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