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Monday, August 23, 2010

SPX UPDATE: August 23, 2010

I apologize for the lack of post on my side. Lots of research and analysis has been takin in-house as our portfolio will be up in running shortly. Though Here are some thoughts:

SPX 1000 HERE WE COME:



We should see:

On the high side this week up to 1190

and

On the downside this week targeting 1055...

for my bearish stance to be confirmed.


-----


Alexander Lê
Managing Parnter
Analyze Capital LLC
analyzecapital@gmail.com

Thursday, August 19, 2010

Jobless Claims, Philadelphia FED Survey, & ES Trade



Jobless Claims
Initial claims are piling up, indicating that businesses are continuing to cut costs. Initial claims came in at 500,000 in the August 14 week for the largest total since November. The four-week average of 482,500 is the largest since December. A month-to-month look shows significant deterioration of 25,000 for a percentage change of nearly six percent. The Labor Department said special factors are playing no part in the data

Philly FED Survey
Manufacturing indications out of the Mid-Atlantic region are decidedly negative for August. The Philadelphia Fed's general business conditions index fell to minus 7.7 to indicate month-to-month contraction in business activity. New orders, at minus 7.1, show a second straight monthly decline in what is a definitive indication of weakness. Unfilled orders extended a run of declines. Shipments also fell in the month as did employment and the workweek. Inventories also fell while delivery times quickened

Bloomberg.com


My ES SPX short finally paid off today. The futures activity was timid before the open. However, the Philly Fed survey sealed the deal for me. Currently, I'm surveying the ES chart for reentry points to short again. In addition, I hold some USO options. I'll keep you posted on that when I make up my mind. Until then, I'll enjoy this one.

Related ETFs: ProShares Ultra S&P500 (SSO:US), iShares Russell 2000 Value Index Fund (IWN:US), ProShares UltraShort S&P500 (SDS:US)

Sports: Carmelo Anthony wants to play in New York as a Knick.

Patrick M. Ambrus
Analyze Capital LLC
Twitter: AnalyzeCapital

Wednesday, August 18, 2010

Gauging Market Sentiment


The current equity market is a lethargic trade. The more I look into potential trades the more I find a lack of opportunity. Since The May 9, 2010 ‘Flash Crash’ markets adopted an elusive modus operandi. The European Sovereign Debt crisis waned in and out of news, a bubble in Gold prices tempted us, and economists argued the nuances of stimulus vs. austerity. I miss the ubiquitous uncertainty.

Over the last 10 days volume in the SPY SPDR ETF averaged almost 190 million shares per day. In contrast, over a 3-month span, the SPY averaged close to 252 million shares changing hands daily. Thus, volume decreased by 24.6%. In addition, The GLD SPDR Gold Trust averaged only 10.3 million shares traded in the most recent 10 days. Meanwhile, GLD volume averaged 14.2 million shares per day in the most recent 3 months. Hence, volume declined by 27.5%.

The SPY is the largest ETF by AUM with 66.8 Billion under management. StreetTracks Gold is the second largest with 51.2 Billion under control. What has cooled trading in the aforementioned derivative-like securities? For one, volume has decreased throughout equity markets for the better part of August. Though, with all the technological advances in High Frequency Trading, iPhone/BlackBerry trading apps, and trading robots, we live in an age were trading routinely flashes 24/7-365. Vacation time alone cannot explain the illustrious drop in volume.

Let’s skin this cat another way. What market has seen a consistent uptick in volume without decline? The bond market has. The iShares Investment Grade Corporate Bonds ETF, LQD, volume rallied 13.53% over the past 10 days in comparison to the prior 3 months. Additionally, the iShares TIPS Bond ETF, TIP, saw volume increase by 5.23% over the past 10 days in comparison to average 3-month volume. Now don’t let me get carried away with these statistical redundancies. Empirical reason suggests a normalcy in the gradual volume changes. Spreads continue to tighten as interest rates remain at near zero levels and inflation subsides. Yet, I’m not convinced investment grade debt is the correct safe haven.

Aside from bond prices and yield curves, what catalysts chauffeur equity prices? U.S. economic data often sits behind the wheel. Central Bankers remain the biggest elephants in the room, in particular the FED. The FOMC has found a way to implement a new Quantitative Easing program without calling it QE. The Fed will take proceeds from its MBS securities and buy U.S. Treasury Notes. Hence, U.S. notes continue to yield near-all-time-low interest rates. One thing the FED is clear on, the committee fears deflation. Thus, the committee led by Helicopter Ben will continue to shower the economy with liquidity. Until the day of reckoning comes, expect investment grade debt to rally. I also expect corporate debt issuance to exacerbate demand.

Remarkably, I managed to construct a top down argument that bottoms up. The FED’s decision making on monetary policy and QE will affect the bond market, which will drive equity prices. I surmise, global debt markets coalesced to form a bubble. Now that we know a bubble exists, we need to know how large it will grow and when it will pop. Although calling a top or bottom is dangerous, pointing out a bubble is reasonable and needs recognition. Undoubtedly, equities will benefit tremendously from the unwinding of the crowded debt trade. My suggestion is to short overbought bond ETFs and long growth/value equity ETFs. This may be a defensive play, but it will work in time.

Bond ETFs: iShares TIPS Bond Fund (TIP), , iBoxx $ Investment Grade Corporate Bond Fund (LQD), Vanguard Total Bond Market ETF (BND)

Equity ETFs: Russell 1000 Growth Index Fund(IWF), Vanguard Total Stock Market ETF (VTI), ELEMENTS Benjamin Graham Large Cap Value ETN


Patrick M. Ambrus
Analyze Capital LLC
Twitter: Analyze Capital

Monday, August 16, 2010

Japan GDP Growth



The Gross Domestic Product (GDP) in Japan expanded at an annual rate of 5.00 percent in the last quarter. Japan Gross Domestic Product is worth 5068 billion dollars or 8.17% of the world economy, according to the World Bank. Japan's industrialized, free market economy is the second-largest in the world. Its economy is highly efficient and competitive in areas linked to international trade, but productivity is far lower in protected areas such as agriculture, distribution, and services. Japan's reservoir of industrial leadership and technicians, well-educated and industrious work force, high savings and investment rates, and intensive promotion of industrial development and foreign trade produced a mature industrial economy. Japan has few natural resources, and trade helps it earn the foreign exchange needed to purchase raw materials for its economy. This page includes: Japan GDP Growth Rate chart, historical data and news.

tradingeconomics.com

Export oriented growth remains resilient. However, The world's second largest economy faces a grave test of fiscal fat camp. The island's budget deficit as a percent of GDP staggers at -7.5%. Also, political reform/turnover transcends any progress made from previous fiscal reform.

Alas not all hope is lost. Deflation fears begin to subside while unemployment holds around 5%. Additionally, Industrial production surged 17.0% from June 2009. Now, Japan's leadership needs to make lemonade. Naoto Kan a former finance minister and current PM, may be the correct leader to tame the ravenous debt beast as well as exploit the island's strengths.


Patrick M. Ambrus
Analyze Capital LLC
Twitter: Analyze Capital

Tuesday, August 10, 2010

FOMC Decision


Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated.

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The Committee will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature

federalreserve.gov


Thomas M. Hoening was again the lone FOMC dissenter. Since Helicopter Ben uttered the phrase 'nascent recovery' on Capital Hill, cryptic language has proceeded. Clarity from the FED going into the 4th quarter is unquestionably salient. Perhaps, we (market participants) should sit tight until Jackson Hole concludes. Surely, transparency will become abundantly apparent after the curtains close at the Committee's annual Wyoming refuge.

Uncertainty is apparent in risk/reward security markets. At this point in time, The FED maintains relevance and reverence on the Streets plastered with Investment Banks rather than cafe's and bakeries. Ergo, Monetary Policy must remain stable as U.S. fiscal policy shifts political party lines. The Bush tax cuts abide while politicians play musical chairs.

Something tells me Precious and Industrial metals may be the best play in the 4th quarter as risk aversion reigns supreme. Unless of coarse one likes Government Debt.

Related ETF's: iShares Barclays 10-20 Year Treasury Bond Fund (TLH:US), GS Connect S&P GSCI Enhanced Commodity Total Return Strategy Index ETN (GSC:US), ETFS Palladium Trust (PALL:US), E-TRACS UBS Long Platinum ETN (PTM:US)

Literature: Karl R. Popper's The Open Society and Its Enemies 2 Hegel and Marx

Sports: T-Mac finally gets another shot. Former Superstar Tracey McGrady officially Signed with the Detroit Pistons today. Detroit's backcourt is crowded.

Patrick M. Ambrus
Analyze Capital LLC
Twitter: Analyze Capital

EUR UPDATE - FOMC ANNOUNCEMENT: AUG 10, 2010



Wow talk about great timing. I exited my trade 59 pips down. I could have taken profits at 70 pips (lower tail shadow below 2nd deviation BB), but I wanted keep some discipline. I instead waited for prices reverse and re-correct to my exit point. The Fed announcement almost caught me with my pants down as I was concentrating on admin issues. Luckily I had a few entry orders 2-3 ATR above my exit to take advantage of a of a short term up swing and down swing.

Strategy:

I had half a standard lot around 1 ATR above to take advantage of the up and then 1 standard lot 2-3 ATR above my last exit to take advantage of the pull back from the potential big upswing I was expecting from the announcement.

Luckily, the strategy played out somewhat OK giving an additional 6 pips to close out the day.

I guess you can say that I was trading the "pricing in" of the FOMC announcement from last night and had a trade in place to take advantage of the post announcement as well.

---

Alexander Lệ
Managing Partner LLC
Analyze Capital LLC
analyzecapital@gmail.com

EUR Update: April 28, 2010

PRE FOMC Announcement:

Last night I setup some entry orders and went to bed. My timing of and use of volatility entries in combination of BB analysis worked quite well. Indeed the analysis it confirmed this short term down trend. However, I do question the validity of this down trend as it may become a higher low in the mid to longer term (month to month).

Here is my trade:



Entry was set 1 ATR away from current price. Last night, current price traded and closed out side the 2nd deviation lower BB. 1 ATR coincided with 1st deviation BB resistance. One of my orders was filled and killed, while I managed to get half a standard lot in for the go.



I woke up and I am now currently managing the trade. When waking up I wanted to jump ship on half the gains I currently have... luckily I didn't second guess myself and stuck to the trade. Last night I also had to stop myself from second guessing myself on entering at current price. Instead I stuck to my orginal thesis and I was correct to not enter earlier.

At the moment, I decided its best to maximize the 8 hour time frame indicators within the context of a bearish daily chart short term trend (trade to lower momentum levels)





Lastly for exit I am targeting right about 8 hour short term trend support (timed with 38~ RSI).



Summary:

What did I learn? Keep your cool, maintain discipline. Currently I'm also updating risk management I tightened stops as I don't expect significant upward volatility to knock me out.

I'm definitely getting comfortable with modest leverage. However, with all these ridiculous financial reforms, I may have to flee America if I want to continue on the retail side. Either that or switch to pure mini futures.


**side note** as im writing markets in Europe are starting to close hence the lessened volatility, hopefully this trend continues through the US close.

----

Alexander Lệ
Managing Partner LLC
Analyze Capital LLC
analyzecapital@gmail.com
 
Disclaimer
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.