Friday, November 2, 2007

A little more confusing action post Non-farm?

Well, the numbers came in better than expected +166 k with revisions being minimal......!.. The reaction is slightly surprising it seems the market is now TOTALLY focused on financial system being at risk again. Some meaker report from Canafa broker on Citigroup got everyone to dump the market or is it merely time for a correction?

It is tough there are a number of reasons why this market should be ok:

1. Sovereign Wealth Fund buying below in every dip. The portfolio shift from fixed income to equity is work in progress.
2. Valuation, hmm.. everything is relative, but with 100% guarantee that Fed will cut rates at any sign of trouble it is highly likely the Ponzi scheme will continue.
3. Seasonals. November-December normally makes for excellent return in stock market, however as this past October showed, history is no predictor.

On then negative side:

1. High overvaluations in the 25% of the stocks in the NASDAQ which consitutes 75% of all trading volume.
2. Technincal pattern - there is clear break-down here in German Dax index. IF we close below 7.859-00 my model is short 1 unit.
3. An overdependence on Fed coming to the rescue. God forbid they actually own up to their responsibility and stay away from "directing" the markets.

I am none committed on the equity side - but letting the models take the positions.... The US dollar no one seems to be short based on todays action... Fixed income I hope Fed cuts otherwise these low rates appeals to shorting...

Overall, very small risk, and running smaller than normal allocation per trade, as we need better signal generation.....


On the positions side:

EURUSD - we tried short EURUSD on the numbers as there is major divergence on the daily chart above the top... but....it seems we were joining the wrong crowd as we were stopped out inside 5 min of taking the position at the new high...

EURSEK - Bought EURSEK. The move is properbly more technical than fundmental, but note how the Swedish stock index being lagging the STOXX50 recently, seems that underperformance is taking its fight to the FX cross. We are long from 9.2620, w. 1 ATR stop on the position.

EURNOK - Norges Bank is getting fed up with the strong NOK. The economy still amazingly strong, but we have broken some significant levels, and the strength of the NOK will work its way as monetary tightning shortly - we are long 7.8420, w. 1 ATR stop on the position for now.

DAX - Short 7.863 -00 on our initial posiiton, we need close below 7.859-00 tonight to keep the position, but not a full conviction trade.

USDNOK - Long 7.6000 USD c NOK p - its pretty much the same trade as EURNOK, but USDNOK is trading a extreme low levels, I may be early on this but...5.35/5.40 now versus 6.4000 in the beginning of the year!!!! Clearly USD weakness part of it, but....

Long 109.50 10y Notes puts December - ouch, this one hurts thought I would have support from numbers but little did it help....The position is based on, so far, profitable trading of the mean-reversion of the 10y rate, which follows close to Sinus function, maybe this time its wrong, but still plenty of time.... Everything the Fed does is inflationary, but as of today markets seems more focused on recession than inflation!!!

Results: - 161 bps since I restarted log.

Nice week-end

Full steam ahead for next weeks logs.

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