown to be more hawkish in this respect (despite a ECB banking president change), and a general sentiment lack of credibility in the region.

The risk continuing is a prolonged risk aversion trend (signaled via 80+ DX), or if the whole EU region is deemed unsafe and the CHF will tank along with the region.

Conversely, what may save my trade is if 1.) the CHF is viable flight to quality assest class in the short run, and the relative interest rate variables add to the CHF inflows.

A good hedge to consider is short Crude on technicals. Fundamentally rumor risk from the EU/West/Iran situation remains. Early 2010 shows how dangerous and powerful rumors that materialize can be. The crude oil complex is highly financials post 2008. Rumor/Fundamentals/financials are definitely influencing crude in the short term.

A cleaner hedge may be to short equities

Another way to buffer the overall portfolio is to trade soft agri, or animal commodities, natural gas or uncorrelated equities.



DEC 7, 2011

USDCHF looking very ranged with little volume. Daily double top pattern is still in tact but is trading about 15 to 20 pips above my entry. Any uncertain data may stop me out. If that is the case I will have to wait for re-entry at the same levels. Possibly leverage a little more if the direction is correct.

Double top in Asian equity futures also looking attractive. Maybe a good hedge to risk on scenario if my ST play is not working out. Strong Double top on Australian and Korean equities (ASX KOSPI200). This is ST oriented, may be invalidated if prices can spike higher than previous resistance (and with possible pull back may mean buy the dip).

Volatility confirms this ranged scenario, the flat ST trend in the Russel Dow and Nasdaq volatility index. Once volatility spikes trend will start to go. I haven’t crunched specific probabilities, but it seems it can go either way with risk aversion or risk on.

ES - US Equities from Asian Hours started to break out to higher weekly ranges, but still needs to hold steady in the 1270 range to continue bullish momentum.

Crude Oil - WTI needs to break 102 to hold bullish momentum as well.

Good uncorrelated plays to consider trading right now would be NG/QG or Japanese Equities.




Trades Considering - DEC 05, 2011

Long EURUSD and Short USDCHF (long risk) - time frame next few weeks into Q1 2012 (EURUSD targets 1.40+ and 0.88 for USDCHF)

Long Crude on Pull back to 100 or below 99 even. If pullback is higher than previous low. Set tight stop.

ES seems a bit trickier since its HUGE jump on 11/30/2011. Prices seem to be superficial at these levels. Perhaps Dow will point to better clues. If YM fails at 12200 (current level) perhaps shorting ES would be a better idea in ST. If YM does fail along with ES this may give an opportunity to get long crude after the drop. Either ways equities do need to correct to sustain a healthy trend.

Risk positive indicators. Todays confirmation of DX trend down + 5,7,10,30 year treasury futures seem to continue to form bearish top patterns.

Risk to longing risk is that the EU uncertainty may rear its ugly head again. Short term sentiment seems elated to the bullish side (need to check across put/call ratios) but post NFP trend seems to indicate this. Any trip on significant Econ data or new shocking bad news from the EU can quickly turn back to risk aversion. Volatility expect to be high in ST.

Maybe time to start scaling in small NG positions for long term trade. Bottoming may be on the way... supply needs to stabilize or demand needs to significantly pick up. Need to check research on this.

In general, I want to play contrarian going into 2012. There seems to be lots of negative built up sentiment from MACRO issues. There is plenty of room for upside surprises. Though the uncertainty and instability from the EU + US and possibly Asia now all point to choppy waters ahead. Expect lots of volatility. Also, maybe time to look for bottoming action in Asian equities for short term squeeze up. Chinese easing is an interesting thesis to develop around. Superficial growth may lead to over inflated prices a good opportunity to short some time in later 2012.

Market Update: Dec 7, 2011

Dec 6 for US still.

Lesson learned today, despite what you are seeing stick to your initial point of entry.

Today entered USDCHF at 0.924 and prices already shot up to 0.927. Originally I was thinking below 0.927 as a good entry point but was worried I wouldn't get the fill. I roughly have a 100 pip margin until a stop is triggered, so I should be ok.

DX is ideally inline with my trade, but EURUSD still under pressure despite DX continuing to keep ST pressure under 78.7.

There is a dislocation with ES as well with prices failing to scientifically push higher. In my trading notes, I point out that a bigger correction for equities is needed first before a bigger move up. If that is the case my USDCHF is in danger in the ST. YM (mini dow) and NQ (mini nasadaq) confirm bearish pattern development on the ST daily charts.

CL (WTI) is pushing up but still is below ST resistance. Bigger catalyst are needed for a full risk on scenario. The pressures from the EU and uncertainty looming is still allowing for risk aversion to linger and cause this relative range environment.

Ideally EURUSD needs to push above 1.34 and ES needs to some how push higher back into the 1270 range. if my USDCHF doens't work out I may have to 1) short ES ST or 2) Buy ES at more attractive levels.

Ideally a hedge may work better.

More tomorrow. liquidity is a bit slow

Tommorow:

• GBP USD unofficial estimates
• NZD rate announcement
• AUD employment situation

Consider GBPUSD position before THURSDAY

Shame Shame 2 months no post - Old GBPUSD Chart updated - Nov 19, 2011

Pretty crazy, I've been extremely busy trying to transition to Asia. I think I'm getting used to the new structure and hopefully things start getting rolling again. In the mean time here is an old GBPUSD chart I found:

Originally this chart was drawn in June 2010. It was later tweaked some time in early NOV 2010. In general my long term read was quite good on the pound. I had targeted higher in the 1.70 range with a comfortable trading range developing with a strong return to growth. UK Austerity and the EU debt crisis has made this impossible in the short term. But the resilience of the pound remained. Despite a large drop in mid to late NOV 2010 the pound continued to rally on inflation hawkish fears all the way to 1.67 in early April 2011. Of course this over exuberance burst with slow growth and weak economic data. 

There was a strong correction to 1.60 with a strong bounce off support. With the first fail to break higher than 1.67 the move to support should have lead to move the stop to 1.60 on a long LT trade. The fail to break 1.67/1.65 higher on the second time should have been confirmation of the long term trend being over. 

Overall a pyramid trade on this chart would have been very successful theoretically. The main issue I had with my read of the markets was not understanding how long it would take my read to unfold. Risk certain was there, but only in the long term. The interim for risk was also very choppy and sticking to ones guns would have been very hard. Trading long term would require deep pockets of liquidity or very low leverage and the confidence to stick through the big drops or at least lighten the leverage load and pyramid back on strong moves up. 

Again, this is a classic case where I was right but not profitable. I believe my GBPUSD trades for 2011 mostly resulted in negative territory. Time to take a fresh look at the pound for 2012 and try and be consistent and read and trading. 

Alexander Le

Managing Partner

Analyze Captial LLC

Quick Update Post Fed Action Sept 22, 2011

Panic seems to be the theme. No pause in bearish trend.

• US treasury futures behaving exactly as the twist was defined. 10Y price breakouts to the upside. 30Y steady but yet to break out. 2Y and 7Y tanked.
• DX 78 was key, and break out led to full out USDCHF breakout (broken confidence in Eurozeone). Next test 80 in sight. Fail at 80 = possible risk on correction. Perhaps try to fade 00's
• USDCAD extending bullish breakout to top fibs. USDNOK Extending bullish break out to top fibs. Yen tried to unwind but went all wild; USDYEN rallied 700+ pips and has pared back all those gains since then.
• EURUSD 1.38 --> 1.35 300 pips post fed. Pound no pause continues downward fall to 1.54
• NZDUSD below previous historical breakout resistance level. AUDUSD below parity.
• Currencies erased all gains for 2011 pretty much.
• Interesting gold is very quiet; this seems to be more FED related than panic possibly or gold has been priced in or is correcting from it overvalued highs. If risk aversion is really hear 2000 target is in sights.
• ES technically can be still considered bull trend.Prints that stick below 1140 can reverse this.
• NG making new all time lows ahead of supply numbers
• Shorting crude at 85 was correct (short 84.9 ---> 83). Seems trend can extend. Look to re-enter on bounces.

It seems that 2011 will be a slightly bearish year if we can get the risk rally/risk correction before the year ends. If not this year will be bearish overall. Its possible that all this bearish sentiment can create a self fulfilling prophecy that will lead the world back in to recession. At this point both scenarios seem very possible.

Analyze Capital LLC

AnalyzeCapital(at)gmail.com

Market Update September 2011

It took almost 2 and half years before European Equities started to reflect some true fundamental value in share prices. The DAX has almost erased all of its gains from mid 2009. And almost 30% down from its yearly highs seen at the end of June 2011. Also, Italian equities are not too far behind German equities close to 30% down from the end of June. This is reflecting a collapse in confidence in the sustainability of the Eurozone (Spanish and French equities almost 23% - 24% down from July highs). This is compared to UK and and US equities which have dropped only about 11% to 12% of prices. 

The question for US and UK equities is if these indices will continue diverge and bottom or continue to drop in the face of continued  uncertainty. My thesis for the end of 2011 is way off at this point though my time frames may have been off. 

If the SPX can consolidate at 1150 its a possibility for a strong price recovery into 2012 to 1300. Its possible the equities will continue to rally up until the November elections. However, if prices fail at 1150 below 1000 is possible if no certainty is returned. It is more than likely though some pyseudo QE3 would come into play helping a rally thesis. 

Analyze Capital LLC

Http://AnalyzeCapital.com

Long Term View: Update August 26, 2011

If this analysis provides any true insight, it would go against my current thesis (Unless my current thesis is only relevant in the short term). I have been quite bullish on risk positive correlated trades. The current huge drop in the US equities (de-leveraging of expectations), normalization of prices in WTI crude, and continued dollar weakness has led me to believe there are big buying opportunities out there to be bullish on risk. 

However, if the above analysis seems to go against risk positive trades in the longer term. Seen in the bottom chart of the EUR/USD and USDX shows that since the last corrective cross we have yet to see another cross happen. The 2008 crisis only was leading into a corrective cross but monetary policy quickly extended the trend from the last cross. 

Historically it would make sense for a need of a stronger equity crash to correct overly bullish expectations, and the dollar would have to strengthen again for US domestic consumption to pick up with increased inflation expectations and rising rates in order for a risk positive scenario. However since the early 2000's the world balance has changed further, especially through the 2008 crisis with the rise of emerging and developing Asia. 

1. The new norm may be weak dollar and strong equities around the world. As the US may grow slower than the rest of the world (assuming the Eurozone sovereign debt crisis finds a bottom).

2. Or we will see a very strong return to US growth and inflation much faster than the rest of the world inline with historical relationships. 

Scenario 1. is inline with my original thesis. Scenario 2. is inline with with what the graphs above explore. Scenario 2. would imply more corrections in financial markets are needed to happen before re-balancing can occurred followed by strong world economic growth.

Analyze Capital LLC

Http://www.AnalyzeCapital.com

AnalyzeCapital@gmaill.com

Energy Consumption - Taken from IMF WEO report

Demand situation is pretty clear. Though supply side scarcity? I'd be inline with IMF expectations of slow decay in the supply causing minimal effects on growth. Though by the time developing and emerging nations find an equilibrium natural gas infrastructures may be prominent.  Or maybe we will be mining for resources in space. The first outer space bank anyone? Anyone want to syndicate loans for space exploration?

Analyze Capital LLC

www.AnalyzeCapital.com

August 16 2011 - Market Update

August 2011 Update:

As you may be aware, markets have been extremely volatile from the end of July into August. From the highs to lows, the first two weeks saw an 18% decline in US equities (S&P500), a surge in longer dated US Treasuries, a 10% increase in 30 year futures bonds, and a 4.72% increase in 10 year futures bonds. Correlated to this move was a 2% price increase in the US Dollar Index and a giant 23% drop in NYMEX crude oil prices. The cause of this drop has primarily been driven from financial market uncertainties from the US debt ceiling debates, the ongoing sovereign debt crisis in Europe. and perceived economic weakness around the world. Such a move in the first week of of August reflected strong risk aversion confirmed by the surge in longer dated US treasuries and the increase in the safe haven dollar currency. The move in the oil complex primarily reflected initial moves in tandem of the financial markets, but also reflects de-leveraging from the price shock increase created due to the Middle East North Africa conflict in the first half of the 2011. Currently the second week of August showed possible bottoming as equities recovered 50% of it's losses, and the US dollar index has dropped back to the lows seen in early August (an indication of increased risk appetite). However, uncertainty still remains as US treasuries remain buoyant slightly below the highs seen early in the month. 

Overall, Analyze Capital expects continued volatility from a lack of clarity coming from European Debt crises and continued bearish sentiment revolving around weak economic growth. In the longer term however, Analyze Capital views are more bullish and expects higher prices in Equities and Crude oil from the August lows by December 2011 along with continued persistent dollar weakness. 

In the coming weeks a more formal report will be sent out expressing short and long term views in detail, and how Analyze Capital will be taking advantage of the future trends. Currently due to high volatility and uncertainty Analyze Capital remains to be aside. In the coming weeks as a more coherent thesis is formed Analyze Capital will start re-enter and position into favorable trades. 

Alexander Lê

Managing Parnter

Analyze Capital LLC

August 10, 2011 - Market Comments

Dollar: USX SEPT

Dollar strength today. Mid- London Hours into New York Hours strong dollar strength and by mid day a slight correction be for ending on higher highs for the day. Currently if prices breach strongly the 75 range on daily close, it's possible the dollar is forming bottom. A failure at > 75.00 should confirm a big risk on trend to come. UST treasury rally should confirm strong risk aversion with todays move on dollar up UST up and equities big time down.

Forex:
Major pairs are still at significant psychological levels indicating price action can go either way. Will accommodating rumors come through or will risk aversion remain? It seems all IMF increased downside risk materialized... If 1.40 EURUSD and 1.60 GBPUSD all fail we can see the dollar rally very significantly.

Crude: WTI front month SEPT

Crude behaved counter to the typical correlation. As UK hours went to New York the dollar strength effect wore off as the EIA report sent crude from 80 to 83 within a few hours. It is likely that the petroleum status report indicated further tightening of supply. This should help buoy crude prices above 80 support. By mid New York time crude sold off but made a higher high.

US Equities:

Post FOMC rally has been completely erased with today's risk aversion. It seems that SPX cash and ES SEPT are finally lining up. Heavy pressure forming for further bearish moves. Heavy volume tends to confirm bearish sentiment. If correlations hold we should see the dollar rally. However the USDX is still at a tipping point.


Gold:

Mania.... enough said.


Analyze Capital LLC
Alexander Lê
Managing Partner

Growth of World Economies - IMF April 2011 Econ Outlook

Taken from April 2011 IMF Econ Outlook

I am expecting to see a lot more countries with revised downward growth expectations by the end of 2011. Probably we will see more yellow on the flag or dark blue turning to light blue (Above potential to below potential).

Analyze Capital LLC

August 9, 2011 - Some market thoughts

Markets from the beginning of August have been in panic selling mode. Most of the moves of risk aversion have been largely exaggerated and knee-jerk reactions. Algorithms creating biased momentum. The move is not very characteristic of strong risk aversion with UST rallying negating their double top formations, however with the dollar remaining relatively under pressure. True risk aversion should see strong dollar rally, the move in the dollar has been very subdued in trend but very volatile in price action.

Crude oil markets have almost completely deleveraged from the early 2011 (FEB) oil shock highs and subsequent correction from the 90-100 range. Fundamentals and prices are finally aligning more sensibly. The move in itself in the 90-100 range made no sense, but from here out price action should be much more clear. IEA estimates in early oil outlook reports along with OPEC reports have been far off for an annual average of 103. If prices continue to print in the 80 - 90 range for the rest of the year this average will be significantly lower. Contango has massively come off as demand normalizes prices. The USA weekly petroluem status should have hinted in this move to come as lower imports and continue stocks falling were consistent week to week.

Equities across the board have finally hit strong technical support post FOMC meeting. The big question is if a temporary floor of support forms only to lead to another drop further or are QE3 rumors and speculations enough to drive prices back to the 1300 range on the SPX.

Again, I've been aside through this period but risk positive biased. I rather be looking for buy entries at these lows when the whole market can only see fear and panic. Either way the bears and bulls and everyone else are between a rock and a hard place.



Analyze Capital LLC
Alexander Lê
Managing Partner

August 8, 2011

http://www.bkforexadvisors.com/boris-schlossberg/tweet-on-this/

Good quote, the heart of being tactically oriented:

  "True edge doesn’t come from good accounting or actuarial practices. It comes from being able to accurately read the mind of the market. That’s why true edge is so elusive and ephemeral.It changes constantly."

Markets are indeed raw human emotions. It's a melting pot of all the practices of all the participants going from extreme to extreme.

Analyze Capital LLC
www.AnalyzeCapital.com

August 1, 2011

US Equities big drop today as UST rally. I haven't followed the news closely on knowing the debt ceiling issue would be very transient. It seems though weak growth and possible buying of treasuries is causing the 2.4% drop we saw in the S&P500.

The USDX view from June remains bearish. After finally breaking below its lower support on the its rising wedge it remains under pressure, but largely being supported by risk aversion in the markets. As long as it stays below the lower wedge resistance dollar weakness is still in play and now would present a great buying opportunity. The volatility is going to be very rough in the markets, it would be safe to be financials will be weak H2 2011.

Crude Oil somewhat of a puzzle is now much more clear confirming a previous conviction of prices remaining under pressure at 100. A very nice wide range is established from 90 to 100. A very mixed supply demand situation is also arising.

Time to look at:

• New Projected Econ Growth
• Updated Supply/Demand situation in Crude
• Update chart outlooks 
• Expectations and sentiment

Some Shallow thoughts. Long term picture perhaps still in tact for risk on. Equity picture way out of line, which could possibly mean short term deviation. 1200 becomes extremely important. Possibly short higher lows below 1350 before the test of 1200. UST ignored double top... maybe an outlier situation due to the whole debt ceiling decision... 

USDX picture sitll in tact. If the above scenario between UST and US equities is not a short term deviation (despite its large volatile move) USDX can be forming a bottom and is ont a continuation to the downside. Position for strong reverals USD/CHF become ideal candidate or USD/JPY. If that is the case where does this leave more volumous pairs such as EUR/USD or GBP/USD? This would leave a very wide band for the EUR/USD below 1.45 and the pound to be continued to be pressured below 1.64. My end year targets are much higher biased with risk on, so far the Sovereign debt situation has been weighing heavily on the pair while the spoty data with the UK economy has been bouncing the GBPUSD in wide ranges but overall inline with my analysis. 

Crude: Fundamentals maybe very relevant. Long term picture inline with analyst forecast with biased average to 100 - 103 end year. Wide range established between 90 and 103. It will be spotty trading the range. Possibly setting up structural long is the best strategy for crude. 

Short term thoughts for now, more indept look tomorrow.

Analyze Capital LLC

www.AnalyzeCapital.Com

GBP/USD June/July Trade - 2011

I made some bad trades on a long term call I knew would play out. Ended up with greater losses than I should have.

• Entered on Strong price action 1.6224 June 22, 2011
• Thesis based on long term fundamentals and inflation based drivers and continued weak US economy
• Sound trade with bad entry for short term feelings
• Considering this was my personal account I theoretically was a bit over leveraged. 
• I reacted on the intraday and didn't wait for the daily chart to close out. 
• It was about two days below the 00's where I shorted and made some losses back.
• Had I held on to the trade with less leverage initially the interim downside would not have seemed so bad. 
• A flurry of risk aversion from the Eurozone caused the GBP to drop big time initially while weak economic data relative to the US exacerbated the move. A lot of it was noise in the short term considering the big reversal in the first half of JULY. 
• My target was 1.64 plus once the 00's were broken I let fear take over since the R/R ratios were way outta whack and I'd have to expect a target of 1.70 to maintain a 2:1 ratio or 1.66 - 1.67 for a 1:1 ratio. Maintain a 1:1 seems more realistic in the medium term while long term 1.70 is my ideal number. 
• Scaling up to a full position/pyramiding above 1.625 is a good idea if UK economic data can support the bullish move as risk aversion melts away.
• Need confirmation in higher crude (CL > 100, ES >1330 and USDX < 74.6) 
• USDX was used as positioning and timing again the huge spike of false risk aversion led me to bail early. 

Conclusions: 

I am understanding my style more and being able to reconcile my strength in analysis to a viable trading strategy. I need to be more well capitalized and less leveraged with more smaller positions to work in my favor and to cut the bad ones when charts and fundamentals turn. I need a higher degree of freedom to capture the trend moves I want, this is more akin to long term trading and investing than purely trade oriented styles which I have been trying the past few months. 

Currently GBP needs to break out of the down trend channel/falling wedge to confirm its continued up trend to the end of the year. Strong economic prints required and more rumors of US easing and weak economy will support this. Risk aversion is already a numb factor to prices as EUR/USD maintains above 1.40. Crude fundamentals are a bit more tricky but can be overall supportive of higher prices given demand can remain stable.

Strategy Improvement: Less leverage to withstand the noise and use scaling when chart turns more favorable. I ideally should have held on to this position until full daily and weeks chart confirmed a continued down trend. Currently if prices break to the 1.625+ is where I should have scaled to a full position or pyramided. To targets of at least 1.64 shor term cover some then add back on breaks of 1.65 to 1.67. END year will be risk positive i expect 1.70 and beyond, bar anymore shocks. 

Hedge Fund Industry Sentiments - July 1, 2011 (Q3 begins)

Peter Douglas - the principal of GFIA (Singapore)


"In fact, I think we actually saw more opportunists come into the industry in that period [post 2008],
which worries me. We meet managers who see the business opportunity more clearly
than the investment edge: “well, two and twenty is a great model, we will give the
business three years; if it’s not really profitable after three years we will go back and
work for Morgan Stanley”, or wherever they came from."

----

My thoughts:

1. 2/20 is not a great model
2. We will see a trend reversal; sell siders who failed at speculation go back to sell side
3. Its really eerie how dead on he is with some of my thoughts.

What Peter talks about is very interesting and dear to me. Often the managers he may encounter are young ambitious young guns who worked for big financial institutions who want to take  a stab at the "Get quick rich schemes of the HF" industry. I would often think these are guys who were the cream of the crop of "target universities," who have only "succeeded" to get where they are. Though, I should not generalize, I would like to believe these are the people who have yet to taste bitter failure or have yet to feel the pains of loosing their own capital to the throws of the market.

To succeed in this industry, to succeed in markets, one has to painstakingly craft his skills and competitive advantage over the years. Bar all metaphysical/post-modernist/philosophical ideas of what is and what is not, there is no escaping this route. Trying to take a shortcut will lead to disaster and undesired outcomes.

The truly scary idea is that newcomers trying their hand at the game will be so reckless in thoughts and actions to let "potential opportunity" impede their ability to perform their fiduciary responsibilities. Also! Let us not be fooled by those who have amazing institutional contacts who can get millions of dollars off the bat to mask weak infrastructures and safeguards meant to protect investors. People will only need to spend a small percentage of fund resources to outsource operations and supposedly build proper risk management infrastructures. For sure all the money in the world can build a great piece of machinery, but what is the use if you don't know how to properly use it? So what use is the manager who doesn't understand the fine nuisances of his business since everything was handed to him so easily?

Well perhaps this is too much of an oversimplification. People who would attempt to start hedge funds surely would not be ignorant, incompetent, or inexperienced right? Or perhaps its more of the case of being either 1. ignorant or 2. being a very clever fellow. Type 1 people who will face disaster and Type 2 people who will have some sort of success.

With this in mind, I too and guilty at times! I think in my weakest moments in building a hedge fund, when the hard became harder and the harder was harder than the hardest, I have actually thought similar sentiments that Peter Douglas was condemning. That being, "Oh if my hedge fund fails, I am young and I can always get a job."  Reading Douglas's comments was just a very clear reminder that I am in this business for the long run. Yes, I am extremely young for this industry, so if I do fail it is an experience to carry through to my next HF venture that will make it stronger and better. That is what the sentiment in my mind should reflect. The reason why I started my venture in this industry because of the entrepreneurial spirit required, because of the mental challenge of markets, and because I have such a strong desire to build and create and help others.

Though if markets have taught me anything, we may like to think in absolutes... that is until we are absolutely wrong. Change is definitely abound, and being young there are more paths to cross than roads to follow. For now at least, I am sticking to the plan.

Analyze Capital LLC
www.AnalyzeCapital.com

Implicit Cost for Asset Allocators - July 1st 2011

http://www.globalfundwire.com/2011/06/30/123017/investors-should-look-beyond-typical-measurements-when-assessing-changes-asset-all

"Minimizing implicit cost," all that work in an academic study to find out that it is something discretionary traders do everyday in smoothing entries and exits on trades. Traders trying to position appropriately will scale in with smoothed market timing. Perhaps this concept is not well understood to the pure asset allocator and pure traditional portfolio managers.


Analyze Capital LLC
www.AnalyzeCapital.com

End of Day Update: July 21, 2011

GBP/USD

• Overall a bullish day roughy about 30 - 40 pips up from its open 
• Risk was on
• Long term trend channel holding though there is a strong risk of failure at the 61.8 fib level
• Price can fall to 1.53 if this happens, we haven't seen  such lows since the sovereign debt crisis The move that caused a 900 pip correction in one month
• BOE announcement tomorrow will either cause prices to shoot up off support or tank completely. No rate change is priced in though it will be key to hear the tone on inflation as that will most probably be the catalyst for tomorrows flow.
• It is most likely we will get Asian hour consolidation and then prices will claw up to 1.64

USDX

• Dollar index gapped down today and continued thorugh the day to be risk on 
• Currently the DX can go in either directino up or down depending on the sentiment
• technically speaking a good down trend is in play, though it is possible a bottom is forming instead
• Short term support to 73.5 any breaks below can mean much lower DX and much higher majors vs the USD

VIX

• Vix falling with risk on, this seem sto be the trend. Risk off seems to be characterized with higher prints

ES

• Hit highs of 1292.75 however is struggling to stay above 1286  38.2% fib
• Tomorrows action needs to hit above 1300 to be bullish fails at 1300 can be pointing to risk coming off again. 

EUR/USD

• Risk comming back on as markets calm down about the Greek Debt situation 
• Imho none of this crap went away, markets will get distracted with risk coming on for awhile, but we will see the EUR/USD easily take another 500+ sometime in the future this year
• Tomorrow price action depends on the US FOMC meeting. Strong words of vigilence can cause the EUR/USD to tank or indication of hawkishness.
• Or its possible that the end of QE2 will lead to a giant USD rally as Kathy Lien suggest
• I'm biased towards weaker dollar

Crude Oil CL (WTI) AUG 2011

• Despite the dollar reaction lows crude remained under pressure
• price action is heavily biased to the downside. 
• I look for buying on 90 lows on support
• or shorting on highs around 97.5 if prices fail
• Good chance prices will climb to 97.5 from current 93.6 lows 

Comment June 21, 2011

A strong daily close above SPX 1300 will confirm increased risk appetite. This should also means price on US treasuries should drop. Hopefully this coincides with continued weak dollar and strong WTI. 

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June 21, 2011 - Market update

The second week of June predominately characterized with risk aversion. Risk was coming off the table left and right. The financial market conditions dominated and was the catalyst across the majority of markets. Despite any S/D issues, the dollar weighed heavily on crude prices pushing it below key 97 support. The USDX index was touch high into 76 but quickly retraced. Of course this was me with wild EUR/USD moves and the majority of majors tanking vs the USD. The US treasuries quickly paired back losses they experienced in the first weeks of June as equities continued to tank (clear indication risk aversion).

Last week June 13 - June 17

EUR/USD:

• 4:6 total risk on/risk off  Europe and American sessions
• 2 of 5 trading days were above the weekly High-Low average
• 4:1 up/down days. 

Sentiment is definitely was negative all last week. Despite there being more up days the up day ranges are not volatile at all. This signals caution going into this week despite the end week and monday day risk on action. It is cautious at best.  Significant down side risk remains in the pair, much of the sentiment/fundamental risk coming from the Sovereign debt crisis. If relief is truly here we will see 1.445 in sight for the next resistance (this coincides with a 50 RSI break on the daily). Fail's at the 50 RSI on the daily can mean back to strong risk off and flooding the USD again. Look for confirmation of US treasuries falling this week and equities up. 

GBP/USD

• same risk on/risk off stats as EUR/USD - Same catalyst
• However, the number of up/down days is 2:3 slightly higher than the EUR/USD 
• There is higher volatility as well in the price high low ranges as  3 out 5 days were above the weekly average.

A lot of the volatility and negative price action has to do with soft Economic data coming from the UK, which was exacerbated by the Sovereign debt worries. Where as the EUR/USD generally experienced all its volatility in one day and crawled back up.  Though generally prices remained buoyant against the strong historical and psychological 1.60 level. A move down down this week at the previous weekly high low range would bring it right above 1.60 support. A break below this could be devastating for the pair and see lower price action and strong risk aversion. 

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QM trade July 15, 2010 - Three Straight Days of Losses

3 days of trading losses adding up. Getting to be too much will step away from markets and reassess what the hell is going on. 

Saw price reach above last nights top and entered at 100.2 +  and it was most definitely a bad idea to enter at this level. As the EUR/USD is leading everything, the dollar is leading everything. Equities left in flood and pour straight into bonds. Risk aversion rampant and I was betting risk on (everyone pouring into the dollar $DX magnificent erection mode). A fool trade in a clearly risk off environment. If prices don't break lower than 97.5 again I have set my stop too tight, or I should have set it tighter. Too much bleeding will need to re strategies after loosing so much.

Long term support is holding, but it seems I am not account for volatility too well. I tried to buy on breaks in each case above and ended up on the wrong side. Long term view did not match short term sentiment. Each day we were seeing over 3 dollars covered. Despite the ranged environment on the daily chart the volatility has been high. The key drivers have been the dollar and the European Sovereign Debt crisis. 

I will be doing analysis and forming a proper thesis to trade next week. This week was a total disaster hopefully the last two weeks I can correct this.

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Can't Catch a Break - QM trade June 15, 2011

Can't catch a break on QM made two bad trades this week. Overall not doing well. Still believe prices can move higher. Last night towards the close into overnight trading I tried to play the break on the 76.4% fib. I entered at 99.7 and was up about 50 cents however as soon as Asia volume picked up they did exactly the opposite of the EUROPEAN/US hour trading. I will try to play the break again today, so many other distracting possibilities. 

Everywhere bearish sentiment is rampant from the EUR/USD sovereign debt issues, to weak GBP/USD data, and risk off equity move from London hours. Currently we are getting some stability at support/resistance levels. 

Possible trades:

Short EUR/USD if we get strong move below 1.4325

ES June is tempting to buy back up to 1290

QM wait for break at 100.2 (above last nights top)

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June 13th Bad Trade - June 14, 2011

1. I believe I would not have been out so much money had I had a lower stop. 1 ATR obviously was not enough to account for volatility for the time frame of my trade. Looking at the red circle it seems pretty clear I was hit by algorithms set to take out stops.
2. Alas also my second blunder, or shall I say the greatest blunder of the year so far was entering an over leveraged position by accident. Though the trade was well executed and was the correct underlying asset it was the wrong size. As soon as I realized this I should have exited my position.
3. Thirdly, my strategy was this, expect price jump on open on Sunday. Since that jump never happend and prices continued to taper off on anemic volume I should have exited right away. 
4. This trade did not follow my specific guideline. 

Got to get back to the basics, this experience was a bit surreal. It has been awhile since I seriously traded which is bad and good. The safest thing for me to do is wait for a strong break to the upside at 100.09 level and target 2.00s. The intraday volatilty on the DX really really killed me. Not being aware of that volatility really ended up hurting. Overall the DX ended up lower which should have helped me but crude ended up much lower because of it. 

Pound seems to be approaching psychological level of 1.65 and EUR/USD can move to 1.45 before its big test. Actually the UK inflation was met with 4.5% inflation inline expectations. Currently GBP/USD is up on the hour.

The GBP vs the Asian pairs seems fit to bounce off support, while there is consolidation on the GBP/CHF. The GBP/USD uptrend seems still in tact. Overall it seems the pound is technically fit for broadbase rally. 

EUR in general all pairs seem fit to continue strength on a technical basis. Despite slight volatility from the Greek downgrade from B to CCC, which messed up my crude position and was shrugged off by investors... the EUR strength is still in play. 

Lastly, the ES despite back and forth yesterday ended slightly positive giving it enough of a base to rally overnight. Overall environment seems favorable for what I was looking for early in the week but poor volatility considerations stopped me from participating. 

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Perhaps a fatal flaw - June 13, 2011

Entered CL_Q1 at 99.8 Friday June 9th

After May's drop off Crude has been range bound. To me this was through rising price support. I figured that after the first week of June if prices held above support we would get a big jump on the following week open considering the aggressive risk off on June 9th Friday. 

Unfortunately it seems that risk off trend hasn't completely worn off. Equities are quite key in this environment. The SPX cash has fallen about 7-8% from 1370 peak and dollar has been rising with the sell off. Crude has been range bound between supply/demand contentions with Opec countries. 

Sunday into Monday trading, June 13, Crude dropped over a dollar in over night trading and is floating in the 99 range into US hours. My reasoning of support holding seems less reasonable as the price action is anemic. Though, possibly volume is less due to Europe markets are closed. 

On the UK session the dollar was weak $DX fell from just below 75 to mid 74.5 with $ES_U1 having a decent recovery. Going into 12:00 it seems uncertainty  and risk off is coming back into play as the dollar is fluctuating and the Majors/USD are slightly pulling back. 

Fundamentally if crude oil markets are to be tight price direction would be naturally up, but OPEC indecision is making prices ranged. Prices will take if the Saudi's do increase production by 1.5 million barrels per day, and if markets ignore decrease in spare capacity. If this is the case 98.00 will be broken and I will be out a lot of money. 

I'm hoping that there will be a squeeze on dollar weakness before the end of Wednesday trading back up to the upper BB's, which would also require a break in 76.4% fib which is acting as a short term resistance.

Currently looking for continued dollar weakness, US equities to have some relief from the past few weeks of aggressive selling and crude to get squeezed at least up to 100 - 101 range.  

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HF Industry Update

http://www.hedgeweek.com/2011/06/07/117432/hedge-funds-see-inflows-usd175bn-april

• Positive inflows for the Month of April USD17.5B
• Assets currently at 1.8 trillion (via trim tab and BarClayhedge)
• Multi-Strat USD 5.3B, Macro USD 3.0B, Fixed Income USD 1.3B
• 4 straight months of inflows 

Quote from article above:

“The appetite for bonds appears to be insatiable,” says Vincent Deluard, Executive Vice President at TrimTabs. “Hedge fund investors, ETF investors, mutual fund investors, and speculative traders are piling into the space. This enthusiasm explains why the yield on the 10-year Treasury has plunged to a six-month low.”
The TrimTabs/BarclayHedge Survey of Hedge Fund Managers for May 2011 reveals that managers have turned neutral on US equities. About 30% of managers are bullish on the S&P 500, up from 23% in April, while 29% are bearish, down from 34%. Meanwhile, managers have turned marginally bullish on the U.S. dollar, and 34% plain to increase leverage in the near term."

________________________________________________________

AC Take:

• Maintains short term bear on US equities
• Short term bear on crude long term bear Crude (waiting for production shock - buy on lower support)
• Dollar definitely has room to fall further; short term bear

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Visualization of Fed's April Consumer Credit Report

Consumer credit trend overall has significantly decreased from the sub-prime crisis. The rate of outstanding credit falling less in 2009 signaled a bottom to come. At the start of 2010 consumer credit bottomed and tight credit eased off. Through 2010 and into 2011 credit has started to come back into the markets.

A breakdown in the the total trend shows the huge drop in outstanding credit came from the unwinding of pools of securitized assets from mortgage related institutions along with small drop in financial companies. The only substantial growth in consumer credit can be seen from the Government and Commericial Banks. Interestingly though at the start of 2010 Commercial lending activity seems to have started to decline all the way into 2011, and government support continues to rise. 

We can see the decline in the Commercial Bank is coming from revolving credit. Obama's regulation on consumer protection could be putting a dent on this. We see in the second chart that Commercial Banks benefited greatly from revolving credit. The commercial banks switched to a fee based model vs. a loaning model hence the huge jump in 2008 in consumer credit. Throughout this period loaning has contributed to little consumer credit growth at all. 

Banks are getting kicked left and right on how they can make profits. Its only a matter of time before non-revolving credit starts to add more value for banks again. It has been 3 to 4 years since the start of sub-prime. I believe in another 1 - 2 years commercial bank portfolios should be clean enough to start healthy lending in in non-revolving credit which could spark much needed investment and perhaps be the catalyst to allow for corporates to unless their pent up cash. 

Much of this slow growth has been in opinion, due to a lack of banks willingness to lend due to tighter regulation, fear, uncertainty in growth, cleaning up lending portfolios etc... Once this huge hump can be passed, we should see a stronger pick up to growth and the jobs market. 

Percentage of Total Change 2006 - 2011

(Percentages)

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End of May 2011 Results

Alexander Lê
Managing Partner
Analyze Capital LLC
www.analyzecapital.com

Third week of May 2011

Trades of the week:

Market Observations May 23, 2011

• Crude consolidating back on the low side 97 range. Fundamental estimates have up to 107 upside range. Huge drop on open (Friday to Sunday) vs Friday huge drop on US equity open. 
• Dollar index indicates possible resistance - watch dollar weakness reversals on majors. Major pairs shows break through on many significant support/resistance levels in favor of dollar strength. Trend seems to be strong dollar. 
• NatGas floating above 4 still - solid support

May 19 - 20 Trades 2011

Not bad on the whole. This week quite positive. The EUR/USD situation really caught me with my pants off. Didn't expect sentiment to reign so hard at the end of the week.

The GBP/USD was a great contrarian play, 1.60 support was key in my decision and I knew it would hold. CL Amazing volatility in the early morning seeing 3.00 down moves. Having stops too tight would have resulted in larger losses than I intended... something really I need to ponder on.

NatGas really saved me along with the NZD/USD. To be honest the NZD/USD trade is something I am aiming longer term for, while NatGas was a short term play. Again support was a key decision for my play on Nat gas after long week of bearish pressure.

RBOB was interesting to trade. I didnt' like the illiquid moves and mis pricing that occurred during the short time frame. The leverage seems a bit confusing and overall the trading very spotty. I may try to continue to trade it on the paper trader but over all I am not sure I would make this a regular trade.

My ES and SPY trades were great this week. Early in the week I caught the leg up and closed out and turned around and caught the leg down for the short. SPY offered no leverage at 100 shares, ES provided better leverage despite it being a mini. It has a very comfortable leverage and velocity path.

USD/JPY I didn't catch any liquidity at the end of the week. NKD also was a bad idea trading end week as many of the Asian traders just gave up after all the bad news. Perhaps buying in on Sunday might be a good idea after last weeks pummeling.

Update April 27, 2011

Been taking the past few days engaged in heavy fundamental readings. Been clarifying few points about the business as well. We will be moving forwards soon, unfortunately it is often in business that things never go perfectly to plan. Soon to be back on track.

• Dollar moves have been will in expectations, however as an observer who has not been watching closely the moves seem very dramatic.

• Gold and silver are also worth mentioning.

• Crude still remaining elevated as expected

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Eurozone Current Account and EUR/USD Comparison (1999 - 2010) - April 24, 2011

Data Source: ECB

Between the colored regions is when the EUR/USD rallied in a general uptrend. Below the EUR/USD Chart is the Eurozone Current Account and below are the components of the Current Account (Net good and services - good exports minus good imports and service exports minus service imports, Net Income, and Net Transfer Payments)

Some Fundamental Observations:

• The Current Account does not give good fundamental support alone in explaining EUR/USD trends up.
• The net Goods component of the current account is probably the best fundamental indicator of what supports the EUR/USD trends up out of the Current Account. 
• Every time the net goods component was positive (Exports in goods > imports of goods; a.k.a more euros into the zone) or rising from negative to positive, there was a strong general uptrend in the EUR/USD
• The onset of the sub-prime crisis leads to much greater negative net factor income and net transfer payments
• Into 2011 well into the sovereign debt crisis; net factor income volatility appears to be decreasing and starting to turn positive (a.k.a Eurozone starting to receive more capital back on investments/remittances vs. payout them out more as seen through the sub-prime/financial crisis 2007 - 2009)
• Net Transfer Payments grew larger and larger as the Eurozone grew, and was possibly exacerbation by the multiple financial shocks in the past three years. Net Transfer Payments remains elevated. 

The most stable period of Eurozone growth appears to be between 2002 and 2004 (green), as the trade balance in both goods and services were positive (especially with goods primary driver), while net income and transfer payments, though negative, were not volatile and large enough to weigh down the current account. As we see post 2006 all three components of the current account become much more volatile. 

After 2006 the Current Account (CA) is not primarily reflected by the trade balance. The trade balance becomes more volatile plus Net Factor Income (NFI) and Net Transfer Payments (NTP) become much larger negative components of the CA. 

However, despite such a fundamental divergence the Euro rallies to all time highs (from 2006 to 2008 from 1.20 to 1.60 - yellow). The rally in the EUR/USD is reflected when the net goods component goes from positive to negative. 

The subsequent shorter rally in 2009 (EUR/USD about mid 1.20s to about 1.50 -blue) is again supported with a sharp reversal in negative net goods to positive net goods (about -11B euros to +15B euros)

The last period I highlight as a general up trend is interesting in that we are seeing a sharp reversal in net goods from Jan 2011 to Feb 2011 from about -14B euros to about -993M euros, but do not have positive net goods yet. 

Conclusion:

I have not calculated the data sets, but I would logically assume the exchange rate value is the catalyst for trade movements. Therefore, if the EUR/USD is posting higher highs up to 1.50 resistance and the net goods component of the CA remains below +5B euros (past rallies in EUR/USD eventually posted greater than 5B euros net goods), there will be a sharp reversal in the EUR/USD at 1.50. 

If net goods continue to trend higher beyond 5B euros, it is possible the EUR/USD rally is fundamentally sound and continue beyond resistance. Continued higher highs on the EUR/USD without fundamental support would just be sentiment and speculation and subject to a strong mean reversion. 

Keep in mind of course the nature of the trade data is reported late, and that sentiment can sustain currency rallies on months end before correcting. 

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USD Long Term Perspective - April 21, 2011

As a fan of history, I like to give context to current events. Some notes on long term price moves of the dollar index (cash)

• For ten years, 1987 - 1999, the dollar roughly traded in a range of 80 and 100 ($20 dollar range)
• I see two Major trends between the period 1987 and 2011
• Mid 1990's boom - Housing boom, low interest rates, positive technology shock, human capital development
• Tech Bubble Burst, rising interest rates, 9/11
• 2008 financial crisis/housing bubble burst cause the dollar index to reach historical lows on the USD cash index
• Since the 2 major trends cited above it seems ranges have normalized

The 80.00 level is a significant long term psychological level. Both major trends occur above this support level. The support level is broken with the onset of the 2008 financial crisis. The major trends plus the 2008 financial crisis indicate major changes and events in regards to the context of the USD. The rise of the USD coincides with the rise of the US economy in the 1990's which reflected its dominance in the world. The subsequent fall of the USD coincides with the rise of the new strength (not  necessarily dominance) in other major pairs mainly the Euro (the largest component in the dollar index construction) vs. the dollar, which also is inline with the rise of importance of other economies (again not necessarily dominance). 

Of course the 2010 sovereign debt crisis put the Eurozone into question, but looking at the range of the USD movement indicate that perhaps the crisis is not as important as markets would have us believe given much larger USD trends and ranges in the boom and bust described above between 1995 and 2007. As shown in the chart above the period from 2007 onward shows a narrowing US price range. 

What is important is the underlying fundamental structural changes that have occurred over the history as marked by the broken 80.00 support level. Of course I emphasize the strength/importance of other economies does not mean the demise of the USD anytime soon. Significant hurdles to overcome, that can take decades to play out, are still in place; China's pegged currency, world economies' reliance on crude oil, soft agriculture products priced in dollars, and of course the US still being the number one economy in the world. 

Significance may wane, but overall dominance of the USD is still there along with the economic support. Like I wrote in my last POST, a new panacea is needed before we can see further fundamental shifts (I was referencing the energy industry, but the idea applies here as well). 

Some bulleted conclusions:

• New ranges can be seen between 70 and 90 on the USD cash Index - similar to the $20 range seen between the 1987 to 1997 decade but at new lower level (reflecting strength of other economies)
• As economies normalize out of the recent volatility periods the USD index has room to range to 70 which equates to 2007 level exchange rates such as 2.00 GBP/USD, 1.60 EUR/USD. 
• The fundamental structure between Asian economies and Western economies is very apparent in the AUD/USD and NZD/USD as the pairs are reaching new historical highs in literally uncharted prices territory.

PS: todays USD drop caught me by big surprise as I was expecting a much bigger dollar strength correction. Prices can remain elevated for a few months before a real large correction will occur, go with the flow...

April 21, 2011 - 6 month daily

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Motor Fuel and CPI - St. Louis Fed

http://research.stlouisfed.org/publications/mt/20110501/cover.pdf

Taken from the link above

The St. Louis Fed report indicates that for the past four years Motor Fuel has been the real volatile component in the CPI calculation despite its small weight. The CPI trend has a standard deviation (SD) only 2% when you exclude Motor Fuel vs. 5.4% and 6% SD's for headline and food exclusion respectively. 

A historian would laugh at this chosen time frame as such deviations will have no effects in the long run. Though since the FED is short run oriented this perhaps does have real implications for Fed policy, and CPI weightings and calculation as inflation becomes more relevant. 

Also as traders and investors, the short run is what we are interested in, or at least the majority of behavior would often reflect this if not thought. If motor fuel is indeed as important as this report may claim, perhaps focusing on its effects on consumption and growth may led to fruitful macro trades?

Either way, as we progress towards the end of the century weightings will indeed have to change significantly as energy prices will continue become more and more volatile. CPI will have to be rebalanced more frequently. This will all change of course when the next energy panacea is created by huge leap in energy technologies or a new viable source of energy discovery. 

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Lets Talk Gold - April 19, 2011

April 1 YR Gold

Today Spot gold hit 1500 for the first time. Yesterday I tweeted:

Looks like that statement was a bit overstated as the coming weeks happened to be today. Of course today was just a touch on the daily chart. I would look for 3% to 5% pull back for scaling in on an overall up trend. Of course any type of "uncertainty" and "risk" will benefit gold flows. In the short run and long run (Q2 and beyond), there is plenty of fuel to flame the fire bigger. 

Currently traders and investors in the breakout (1425 to 1500) are the smart money riding the trend. We have yet to see the effects from "not so so smart money" which will carry gold much higher. 

Either way, just like in 2010, any rationale will work for you fundamentalist, so pat yourself on the back for creating more self fulfilling prophecies. 

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