Neither Tech nor Macro

China stocks and Reid are heavy weights.


Hi, didn’t trade yesterday as I was setting up a new trading station. So where are we?

Seems that Mr Reid comments on the Fiscal cliff and China stocks making a new 4 years low drove the markets down, despite strong US data and the Greek deal. I think that we have 2 pictures superimposed, one is the constantly improving US economy going with a Fed dovish tone, the other is the looming fiscal cliff weighting not on fundamentals but on the current near and medium term sentiment. These 2 conflicting pictures are likely going to limit both sides movements, while the latter is increasing sensitivity to headlines and rumors. Simply put, we are going to range though with a high sensitivity to the downside bias until some agreement on the fiscal cliff is found. We are in this uncertainty for a while now and and I see 2 ways on how dealing with it:

1: A conservative approach, that is, you stay on the sidelines until the picture clears.

2: You profit from the current ranging bias to build new positions at a lower price, targeting the market beyond the near/medium term distortion.

Of course the second option is full of risk. It needs a real good grasp of what’s behind the scene to be efficiently implemented and avoid gambling or astrology like predictions. Sometimes I take the second way if and only if, my directional view is based on an almost mandatory outcome and I am already positively positioned far enough from the current price. My current positioning is a good illustration of the both ways.


EurUsd long: The one taken here targeting the 1.30 barrier for half size worked as expected on the first part of the plan not the second. The barrier was taken out and I took half profit there as planned (+30 pips). The Eurogroup and the IMF found an agreement on the Greek debt but this didn’t maintain the price above 1.30 and I was stopped out at 1.2960 for a net net of +20 pips. Funny that I’ve tilted the post about the trade “Waiting for Godot again”, Godot, the one who had never shown up in Becket play, being Rajoy. I am now flat and neutral on the pair.


UsdJpy long: 2 add ons in red so far, but the whole position is still positive. I am not going to add at lower levels as I am already loaded. As explained in the post about the trade here, I was expecting the pair to pull back from around 83.00 and I’ am still not sure if the pair have bottomed yet. Since I think that a weaker Yen is almost mandatory and knowing the upcoming very dovish political developments in Japan, I am keeping all the positions until something really big or new makes me change my mind. Furthermore I intend to add in a retrace if we break above 83.00.


Aud combo long:

AudUsd : still holding until just before the RBA meeting. No intention to add.

AudJpy: same strategy, but I’ll use this one to add. I have now a second position at 85.70.


ES_F long: Added as said in this week intentions at 1398.00. I can easily do that as I am holding from around 1.300 from last June. This is a core trade based on the US improving fundamentals while the Fed is engaged in an open ended policy. Many add-ons have been closed during the last pull back covering largely the risk premium and I am now rebuilding the position.

 

Yes, this market is somewhat tricky at the moment from a fundamental point of view. Lots of opposing forces at work.

I closed my USDCAD longs for a few pips just now. Nothing to write home about.

So again, I'm looking for more fresh trade ideas. I need about another 8% to reach my goal this year, and 1 more month to get it. I don't think I will reach it since there is minimal trading activities with Christmas vacations. I may just close up shop for this year (not likely) and watch the fiscal cliff unfold. We all know that the politicians are going to wait until the last second to compromise, and that is going to get ugly with both sides slinging mud. Just the thought makes me mad and want to stop trading this year.

Another underlying thing to think about is taxes for next year. Many large investors are locking in their profits this year and selling their holdings in stocks because they don't know how it will be taxed next year. I'm sure it will be higher either way, so folks are locking in the profit under favorable tax treatments. The stocks with dividends are hit particularly hard since dividends will get hit for sure.

 

AudJpy, pushed by the Yen, pulled by the Aussie



As said in the last post here, I have added a 3rd add-on to the position. I wasn’t expecting Boehner to help, mainly after Reid pessimism this morning. Even though I thing that this Fiscal Cliff is going to be solved, what matters to us is the market fragility in these times of uncertainty. This upmove can collapse as fast as it popped up, but at the end it will return North, more because of the weakening of the Yen than of the Aussie. After the RBA meeting next week, the pair won’t remain an optimal choice probably. Until then it’s moving either in correlation with the UsdJpy or the AudUsd.

 

EurChf remember that opportunistic heavy trade around the EurChf floor. Here it is. While SNB is speaking.

 

ES-F targeting the fiscal cliff deal.


As mentioned in a previous post I am posting now my intentions about the SPX using the ES front month as a proxy. ES is a wild beast, working like a resonance chamber of current and near term market sentiment, amplifying and generating rumors, swinging sharply on headlines or staying put for several days. I look at it on the medium/long term only (at least 2 months), and play intraday moves just to add to a well established position.

I am rebuilding a core position taken last June and from which I closed all the add-ons after Obama election. At the time the focus shifted from the political uncertainty to the massive threat of the fiscal cliff. We had a significant pullback to 1340.00 and since then I was waiting for the price to return around 1400.00 before reloading, considering this psychological level as a support protecting from the downside. Now market is pricing in a compromise between lawmakers and should return to the previous highs around 1460.00-1470.00. That said, the market is very sensitive to anything about the cliff and can pull back sharply on any comment from politicians. I see those moments as opportunities to add into the position. I can do that because the risk premium is paid by the core at 1304.00 and I have already accumulated significant gains from the closed add-ons. Beside being covered already why am I rebuilding this position now?:

1:The improving US economy, confirmed by more and more good numbers, mainly from the unemployment front and the housing sector. This was laso confirmed by the beige book.

2:The open ended easing, targeting 7% unemployment rate decided lately by the Fed.

3:The end of uncertainty on the political ground since President Obama election.

4:The fiscal cliff meanwhile being a threat to the market is also an opportunity to add at a lower price and above all is able to push the price higher when the deal is done. This is important, because I don’t think that the market is going to fully discount the outcome ahead of the deal as it is a political matter with the usual surprises either side.

If i wasn’t already protected I would’ve tried, here at this current level, to start implementing a core position by splitting the size of it and entering on some strong positive catalysts.

Risk to the trade:

1:No fiscal cliff deal but not that important on the long run.

2:Fed less dovish though unlikely.

3:Eurozone political difficulties as now I think that the main risk to the Eurozone is becoming political rather than debt linked. Bunderstag vote on Greek bailout, Catalonia independence, Italian elections etc .

 

Here is the update of the UsdJpy trade last mentioned here . I am posting this to point at my favorite intraday tactic, that is, the option barrier attack. A first attempt has been done last Friday and was rejected 10p before the level. This means that the barrier is well protected by the writers and that is why it’s always better to wait for a second test. There are several questions to answer when planning to join a barrier attack, is :

1: How is the prevailing sentiment ? : Bullish

2: Is that sentiment in sync with the longer trend? Yep.


After you have answer that, you can start thinking the surroundings over:

- Is there any upcoming catalyst that can help to gather momentum?. In today’s data not really.

- Is there any tech/price level on the path ? Beside the previous high at 82.89 nothing significant.

- Why the price is moving at this moment specifically ? : Weak Japanese CPI released this night, suggesting that deflation, which is the first BOJ and Gov enemy, is worsening.

- How many pips did we went already since the session starts? Is it in the upper limit of the normal range ? 50p, in the middle of the daily range.

Ok, Since I am already positioned, I ‘ll wait for a possible retrace during the London lunch break to add into around 82.50.

If I wasn’t already in and was playing it tactically, I would enter 40-30p before the level after it has been tested with a stop below the 80.50 support. TP half size and lock at BE to give its chance to the other half since I am bullish on the pair. Again keep in mind that it’s not an easy play. The positioning is already very crowded of bulls prone to TP around this level.

 

Remember this one. it's done. No need to keep it longer, heavy stuff.

 

Week 48 recap.


Time for this week’s recap.


The AUD Combo:

All the 3 add-ons called real time here or on twitter are closed with +170p. The initial position at 84.50 is still running and is now at around +140p.AudJpy6

AudUsd long: still running at around +80 p.

So, I am keeping the whole position on AudUsd for 2 reasons:

-The first leg that is AudJpy paid significantly already and is still holding near +140p with limited downside risk due to the Yen structural weakness.

-The second leg, AudUsd, is going to be shaken mainly on the downside as the market is expecting the RBA to cut 25bp at 88% odds on Tuesday. I don’t see this happening and I am Aud bullish on the medium term.

This seems like gambling, being in ahead of a highly expected cut. Not at all, even though they cut, this is already priced in at around 70% (seeing the 88% odds), therefore I could still see a fall near my lower entry prior to the release but I don’t see it below that level. I find it low enough to keep it. Don’t get me wrong If I were higher in the range I would have closed it before the week end.



UsdJpy core long: The whole position is still running with around +385 p and in the money long option calls at 80 and 82 strikes expiring Dec21. You know my intentions about this core position; no decision before the elections mid december. Since then I am going to add into at every significant level.



EurChf opportunistic long: closed +30 p very heavy.



Es_F core long: Largely positive so far. The chart is explaining it all. No decision before the Fiscal cliff deal if any. Will add on mentioned pull backs (see chart). The current level is of a significant importance, that is why I am accumulating contracts around there.





Have a good Week End.

 

A bit busy, didn't find time to study the market and post this week intentions.

Just an update:
The AudUsd is doing so far as expected in the last recap if the RBA were to cut its rate.

Es_f the third add-on was filled.

 

The current positions. Target : Will lock just below 1.05 if it goes there.