Posts Tagged ‘Macro’

Dollar Rallies, Equities Retreat, And Silver Implodes

November 9, 2010 Leave a comment

On Sunday, in "Weekly Preview: Nov. 8-12",  I expressed a strong bias towards establishing Dollar bullish positions while taking a bearish stance on equity indices. Also, in addition to these core ideas, in recent days, I pointed out three individual stock ideas (one bearish & two triangle set-ups without definitive biases, click here and here), and another triangle set-up in USDJPY. So far, the Dollar has rallied smartly off the LT trend-line, equity indices have begun pulling back, the stock ideas are in a holding pattern, and USDJPY — after making a head-fake lower this morning — joined the Dollar rally by breaking out above the top-side trend-line of the triangle.

Today, what really grabbed my attention; the precious metal sector, more specifically – Silver. The volatility seen today has very few precedence.  This afternoon, silver experienced an 11% reversal from high to low in less than three hours. Gold — not having garnered the same degree of speculative fervor — was much tamer with a daily range of only 3%. What ignited the post-market sell-off in Silver was a letter sent out by the CME outlining higher margin requirements; so it seems. However, interestingly enough, upon closer inspection, the S&P, and the 'risk-on trade' in general, was under pressure all afternoon. During much of Silver's (SI) sell-off, the price movement correlation to the S&P 500 ranged between 60-100% on a 5 minute intra-day chart.  The fact is — reactions with so few historical precedence — do not occur on news of this type, which, in my opinion, demonstrates just how grossly overbought Silver is.

Silver es

Back on 10/18, I felt we were upon a decent short-selling opportunity — SI pulled back quietly, touching the 20 day ema — but, today's action created the type of reversal that spawns extended periods of volatility and price weakness. Due to Silver's volatility and wild swings often associated with inflection points, it shouldn't come as a surprise if we see a retest of today's high, 29.34, before rolling over. With that in mind, it would be prudent to consider this possibility when devising a trading plan.


Interest rates are already presenting an interesting 'fade-the-fed' trade. I know this contrarian idea is at odds with the age-old axiom, "Don't fight the fed". However, when 5-year rates  decline from 2.75%, as they were back in April, to last week's low of just above 1%, I am left wondering how much more down-side is left in this move. The 10-year rate could be carving out a bullish inverted head-and-shoulders pattern. I will continue to monitor the situation for any low-risk entry points.

Summing it up: From where I'm perched, at this time, the most explosive opportunities are in the FX markets and precious metals. Specifically, I am focused on Dollar long positions expressed through shorts in the EURUSD, GBPUSD & long USDJPY, AND Short positions most heavily concentrated in Silver, with some Gold. Additional set-ups: Long SPY & QQQQ puts; short LVS. Pending trades: NFLX and BIDU. (Trade Update: EURJPY needs to hold above 111.25 ,at this time, for me to remain constructive.)


S&P 500 Looks Ugly Any Way You Slice It

June 7, 2010 Leave a comment

Call me Captain Obvious, but Friday's failure put the ball squarely back in the the short-seller's court.  Should we break the May low, which looks all but done, another jet lower would satisfy those who follow Elliot Wave Theory by completing a five wave sequence since the peak in April. By theory, the 3rd and final impulse wave (wave 5) completes a trend before a trend change takes place. (When I say trend change, I am not referring to a rejoining of the cyclical bull market. Rather, a counter-trend rally which will at some point set the market up for another 'short de jour')

When looking for longer term support levels I like to look at the S&P 500 Cash Index, instead of futures, because I don't trust the continuous futures contract which takes into consideration rollovers.  Support in the cash market comes in at the prior low of 1040, then 1030 & 1020 are both pivot levels from 2009, after that 1008 is the 38.2% Fibonacci retracement point from the '09 low to the April peak, followed by the psychological level of 1000.

Spx 60

Should a significant breach of the May low occur I will be carefully monitoring a plethora of breadth and sentiment indicators for cues as to when to lighten up the shorting campaign and possibly look to go the other way.

The other scenario, which I see as less likely, is a consolidation of the May sell-off creating a 'flat right shoulder' on a large head-and-shoulder pattern. As much as everyone has discussed the potential for a Head-and-shoulders formation to take shape I wouldn't be surprised if at this very moment one of the major publications isn't working on a mock cover layout featuring this pattern just in case we get a nice pretty right shoulder. I'm joking of course, but the popularity of this pattern right now makes me think either a) it won't come to pass or b) it won't come to pass in a very fashionable way.

Head and shoulder

Bottom line – Leaning short……but this is a trader's game right now, so be nimble!

Equity Markets Look Vulnerable – Long and Short Term

April 18, 2010 Leave a comment

has reigned supreme

the past few weeks there has become an alarming increase in the
amount of data demonstrating complacency comparable to prior
significant turning points. Lately, I have been getting this feeling
of deja vu as the market environment is becoming reminiscent of

my view, now looks as good as any time since spring of 2009 for
investors to demonstrate some vigilance and pare back on longer-term
holdings. For short-term traders, this would be a good time to get
your mind right and be prepared to take advantage of what will likely
become a much more volatile and exciting trading environment.

are some bullets supporting the mid-2007 comparison:

  • Several
    different types of Put/Call ratios have moved to multi-year
    Jason Goepfert at
    says “
    traders spent 43% of their volume buying call options, the 2nd-most
    of any week since the year 2000 (March 10, 2000 was the highest, at
    43.1% of total volume).” THIS WAS ABOUT TWO WEEKS PRIOR TO PEAK IN

  • Unprecedented
    reach for yield by debt investors.
    According to Bloomberg, junk
    bonds are making up the biggest share of corporate debt sales on
    record as investors on an economic rebound snap up securities from
    even the first-time issuers. High-yield bonds yield an average of
    8.59%, the lowest since October 2007. As of April 9th,
    the spread between high-yield and treasuries has fallen to near the
    lowest level since December of 2007 – 5.83%.

  • Investor
    Intelligence Bull Ratio recorded 73.2% as of 04/09/10.

    A reading which is near the upper 90 percentile of bullishness.

  • Intermediate-Term
    Indicator Score at historical levels
    (The ITI Score was
    developed by the before mentioned Jason Goepfert.) Thursday's score
    of 58% has only been achieved once during its 10+ years in

Click on chart to make HUGE

technical landscape
of the major indices further supports the timing
of these significant readings in sentiment.
These bullets are for the S&P 500 Cash Index:

  • Completion of a classic Elliot Wave pattern ( 3 Impulsive and 2
    Corrective waves)

  • 61.8%
    Fibonacci retracement level going back to the 2007 peak looms just
    above our heads at 1226.

  • Retracement
    back to the pre-panic selling level surrounding the Lehman debacle.
    Often times panic moves, regardless of the time frame, will at some
    point be fully retraced. This seems to be largely due
    to the fact that these moves are on the heels of irrational behavior
    acting similarly to large gaps, a gap in rationality if you will.
    Why is this bearish? Because, once “filled” it becomes a point
    of resistance. (Same rules apply to parabolic moves and the subsequent crash-n-burn.)

Click on chart to make HUGE


a longer term basis we will still need to be patient and see how
events unfold heading into summer before further developing a longer
term thesis. If it is a significant trend change we are looking at
then it will be a bit tricky. Market tops tend to be more difficult
to identify than bottoms due to the fact that they are processes and
not events. What sometimes looks like a top can eventually turn out
to be a continuation pattern. Remember, while there is plenty of
evidence suggesting we could be on the cusp of forming a long term
top, in 2007 it took several months before the change in trend became

out the next 1-2 weeks

Until Friday there had been little to no reprieve for the bears for over two months. The strength of the rally and
the 'ladder-like' price action in the indices left little reason to
be a seller of equities. Friday's SEC allegations against Goldman
Sachs however, looks like a promising catalyst to begin a near term
decline and the potential for an upstart in trading volatility.

action put in what I like to call a “Dagger Day”. This is a day
in which the market knifes lower by at least 1.5-2% shortly after
reaching a multi-week/month high with a volume ratio heavily skewed
in favor of the bears – Friday's down volume trumped the up volume
by a healthy margin of over 12 to 1 and near the lows of the day it
was around 20 to 1. Friday's sell bar also put the channeling
“stair-step” rally, which began on February 5th, in
serious jeopardy. (See chart above).

the near term, probability has become skewed in favor of the bears
and as such I will be looking to short rallies in Index futures as
they begin to stall and fade lower.

levels in the S&P 500 Cash Index:

  • 1183
    – 20 day EMA

  • 1172
    – 200 period EMA on 60 minute time-frame

  • 1156
    – 50 day EMA

  • 1150
    – Jan 19 high/breakout level

  • 1143
    – 50 day SMA

conclusion, with the before mentioned sentiment data, chart
landscape, and near term headline risk probability favors at least a
highly anticipated up-tick in volatility creating more two way trade
which is great news for all of us sitting on a trading desk.

next time, I wish you all the best of luck trading and remember to be
flexible as markets are never wrong, but traders are!

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