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