Friday, November 28, 2014

11/28/14 Stormy Monday

A few thoughts re Monday's open.

(a) OPEC has dealt Russia a blow far more serious than anything delivered by Western sanctions.  How will Putin respond?  It's not like him to turn the other cheek.
(b) One danger of trading counter-trend is the possibility that overbought or oversold conditions often exceed what's conceivable.  How much lower can foreign currencies (in particular, the ruble) sell off against the dollar (-30% YTD)?  Selling begets more selling.  Ironically, Japan's Shinzo Abe would probably celebrate a -30% drop in the Yen as 'touchdown!'
(c) Speaking of oversold, it's possible that a secular decline in oil and gas stocks is just getting started.
(d) Miners?  This sector has perfected the art of snatching defeat out of the jaws of victory (a close second would have to be NGas).

The portfolio suffered a -1.4% hit on oil.  Had I decided to hold positions in emerging markets and miners through today's close, the damage would have been twice as bad (RYPMX closed off -8.11%, or -9.4% from my exit basis; RYWVX closed off -4.1%, or -4.4% from my exit basis; RYMBX closed off -5.49%! [completely unexpected], or -6.6% from my exit basis).  I have no actionable 'take' re Monday apart from an expectation of 'volatility.'  My only positions are cash and a small position in HDGE.

Thursday, November 27, 2014

11/27/14 Crude Collapses

OPEC leaves output unchanged, and oil traders respond by selling.  Last quote was under 70, or -7%.  I'm expecting the energy sector to sell off hard on Friday, and bracing for -7-10% (maybe worse) moves in my positions.  It's not the news, but the reaction to the news that matters.  Position sizing will hopefully limit the damage to about -1.5% of the portfolio, but I sense that the direction of maximum pain will be a brutal gap down- and there's no telling what may unfold when traders panic.

The collapse in crude is 'a big deal.'  I believe it signals the beginning of a secular decline in oil prices.  The question is whether it portends something more ominous.  A decline in oil prices has marked the beginning of recessions, a 'tell' in the form of weaker global demand and deflation.

The currency markets are moving, with large percentage declines (against the $USD) in the Euro, the Pound, and the Australian and Canadian dollars.  Spot silver is off -2%, spot gold -0.73%.  The Toronto Exchange closed down -0.77%.  Australia's All Ordinaries has opened off -1.2%.  US futures are not affected (the DJIA currently +3), as lower oil prices are expected to benefit the US economy.

Market movements are a dance.  Let's find out how Asian and European markets react to oil prices.

Saturday, November 22, 2014

11/22/14 The Other Side

Prior to opening a position, I try to see 'the other side' of the trade.  Who's offering the position to me, and why?

In many (if not most) cases, I won't really know the answer until after the fact.  Which leads me to come up with a few thoughts re the past two weeks (in no particular order):

(a) It's often smarter to trade after the fact.  My initial foray into CAF/FXI (and to a lesser degree, EEM) was driven by the 11/10 open of the Shanghai-HK Connect.  I booked a paper gain of 2+% on CAF, but elected to hold well after 'reaction to the news' made it clear it was a 'sell.'  I allowed (my errant) conviction to overrule discipline.

(b) The chase.  With few exceptions, I won't chase prices.  Gaps up and parabolic rises are fueled by emotional extremes (generally panic on the part of shorts).  Friday's open was the latest instance.  It's certainly possible we see further panic on Monday, but opening on a retrace/retest is the lower risk entry.  My 'shorts' on Emerging Markets/US indexes (via EEV/HDGE) are a short term bet on lower prices in both on Monday.  They are also high risk bets, and I'm appropriately sized down.

(c) The next trade.  With respect to foreign markets, what is the next trade?  In my opinion, announcements from China (via the PBoC) and Europe (via the ECB) are extremely bullish.  Not because they signal economic strength, but because they undergird risk sentiment.  And it's sentiment (and not economic reality) that drives the market.  Traders who opened positions on Friday will likely be tested.  I'll be looking to reopen positions in Europe and/or Emerging Markets on any weakness.  No test, no trade.


Friday, November 21, 2014

11/21/14 Night Moves

China surprises with its first interest rate cut in two years.  Europe lifts as Mario Draghi vows again to put the pedal to the metal.  The cross currents are multilayered and (in some cases) counter-intuitive:

The $USD soars +0.6%.  The Euro plunges -1%.  Regardless, both crude and gold spike +1.7% (presumably on expectations for higher demand as stimulus kicks in).  DJIA +150.  EEM +2%.  XLE +1.7%.  Miners +3%.  Bonds marginally higher.

Had I held all positions into Friday, my gains would have doubled.  But that's water under the bridge.

Tuesday, November 18, 2014

11/18/14 'Don't Lose'

I'm not a Tony Robbins fan, and although I 'kinda' know who he is I've read none of his books.  Now, however, he's taken on the subject of finance- that one I plan to read.  Marketwatch includes an 'op-ed' piece by Robbins today which attempts to distill the results of his interviews with successful investors.  Excellent read:

Not losing is somewhat of a misnomer.  All investors make losing bets.  The 'key,' if you will, is to cut losses quickly.  Almost half of my trades turn out to be 'wrong.'  That's OK, as long as I immediately recognize/admit the error and take the dent to my portfolio (before the damage escalates).  It's the closest you'll come to discovering a 'secret' to financial success.

Friday, November 14, 2014

11/14/14 BRIC'd

Brazil slammed at Ibovespa open. Scaling back into EWZ (Brazil) @ 38.05 (-4% discount to Thursday's close) and PBR (Petrobras) @ 9.48 (-7% discount to Thursday's close).  Both now closing in on or printing new 52-wk lows.

RSX (Russia) on the watchlist, as are CAF and EEM (heading into Monday's open of the Shanghai-Hong Kong Connect).

Thursday, November 13, 2014

11/13/14 Comment Cleaner

Typical Sonoma County traffic jamb.