Over-Night Recap: Sept 24, 2010

Inter-market dollar correlations remain strong as ever:

With over night trading FX markets saw dollar weakness across the board continue.

Early morning crude saw jumps in prices in Dec contracts. While equity markets are enjoy three month higher highs from the dollar weakness.

The SPX has enough room for high 1150's and low 1160's remain bearish. Given the continued upward momentum in equities the dollar weakness may persist longer than we have expected. Now would be a good time to get some partial hedges over the coming days.


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Alexander T. Lê

The Skeleton Shift: Update - Sept 24, 2010

The overnight shift here we go!

FX:

Technical Issues:

One thing we've been grappling with is trading the 8 hour to daily trends. Most of the time you know you are right on the trade but entry is almost never nearly perfect entry on the 60 minute charts. Hindsight 20/20 is that on the daily charts entry looks flawless.

The problem with this is how to set up appropriate stops if one is trying to capture daily trends. Often 2 ATR ends up being too tight of a stop, though perhaps if trading on 60 minute charts a 2 ATR stop is way to wide. As follows, if one wishes to widen the stop to be able to capture the right move, naturally the risk/reward increases. Obviously this is the age old problem of risk/reward.

Due to the dynamic nature of forex, each trade technically requires specific tailoring. Ideally, we are slowly working out a solution to this problem to maximize the upside while having reasonable risk management.


FX movements:

The dollar strength forming slow and steady. The past 24 hours on the USD/CHF show up ticks with the latest 8 hours trading down (temporary weakness)

The USD/CAD in the past 24 hours saw a very large up tick on the price squeeze and has been trading down since then.

The GBP is still lagging the euro in performance. Don't be surprised to see large upticks on the GBP/USD with down ticks on the EUR/USD. On the whole the pairs remain correlated, with slight divergences easily seen on the 60 minutes. On a fundamental level, in the region we may see flight to quality to the GBP if the Eurozone economic data weakness further.

Currently the US/JPY is leading the majors and found support 84.26 and currently trading on the down tick. For picky traders I would wait for around 50 RSI on the 60 for those bearish on the YEN long term. I would maintain a small position now and scale in on the way up.

The AUD/USD has since been trading down since its 1.96 highs from 9/22/2010. These levels are pre-crises levels, I believe if I am not mistaken the AUSSIE is the only pair (besides the yen) to reach is pre-crises levels of the majors. I think the RBA decision to hold rates will fuel the short selling of the AUD. The rest of the major pairs need time to close the gap


Summary:

Essentially though in the past 24 hours we saw slight dollar strength the majority of the pairs are showing short term dollar weakness. This in turn is fueling crude on later DEC contracts higher. With prices in contango on the front months we expect a trend of later contracts to have upward price pressure with  nearer term contracts with downside price pressure.

On the day to day movements though, the dollar strength we expect should push crude prices lower leaving room for entries for those who are long crude into the winter season. This will also leave opportunities to explore re-entry for weak dollar strategies in the following months.



Alexander T. Lê

Buoyant Natural Gas

EIA Data release for week ending September 17, 2010:


Working gas in storage was 3,340 Bcf as of Friday, September 17, 2010, according to EIA estimates. This represents a net increase of 73 Bcf from the previous week. Stocks were 175 Bcf less than last year at this time and 195 Bcf above the 5-year average of 3,145 Bcf. In the East Region, stocks were 16 Bcf above the 5-year average following net injections of 53 Bcf. Stocks in the Producing Region were 114 Bcf above the 5-year average of 915 Bcf after a net injection of 19 Bcf. Stocks in the West Region were 65 Bcf above the 5-year average after a net addition of 1 Bcf. At 3,340 Bcf, total working gas is within the 5-year historical range.


Price Data



Headwinds

A significant portion in achieving upward price momentum has been unpredictably moderate temperatures. We are in an environment in which Nat Gas is not needed for cooling nor for heating. Additionally, Hurricane season has yet to come to fruition (that is an oxymoron but rings some truth for an energy trader) and will likely continue upon its uneventful season. However, hope remains in the form of tropical storm Lisa. WIth warmer temperatures in the Atlantic, the potential for greater velocity of headwinds and illustrious destruction increases rapidly; think Hurricane Rita. If the storm hits the North East, I would look for Philadelphia output to stagnate.

Tailwinds

We'd like to see the November contracts find support at $4.15/mmBtu. Though the contangion spread between November/December contracts (.216) is much wider than that of December/January (.1620). A scenario could develop in which the November/December spread widens until demand firms for the near-month contracts. Otherwise, spreads should narrow as the near month November contracts gain demand traction. We expect to see sustainable support of $3.98 on October contracts expiring on Tuesday.

December NG: 3-Month Daily Chart



Trade

As Alex astutely alluded to yesterday, we are long MINY December Contracts. We will look to'pyramid' once prices move into a tighter range at higher price levels, if there is such a thing.

Patrick M. Ambrus
Twitter: AnalyzeCapital

Source: http://ir.eia.gov/ngs/ngs.html

Market Recap Sept 22nd 2010

FX:



Dollar strength early in US trading hours since then the strength is now fading. The question is will the dollar strength correction continue or has this been a slight whipsaw in the dollar weakness trend. We are betting on more sustained dollar strength correction which will lead to a continuation of dollar weakness. We are aiming for the dollar to get some strength over the next few days before re-examining entries for shorting the dollar on major pairs. It would seem the GBP is favorable as it has slightly lagged the EUR in % performance gains though moves remain correlated. I am still looking for entries on shorting the JPY. Fibs are saying the 61.8% retracement in the 84 range though an early entry around 84.5 may not be a bad idea, all in all the major pairs are moving in sync so I am gonna hold off on the JPY trade.

Crude:



Its a dollar dollar game, early strength led to a selling of in the december contracts I'm following, and just when the strength started to fade oil started is late day rally though still far from early morning highs. Since we are betting on continued dollar strength the next few days we feel oil is gonna fall to resistance levels. On December mini's thats about to the $75 level.

Nat Gas:



Nat gas has been jumping around all day the spread between the bid ask has been volatile, though on the awhole quite a flat range. The Dec 2010 mini's have been trade in the low 4.30's after gapping down from its 4.365 highs. Technicals are telling us prices are coming to a squeeze, and we are betting to the upside.

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

Opinions in Politics: Sept 21, 2010

****This blog post contains opinions which do reflect the whole belief of the AC group and are not meant to show disrespect in anyway what so ever: all comments and concerns can be directly addressed to the author****



Perhaps it is me alone who feels this but I found Scaramucci's demeanor and air to be a bit unbecoming of a hedge fund manager of a "7.4 billion dollar" hedge fund (no disrespect intended). Name dropping and number throwing is quite the turn off in my humble opinion.

On the flip side, I found Obama's perceptions on hedge funds to be very misguided. The top 25 hedge funds who brought in over a billion dollars in profits are probably less than 1% of all hedge fund managers. The majority of hedge funds being under $100M AUM, come no where near the top hedge fund managers. At most, small hedge fund managers are only bringing in a modest six figures, which is no different from middle class americans.

To single out the top hedge fund managers and apply that across a whole industry is the same using stereotypes on whole race of people, a whole class of people, or a whole country of people. Perhaps a better comparison of what Obama is saying would be to take a big fortune 500 company, and say, since this fortune 500 company brought in 1 billion dollars of revenue this year EVERYONE in the company needs to be taxed higher including the janitors.

I find it a bit disheartening that our leader of this great country to be so misinformed and because of this the little guys have to pay the price of such ignorance.




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

Do Your Own Homework-SPX Update

'Buying Gold is an excuse for people not to do their homework.'

-Alex

SPX: 1 Year Daily Chart:



Another day another dollar: that is true if you were long the SPX in U.S. trading today. The SPX rallied 1.45% to 1141.92 on the session led by Energy, Consumer Discretionary, and Industrial stocks. Many Tech bellwethers displayed robust performances as Google rallied 3.7% to 508 and AAPL closed above 280 up 2.85%.

Pop Quiz: Why did equities rally today class?



a. President Obama's Town Hall assured investors America is "The Greatest Nation"
b. The SPX broke resistance of 1131
c. Japanese Markets were closed
d. The Tea-Party will uproot American Politics
e. No significant economic data released
f. I forgot how to take these tests

The answer is probably a combination of b, c, and e. The S&P finally broke out of its uninspiring trading range on light volume. Though, this may be short lived. Early in the session gold rallied to new highs around 1284. However, these gains were unsustainable. In addition, agricultural commodities, base metals, and Natural Gas led commodities lower. The USD failed to sustain any gains against the Euro, Sterling, 'Aussie', and CHF. Also, the bond market lacked bullish convictions. Alas, capital flowed into equities by default.

October Nat Gas:1 Month Chart



December SPX E-mini: 1 Month Chart



Trades
We took advantage of the sharp sell-off in December Nat Gas contracts and entered a long position as prices firmed. Also, we are long the Dollar vs. CHF. U.S. Housing Starts come in at 08:30 and The Fed decision is at 14:15 EST. We expect equities to pair some of their gains in tomorrow's session.


Patrick M. Ambrus
Twitter: AnalyzeCapital

Sources: Stockcharts.com, Bloomberg.com, VanityFair

Japanese Denim With Money Tucked in 'em

'Fear Keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse his natural impulses. Instead of hoping he must fear; instead of fearing je must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may be a big profit.'

--Larry Livingston , Reminiscences of a Stock Operator

Alas, intervention from Japan. I have been patiently waiting for this move, and it came sooner than I anticipated. In case you were hiding under a rock somewhere:

The yen tumbled from a 15-year high versus the dollar after Japan intervened for the first time since 2004 to curb gains that threaten an export-led recovery. Japan’s currency slid the most since December after Finance Minister Yoshihiko Noda said the nation unilaterally sold yen.

Six Questions for Yoshihiko Noda:
1. WiIll G-7 countries accept this policy and help Japan with coordinated intervention?
2. How Much Yen will the BoJ sell? (rumors circulating say 1 T Yen for today)
3. How much USD will be purchased in comparison to EUR?
4. Will traders test 'the line in the sand', a USD/JPY rate of 82.00?
5. WiIll Naoto Kan remain PM through 2010 and into 2011?
6. WIll potential 'QE 2' from The U.S. FED derail any unilateral intervention?

On Monday I was able to get long at an average price of Y83.36. Last night I pyramided and thus was able to get the maximum profits out of my trade. I exited the position around Y85.30. Recently I have tried various new trading strategies to get the most of my profitable positions. See Edwin Lefevre's Reminiscences of a Stock Operator to understand pyramiding better. Currently, I maintain no open position in the pair. I am uncomfortable with all of the fundamental uncertainty of 'unilateral intervention' as I adressed in my questions above. I will enjoy my profits and take the rest of the day to spend with family.



Check out my fellow trader's blog: http://blog.thelordoftrading.com/ . He had success trading this pair today as well. In addition, please utilize the forum on his site. It is packed with all sorts of trading goodies.

Patrick M. Ambrus
Twitter: AnalyzeCapital

Sources: Bloomberg.com