Thursday 6 December 2012

Another Crazy Day.

Let’s start with the “Chart of the Day”: Euro:

Euro made a spectacular dive, worthy of 10 points in an Olympic event. We are all conditioned to believe that when Euro falls, so does the equities. But today was one of those crazy days when equities went up. Hope? Or they know something which we don’t.

In the morning, as the cash market opened, I closed all my short position on indices. The feel was not right. I tweeted that I have closed the shorts. And sometimes after that the indices started going higher. I must say that I was very lucky. In this game, it is better to be lucky than smart. I am not that smart because it seems my Twitter account was hacked in the morning. Luckily, I was able to take control fairly quickly and so far it appears to be OK. If problems continue, I will have to suspend this Twitter handle and open a new one, but for now we have control.

As you know, I never tweet that I have made few hundred dollars etc. and never give any links to click apart from my own post. If you have clicked on any link, please do a thorough checking of your computer for malware, spyware and clear all cookies and download history. In extreme cases, I have even re-formatted my hardware in the past and I have learned from my mistakes. Also, if you use gmail, please use the 2 step account verification system.

Back to market, my short position in crude is working fine.  The following chart is from Bespoke:

I quote the following from Phil:

A short play on USO, which had a huge build in Gasoline (7.9Mb) and Distillates (3Mb) against just a 2.4Mb draw in Crude that in no way is doing anything to relieve the massive inventory pressure over at the NYMEX, where they still have 284M barrels worth of open contracts for January delivery and only until the 18th to roll them. But February is already uncharacteristically filled with 185,000 open contracts (1,000 barrels per contract) that nobody wants, so things can get pretty messy over the next 8 trading days.

I was short oil about a week back and I was short based purely on cycles. Now I see that fundamentals are lining up as well.

While I closed my shorts for indices, I increased my short position on silver. Let us see how it plays out.

I am absolutely market neutral so far as equities are concerned. In all possibilities, we may see more weakness tomorrow but I want no part of it. Even if the equities fall of the cliff, I am not walking that path for now. Things do not seem right. Nobody knows if the clowns will solve the fiscal cliff or what will happen with the debt ceiling negotiations. While I believe that equities should correct more, I see too much risk in that trade and risk is to be avoided. Rather, let us focus on less risky, high probability trades. I think “ There are plenty of fish out there” is going to be my favourite line. And closing short position on indices does not mean going long. There is no reason to be long equities as yet.  The VIX Call buying is at record level.

Which means that folks are buying protection, just in case we fall off the cliff.
(H/T : Schaeffers research)

That’s all for this crazy day. I got more requests for the draft of the trade alerts and I promise that I will email it  Sunday evening, so that you can decide on trades on Monday. Thanks for sharing my thoughts. Please forward it to anyone who you think may benefit from it.  Have a wonderful evening folks.


  1. Good trade on WTIC Oil.

    First target is 84, then 80/79..possibly next week.

    The big question is whether 77 holds.

    Any fail of that, and $60 - my primary target for 2013, will be on the menu.

    good wishes!

    1. Thanks. I would be happy with $ 77. Take the money and run.

  2. In case you wonder why EUR is down and indicies are up: they were leveraging nzd/jpy, aud/jpy instead of eur, see for example here

    And btw aud/jpy going to be at a very interesting multi-year levels in few weeks.

    Overall, it feels like they want to preserve status quo till the end of the year to show pretty portfolios.
    ES +12.75%, aapl +33%, europe +15% and so on.
    Only oil id down hard and nicely tracks 10Y yield.

    What I don't understand how they gonna fix profit and exit.

    1. I don't worry about the "why" part. I just want to know what is going to happen and profit from it if possible.
      Others can analyse the why and how.
      10 yr is in a range for the last 6 months. Oil's down move I have called for and I am short. Now waiting for silver to follow through.
      Rest are not worth bothering about.

  3. I guess AAPL and $USD might be givng us a preview for next week...Maybe SLV and SPY will have to cancel their plans to rally for the FED's party next week...When the currency/equity correlation does not work seems like that would signal an unstable market situation is near at hand ?...Good luck

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  5. Is now the time to go long on equities or do you still think prices will come back down a bit and if so when ? This week. Thanks

    1. As you can see from the last chart, risk is still too high and we should not front run without reason. As of now, there is no reason to go long, irrespective of whether equities come down more or move sideways.

    2. Hi BB,
      significant Bradley turn date approaching on 22 Dec... as before, when it works, it works great... but the time in between can be full of churn. Maybe uncle Ben will leave a lump of coal this week...and don't forget, 21 Dec OpEx Quadruple Witching. Patience everyone, smiles and patience...
      Merry Christmas!

    3. Thanks dc-Bear. Merry Christmas to you as well.

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