Entries Tagged 'Market Outlook' ↓

The US Dollar is as much a focus for me this week as it has ever been.  It is starting out the week testing it’s latest lows.  Some quantitative research I’ve done has been me focused on possible meaningful dollar bounces starting as soon as the end of this week.  Not to mention, the tightly wound up correlation between so many markets: gold, energies, indices, bonds, and dollar, still has my curiosity peaked.  So, pretty much the dollar is the key to much of my trading activity for the week.  If the dollar holds, perhaps I’ll engage some markets.  Otherwise, I’ll stay on the side and let the current trends continue to run their course, a course that is no longer interesting to me for a myriad of reasons.

I’ve lost the illusion of sensing I can see good opportunities on the grain markets.  And, the softs seem a wee bit off kilter for my tastes.  So, I’m pairing my focus at the start of this week to metals, currencies, and indices.

Options traders remember we have expiration coming on Friday!  The next expiration will be December expiration at which point the smarter trading community will already be taking position for the new year’s trend.  It’s not too early to start thinking about 2010.  This markets may be able to run higher, but, not forever.

While I’m on the subject of options, keep in mind what sort of traders will be rewarded this expiration.  Let’s just assume our more sophisticated traders are using rather dumb market neutral strategies.  Let’s assume the more naive players have a directional bias.  So, roughly speaking the majority of “smart” trades would have gone on around October 16th.  Let’s assume sometime around 10-15 days into the trades, IF AND ONLY IF, they were profitable, they would have taken them off.  Otherwise, smart money would be looking for those markets to be within a similar price range as we close out those contracts which will expire this week.  At which point those markets will be free to explore new ranges in ways they haven’t previously been able too.  One market near and dear to my heart is the metals market.  If this logic pans out, I could see perhaps one more sucker’s rally before a decent breather.  Time will tell.

General outlook:

As always, this is purely an empirical and a theoretical exercise.  Trading is extremely risky.  If you were to trade, you should only ever do so with money you can afford to lose.  Be well, be safe, and be warm.

I can’t tell you what tomorrow will bring.  But, given the non-days of Monday and Tuesday, I’m not exactly expecting tomorrow to find the beginning of a substantial trend tomorrow.  Plain and simple, I have very little to say tonight.  Whether I’m wrong or right, I’m pretty much planning on postponing any significant trading until the market starts to inflict some more pain.  Although this sideways action might be helping fatten me with some premium on the butterfly on silvers I throw out last week, it’s not doing a lot for my speculative futures plays.

Instead of getting frustrated, I’m getting focused on a few other things for the moment.  So, I’m going to wait and see.  I’ll be back before the week is over.  But, my interests going forward are definitely honing in on Friday and next week.  Who knows, perhaps we’ll see some head fakes in a few key markets over the next few days.  Read the tape, watch intraday if you can’t get away.

Be ready.  Above and beyond all things, be prepared.  Know what you are willing to risk and what you are looking for.  You don’t always have to be right.  But, you need to know what you believe; and, your belief must include an expectation with both a very specific measure by which you will know you are right and most importantly a very specific measure by which you will know you are wrong.  If you don’t enter every trade with both exits in mind, the profitable one and the losing one, you aren’t trading responsibly.

Last week should not be taken lightly.  A 5% sell off on US equities is not a trivial affair.  If we can take off up to another 10% in the next two weeks, I will be relieved and strangely bullish.  On the other hand, if we take out the highs, I will very quickly be on guard for significant crash symptoms ahead.

What do I expect this week ahead?  I expect over the course of this week and possibly part of next week to put in some short term bottoms on equities and a number of other commodities.  But, more important than expectations are what you are prepared to handle.

Keep in mind 2 of the 4 indications of a very large market top being put in have occurred.  The first being we have extreme correlation.  Not only do we have more markets intensely correlated than is systemically healthy; but, many of them are starting to get to extreme levels.  It’s pretty much the world against the dollar and bonds.  If the dollar and bonds go down, stocks, grains, oil, metals, other currencies, other commodities, go up and vice versa.  The second key ingredient to a major market top is extreme volatility.  We are seeing VIX over 30, 5% weeks, breaking of major support and resistance in a wide range of markets.  You should be on alert!

If you followed my commentary last week, I wrote:

Favorite set-ups on the horizon: Very interested in an opportunity to short metals on the immediate horizon.

Silver opened the week at 1771 and closed down at 1630, falling 8% for the week.  So, if you didn’t catch my post on Wednesday before the GDP announcement to take profit, you got another break on Friday.  Of course, if you have more contracts out there, leave some for the longer run.  I read about Joe Ross calling Gold at 400.  Why not leave a little on for the bigger play.

Meanwhile what other opportunities lie ahead for this week?

I’m starting my week looking at possible short in Cotton, Oil, and Sugar below current prices.  Only below current prices.  I’d love to be long bonds.  But, I just don’t have the appetite for that much exposure at the start of the week.  So, as much as I may believe in the trade, I’ll hold off on that one.

General outlook:

We are officially on red alert.  Be prepared to sustain this pace right up until Thanksgiving and beyond.  It is very unclear as to exactly how the story will unfold in the immediate future.  But, this is a great time to pay attention.  With both Fed announcement and Jobs reports, this is likely to be a high impact week.  Be safe.  Be conservative.  And above and beyond all, be prepared.

Whether I’m right or wrong about this NOT yet being the market top that many of us have been waiting for is a somewhat mute point in the bigger picture.  We don’t bet our careers on a single trade.  The trading decisions ebb and flow as I see a confluence of events evolve into an opportunities.  It is largely a practice of discipline, prudence, and patience.  I find it helpful to maintain focus and perspective to entertain the bigger picture and the deeper questions while managing the mechanics of technical trading.  The focus of this post is to consider where one’s attention “should” be right now.

Out of pure principle, I do believe that we are in a secular bear market.  The markets are extremely vulnerable to being subjected to another heavy round of deflationary pressures.  It’s not so much a question of “if,” rather “when”?  The government is trying to do the right thing; they were a bit too short-sighted.  A little bit of “too little too late” and a lot of bit of “non sustainable” fixes.  The government to a fault exercised a bunch of one trick ponies, such as the cash for clunkers series and tax breaks.  At some point, this runs out; yet, the problems remain.  When it does, it will get ugly; it will be extremely visceral.  It will be some sort of headline / newsworthy, next round of staggering collapses and changes.  Or not.  Maybe nature has another journey in store for us.  Perhaps the energy markets will be driven into the stratosphere and before Spring “peak oil” will be on everyone’s mind.  But, tonight, plainly, I’m biased towards the former.  So, what do I look for between now and the next turn?

A few ideas as to where the candy might be:

#1) How about the leading indicators? – Prince Albert’s idea of fading the Leading Indicators in a bear market seems pretty straightforward.

#2) Keep an Eye on the News – wait for a headline to hit your local news declaring a solid recovery on the front page.  (You might be waiting for a long time.)  (NOTE: Obama’s press announcement declaring recovery does not count as a substitute.  He has good advisors that let him know he will may only have a one or two chances in his career to make such a claim, he shouldn’t squander them.) (Over-confidence)

#3) Bear Capitulation – watch and wait for when your boldest “short” friend throws in the towel.

#4) Private Sector Loan Demand – Fade it.  When it returns to healthy levels of activity, it will unleash the next round of beating.  Basic logic is that businesses and governments sacrifice and struggle to get cash to flow to businesses again.  The first signs that they’ve achieved their goal causes them to stop attending to the necessary measures to fix the problem and to go focus on other problems that are hitting.  This loss of attention induces a relapse.

#5) Again… Keep an eye on the news for crisis: If you see major calamity hit again.  Imagine the USPS filing for bankruptcy.  Big.  Visceral. 

#6) Probably worth fading a sizable housing recovery, as all things do indeed occur in waves of one form or another.

Alright, just a few ideas to get your juices flowing.  Happy Halloween!

As strange as it is, there are really bright individuals out there that believe that this is indeed just the beginning of a very legitimate and solid recovery.  There are others that recognize the Fed has little to no choice and rates will be pegged to the zero for some good time to come; thus a wickedly higher market.  And, there are those that just struggle every day grasping for some clue as to why the market has seen such stellar performance since last March.

My personal bias is that things will indeed fall apart again; but, not just yet.  As always, I’ll reevaluate as needed.  The purpose of this post is to take a quick look around at what a variety of other writers, traders, and economists have to say on the subject. 

So, without any further explanation, I’m presenting a quick synopsis or sample of seven individuals whose opinion I respect:

• Larry Williams: Expressed this week that he is staying out, looking for a long in the next couple weeks. (~Bull~)
• Robert McHugh: Believes that dooms day is perhaps a week or two away from starting. (~Bull~)
• Bill Cara: On Monday indicated he was bullish gold and silver miners. (~Bull~)
• Bill Gross: “the six month rally in risk assets… is likely at its pinnacle.” (~Bear~)
• Paul Miller: “I certainly share that view that with consumers deleveraging at considerable speed, with unemployment still rising, bank credit still contracting, and capacity utilization very low, the recovery will lack vigor.  But that’s no the reason for my unease.  The financial world has not been reformed.” (~Bear~)
• Barry Ritholtz: “Given the recent market action, I am now starting to pull in my horns a bit, as this rally looks to be getting a little tired and showing signs of technical deterioration… This is not a major call, it looks to me like more of a minor reversal.” (~Bear~)

Needless to say there is a strong confluence of game changing contemplation in the air.  What would you expect for the last week of October?!

The last week of October is a sensitive time period for modern traders.  Black Tuesday, October 29, 1929 was quite an auspicious date.  Although not the last week of the month, not far from it was the 1987 Black Monday, October 19.  These historical events hang a shadow over October.  This year is no different.

With the markets generally accepted as being overvalued and the economy widely accepted as being in the toilet, it’s hard to feel too bullish about price action going into the last week of the month.

What topics and themes are likely to emerge?  Let’s work backwards from next week.  Next week will end with the G20 meetings kicking off, unemployment rate / non-farm payroll, AND and FOMC statement…. not to mention some manufacturing numbers and some pending home sale data.  So, next week is a rocking news week in the financial markets.  We are about to commence “the week before next week.”  This week includes:

• Tuesday’s Consumer Confidence report
• Wednesday’s New Home Sales and Durable Goods Orders
• Also noteworthy on Wednesday is New Zealand’s rate statement

In term’s of the general market outlooks… my bias’ going into the start of the week are:

Favorite set-ups on the horizon:

• Very interested in an opportunity to short metals on the immediate horizon
• Possibility of a short Aussie near-term
• longer term horizon looking at a possibility to short some sugar next month
• An opportunity to buy some indices next month

General observation about markets, cycles, and timing:

As bleak as the current state of the economy and globe may be: as bad as housing may be, as bad as emerging markets may be, as bad as finance industry may be, and as bad as things may be for the US consumer, I would not be shocked if price bubbles continue to melt up significantly before they prices are annihilated again.  It’s well past time many traders expected prices to be heading south.  But, as markets tend to humble their participants, it would not surprise me if they have a few more surprises in store.  I’m just not seeing the technical signs in the market that things are too overdone.  But, the very first technical sign of systemic imbalance is in place: grossly correlated overvaluation across a broad set of asset classes.  But, that’s about it… some meltdown’s come unannounced, but, most don’t.  So, as always, precede with extreme caution.  Keep your powder dry.  Only fire when you must.  And, all the traders I have the pleasure of knowing good trading this week.