notes for tomorrow

The longer the vix stays below 20 the more prone we become to a sharp correction. For this reason i am becoming more cautious and adding to my long position in vol. That being said, there remains nothing on the
technical side that makes me think that the rally is done yet, and there are a couple of things i may look at buying tomorrow. If msft trades 29.75 i will look at increasing my long position. I like msft for a few reasons and not least among them is the association with facebook. Of course i had to say facebook somewhere in these notes...however,both my teenage daughters have told me that the tide is turning from facebook to twitter and although this is pretty anecdotal, iv traded on that before and made some money..But, for now anyway, all things facebook could do pretty well.....The market believes a name like msft represents safety and this becomes more important with the weak numbers that were released today.  BMY seems like it has to fill a gap down in the low 31's but i will probably look to buy it there or sell some puts..If SO shows strength tomorrow i will look at putting on some longs there as well. Yesterday i released a note talking about the dangers of the feds new "transparency" policy but i'm convinced the message needs repeating with more emphasis on how detrimental the policy may turn out to be. The fed has made known that its intention is to keep rates on hold till 2015. The market has interpreted this message to mean that rates WILL be on hold until 2015. It is a huge and illogical jump to think
that anyone has the ability to predict,with accuracy how the economy will do in 3 months let alone 3 years. If we list who the best predictors of  future economic condition are, the fed would not make the list.So all thats happened is fed has forced the market to one side of the boat opening the door to a much larger correction at the first sign of a fed misjudgement... Potential for "fed misjudgement" is the main reason i still like gold and silver. Both of those charts still look constructive but you could make the argument that the gold rally is a bit steep...have a great night...jim  ps trades are not a recommendation they are just what i am thinking about for discussion purposes

keith vs doug on the dollar

The question as to wether the equity market prefers a strong dollar or a weak dollar cant be answered with charts and historical correlations. The answer to the question lies in the stages of the economic cycle that we are currently in. Three years ago the market expected a strong fed response to the recession. The weak dollar that resulted from an easy fed was welcomed, not solely as a boon to exports, but also as a prop to any asset denominated in dollars. After three years of  an inversely correlated stock/dollar relationship, the market now needs to see some results. At this point in the cycle, the u.s. must  graduate to a preferred destination point for global investors or else the market may lose confidence. So both keith and doug can be partially correct dependant on where we are in the economic cycle. My interpretation is closer to keiths and i think a strong dollar would reflect strength in the u.s. economy and should be welcomed by the market with 1 caveat. If the only reason for dollar strength is a deteriorating euro then it may not be interpreted as a good thing...the dollar must also do well vs other currencies at the same time..

quick thought on fed

the new fed policy of increased transparency is irrelevant or perhaps
worse. By proclaiming that rates are on hold for 3 years they end up
creating a sense of complacency within the market. As we have seen in
the past, when too much complacency permeates the market it usually
ends abruptly and dramatically. The mistake the market makes, is that
it takes the fed at their word and doesnt factor in  the feds
inability to accurately predict market shifts.This is not an
indictment of the fed as market shifts have proven impossible,for
anyone, to consistently predict with precision

notes for tuesdays trade

The euro had an outside day higher and finished fairly strong so i'm even more convinced than yesterday that the correction is not over. I am starting to reconsider my plan to sell at 131(ech2 futures) as 132 is starting to look more reasonable. Two things in equities looked interesting to me today. pot(potash) looked like it had put in an inverse head-and shoulders and was getting ready to break out of a consolidation pattern to the upside. They report on thursday. I bought the march 50 calls(i meant to buy feb but i messed it up, but ill live with it). I think the better play would have been to buy the shares when it actually broke out(above 46.20ish) up until Wednesday and then if it hadn't broke out by then , buy the calls , for the earnings play.Tomorrow i will be watching one of my favorites so(southern company)as that pattern looks like it could have some upside. I will probably stop in above 45.55 with an objective around 48.The fundamental argument for utilities has never changed and that 4.5% yield looks pretty sweet compared to a 2.07 ten yr..Crude had a strong reversal today(in candlestick whats the opposite of a "dark cloud cover"? cause thats what crude had) and it looks poised for more upside. I had covered most of my rig and moved whats was left into the longer term portfolio...on to politics.and btw if someone is not interested in my view on politics please stop reading here, my feelings wont be hurt. As i see it my strengths are markets, politics ,dog training personel hygene and how to score with chicks, but you may challenge..As i said yesterday(and doug kass said today, but whos time stamping?) newts momentum could be a fairly serious headwind to equity markets. If mitt gets the nomination the election will be about obama's weaknesses but if newt gets the nomination it'll all be about newt. I'd bet money that every time newt climbs a percentage point in the poll, white house staffers either high five or chest bump cause it becomes way more likely that they keep their gig for another 4 years. I completely understand that mitt, when it comes to conservatism, is kind of  beige but he is our only shot at any conservatism(ps is conservatism a word? i was never strong in english). austin goolsby(who i like and respect...most the time) made a comment on twitter today intimating that mitt has a history of flip flopping on issues. The democrats have been saying that for years and it is completely infuriating. There is nothing even remotely ironic about favoring a health care plan for Massachusetts and opposing a similar plan for the entire country. The demographics are vastly different the economics of the situation are vastly different the scope and scale is not even in the same ball park. You can even make the argument  from a philosophical standpoint and say that the federal government is the one that needs to be reigned in and some responsibilities are handled far better at the state level, but there is no real need for that argument as the debate is easy to win without it.....ps nothing in this post is a recommendation to buy or sell anything just sharing my personal thoughts on my personal trades...have a great night and feel free to criticize anything in the note...

Football night

Its going to be a quick blogpost tonight because of football. I can't decide who I'm rooting for but I'm thinking the giants. I base that solely on remembering Jim harbough,fairy prancing across the lions field ,lifting his shirt up ,to go push that Schwartz guy...Anyway.. Equity markets are lower tonight and I think it's mostly on the back on euro weakness due to he lack of resolution in Greece. A secondary reason is the Gingrich victory in SC. The market is a little smarter than the the south Carolina conservatives ,and it realizes that ,although newt is the better conservative candidate, he doesn't have as good a shot in the general.If Gingrich is the GOP candidate, the odds of 4 more years of regulation and oppressive corporate tax rates becomes much greater. I do ,however ,still believe that the euro has more room to correct to the upside despite tonight's weakness. I'm planning on resetting euro shorts at around 131. The s+p is still in an uptrend, and although that pattern is looking precarious, it hasn't broken any levels that would cause me to liquidate some longs.I will be watching closely tomorrow for a tech sell signal and will keep posted through twitter. The bond market still bothers me as I understand it's value as a safe haven but I also know that I wouldn't invest my ten year money to get a 2% yield. I think yields should back up to 2.4% over the next 2 weeks.I suppose for the 3 previously stated things to happen, we have to get some good news out of Europe..I guess that's what I'm hopeing for and expecting. Have a great night and enjoy the games...jim

more thoughts on the euro

Under normal circumstances i would be very leery of the,heavily advertised, trendline resistance level in euro at 128.70ish(in ech2 euro futures).Normally i would think the situation ripe for the "algo headfake" where the algos push it through the level, flush stops, tempt new longs, and then ram it down throat in the other direction..The reason i dont think that will happen this time is because of the crowded nature of the short euro trade...A violation of the 128.70 level(i would be more comfortable with a settle above 128.84) could set off a feverish"risk on" run that pushes equities higher and bond prices lower..The counter argument to that is losses in euro will force margin calls and actually be a "risk off" signal...Although i think that is an interesting point i think the perception of "risk on" will win...i do want to hear some counter points on this...

Waves and sand and insurance salesman

On my cell phone,I have have an ignore button that you slide across the screen when you don't want to answer a call.I would have never guessed how satisfying that simple act could be when I was buying the phone. At first, I did the ignore slide only for family members who don't know how to have a short conversation ,or worse, needed to borrow money, but very soon it expanded to all numbers that I didn't recognize.After my wife noticed the habit she asked me why I did it and, I thought about it, and said "because there are insurance salesman out there". If anyone reading this is fortunate enough to not be familiar with the strategy of the insurance salesman or "financial advisor" as they prefer, they are tenacious and amazingly persistent. If you say yes to coffee, and they assure you it's "just a quick cup of coffee" you have exposed yourself to a force that is as relentless as waves pounding rocks into sand and as unshakable as herpes. Over the years of their existence the insurance salesman has realised that if you stick with it and call and ask and beg and plead, that over time the chances that the mark will acquiesce and buy something greatly increase. Frankly, I'm surprised that this works because my inclination leans more towards violent outbursts but you cant argue with results. The fed is employing a similar strategy. The fed strategy has been to eliminate any reasonable low risk interest rates by collapsing rates along the entire treasury curve making it tantamount to stuffing cash in a mattress. Corporate and municiple rates have followed suit because they will only pay what they have to ,compared to the "safety" of treasuries..So the game is simple ,the fed throws money into he system and then directs it towards risky assets by making less risky assets unattractive. Up until this point it has been successful only by a broad definition of "successful" and money has not gone out to the far reaches of the risk spectrum and invested in real estate or banks. But the fed knows what the " financial advisor " knows and if you wear them down ,over time ,they will get frustrated and they will jump. As 2012 has begun we have seen a change that I think will continue and that home builders and real estate should finally begin to do well..I also believe that "dinosaur tech" should do well and I am long msft and Cisco in response. The headwind, as always , is Europe and that problem does not appear to be going away so I will stay with my short position in the euro and also increase my longs in equity options volatility.. Tomorrow will be an interesting day for the euro as it had an outside day down on Friday and at the low of a move that is a bad sign. But,as many have pointed out, the euro trade is very crowded and could have a sharp correction to shake out the weak hands but that will just be an opportunity to sell it...

thoughts on this a.m. squawk spot

There are a couple additional points i wanted to make this morning but we ran out of time..Steve accused rick of rooting against the economy to insure conservatives success at the nov elections..I dont think there is anything wrong with understanding that the small amount of economic improvement that we are experiencing now could come at the expense of much greater improvement down the road..None of the structural problems that are keeping gdp subdued have changed, yet there is less inclination for the people to vote for change if things seem  "ok"..The 2 biggest impediments for a acceptable recovery are 1) a policy change that would allow people who are underwater on their mortgage the ability to refinance at the current interest rates and 2)(this one is more important) a vastly changed corporate tax policy that provides incentive for companies to create domestic jobs...The latter is slightly different than the obama plan which is to ASK companies to create jobs by appealing to their patriotism...Is there a bad time for an economic recovery?? Will we have 4 more years of the democrats "everything for everyone" mantra??feedback welcome

the algo headfake

A concept we have discussed on this blog before is how technical analysis has changed with the flood of hfts and algo's into the market...I had one friend describe it to me this way;"its almost like the algo's digest the technical traders handbook and then intentionally push the market through important levels, only to whip it back the other way and rip your face off"..I want to keep my face where it is so as the market moved higher today(above well advertised resistance levels) i invested in some cheap options vol as protection..That being said i do think the market is poised for a leg higher for a couple of reasons..Number one on the list is that the euro appears due for an oversold bounce and ,as yet, we have not had it.. I mean, sure we had a little euro strength, but it was nothing interesting(the euro is currently down at the time of writing)...This mornings strength,in equities, can be credited to china and we know this because there was disproportionate moves higher in the aussie dollar and most of the commodity complex..Every where i turned today i heard people talking about the "buy america" trade, which i mostly agree with based on the tallest midget method of reasoning and i would be long some of the america names..However, there were some other things i liked as well for technical reasons, and the emerging market etf(eem) was high on the list...A ton of buzz today surrounding rig  and the argument goes like this..The technicals look good, oil is flying, and it has been the outcast of the oil sector for a long time...On the other side of the coin, there is rumors of an impending dividend cut and there are clearly some internal problems within the organization...On balance i tend to side with the technicals and the price action because i work under the assumption that there are alot of smart people out there trading the stock, and their consensus is where the share price goes...The other night we talked about gold and since then its been on a rocket...I see no reason for that not to continue....lastly i will take the illini and the 9 points as they have the only post man in the league who can play d on sullinger...that last sentence is of no consequence to most of you guys but the game starts in 20 minutes and i gotta go claim the good tv from my daughters..."he's like soooo mean...i know right??",,,have a great night jim

market for monday and my shrinking dad

20 years ago my dad and i stood roughly the same height. As 65 turned into 85 i became a solid 3 inches taller than him. As iuorio's arent that tall to begin with you should understand that 3 inches is a big percentage...Anyway, it would be stupid, of course, if my friends and family talked about how much taller i've become, as my dad obviously shrunk a bit....stick with me, i promise there is a point here....Its the same flawed rational that has lead people to talk about the fantastic gains in the u.s. dollar...There have been almost no gains in the u.s. dollar relative to anything else beside the euro(and maybe a little bit of the sterling).. If you need any proof of this look at charts(priced in dollars) of corn, wheat, canadian dollar , yen, aussie...etc...ps..some day i will be computer savy enough to include those charts in the blog but sadly today in not that day...All that being said, im currently not positive what that information means to the way we trade, but i have this nagging feeling that its going to be important soon...It probably is an endorsement of gold, however...I covered some of my euro shorts on friday because i thought it was do for a bounce, so far no bounce..There is a distinct and well defined trendline that the euro will be coming in contact with tomorrow and i still believe it will hold, but i'm becoming less certain.. We should revisit that topic tomorrow.....I tweeted on friday that it was becoming less attractive to be short volatility and i was gonna cover some..I think the lesson here is that when the vix gets to around 20ish the "reward " portion of the risk reward equation becomes less worth it...Now i will probably establish some cheap call packages that kick in if vol explodes....Last week i thought treasury yields were going to move higher and so far iv been mostly wrong..For this reason i think that some of the trades that people turned their backs on, over the last 2 weeks have become more attractive as money seeks yield...I will look at utilities and maybe some tobacco...Anyone who has been reading my stuff for awhile knows about the red-neck 20 stock index which is a work in progress but includes my favorite market joke mo+mcd=bmy..i know that when you have to explain a joke that means its a bad joke so i will just hope you get it(it involves plavix...at least i think thats the name of the heart med)...i am looking for additional stocks that will do well over the long run as america continues to its path toward red neck and i need your help...obvious names like coke, smith and wesson , corn products international(make hfcs) jump to mind, but together i think we can refine the index...have a great night and remember god wants the broncos to win...jim

markets and politics

the interesting thing about todays trade is the further evidence of  decoupling of u.s. equity markets and europe...the euro got hammered today and equity markets scratched out a small gain...my objective in the euro is  around 127.40ish...the decoupling has to be good news for stocks, as we can concentrate on the domestic recovery and pay less attention to euro-headlines...gold continues to do well ,and this is understandable, as the fundamental argument for strength has never changed...all roads seem to lead to a weaker euro(and probably a weaker dollar as
well)..there was a huge call buyer today in iag(iamgold) which supports the general theme.....the next thing that needs to happen is to convince ourselves that tying up 10 year money at 1.99 in treasuries is a poor use of our cash...the exit from bonds should,however, be a bit more orderly than some other shakeouts, due to the composition of ownership(fed owns tons of bonds)....best positions should be ; long stocks, long gold, short bonds ,short euro..although i welcome the positive direction of the u.s. economy there is an obvious down side..if we can sustain the small amount of strength for the next 10 months it probably condemns us to sluggish growth for the next four years with stifling over regulation and unclear corporate tax structure. i seriously hope i'm wrong there and i admittedly dont know a tremendous amount about rick santorum as i never really gave him a chance prior to today.hopefully he's our guy....have a great day...jim

Market notes for wed

The "safe havens" of utilities and low end dividend payers got hit today while the assets that have been considered riskier,rocketed higher...banks, commodities,commodity currencies all had convincing breakouts which leaves me no choice but to be bullish. The one "safe haven" that has remained untouched as been u.s. treasuries.. I suppose part of this reaction is understandable ,as one of the biggest holders of bonds is the fed and they're not going to sweat much and scramble for the exit...that being said I do think there is plenty of other bond holders that will rethink current yields as stocks begin to move higher...I'm looking at buying a call spread in the tbt tomorrow...I also like being short the vxx against a long call position...I've had this position on for a few weeks and it has been working well...as today's euphoria fades away I think that health care should be among the best performers because yield is still important ....now a question...is there anyone that believes that part of the stock markets recent strength has anything to do with a perception the the GOP has started to appear like they want an electable candidate as opposed to one who's as far right as they can get?. Cause I do think that this is at least mildly significant...have a great night....Jim