Monthly Archives: November 2011

28th November 2011 – Liquidity defines the line

It was disappointing to get stopped out last week. Although my loss was limited, it was a little hard to take.

I have spent some time over the weekend rereading this blog and analysing my decisions. This article from Zerohedge has given me pause for thought. As he asks it is unclear exactly what event has caused US banks to require $88billion in “other” cash in the space of a week, but this suggests a severe liquidity problem somewhere in the system. It remains to be seen whether or not this specifically turns into a serious problem.

In hindsight I think I still would have made the same trade. The technical indicators appeared well aligned, but I misjudged the macro environment. I wrote a few weeks ago about the $1.5trillion parked with the Fed and ECB by commercial banks. As far as I can tell this is an unprecedented event in human history. Never before has so great an economic resource been concentrated in such a manner.

I am surprised that more hasn’t been made of this fact but we live in the era of multi-trillion bailouts so perhaps this extraordinary situation seems almost mundane. Continue reading

21st November – If it weren’t so sad…

…I’d laugh.

If this report is correct, that the Super Committee is on the verge of failure, then the situation could well be about to take an extremely nasty turn.

This is setting the tone for an aggressive Presidential Election next year. It is unclear to what extent the political environment will affects the markets, but I can’t imagine this will be a good thing.

So back to my trade; well it is on life-support at the moment.

With Europe in a spiralling crisis and the US potentially at deadlock the macro-climate looks pretty bleak. However there are some points I think I have to pay attention to. First there are the technical indicators. The Dow’s 100MA is 11,613 and its 50MA is 11,581. The index has held above these points for now, so the bull isn’t quite dead. Second I still believe we will see another burst of monetary madness. In spite of German resistance, the pressure on the ECB to print (or find some workaround, which will still amount to printing) is immense. It is also highly unlikely Helicopter Ben’s Fed will change policy. It is only now a question of when this happens. Finally remember that earnings’ season was pretty decent and there is a huge amount of money on deposit at the Fed and the ECB, just waiting to come back into play.

So I am sticking with my position.

However if the Dow breaks and closes 11,580 then the bull-run could well be over and the line of least resistance will be on the short side. I lack the funds to do much about this, but I will be interested to see if my analysis is correct.

20th November 2011 – Terrible news

I could be writing about my trade but I’m not. I am just about hanging in there with my first position. My second got stopped out, but I am still happy enough with the decisions behind it. I am naturally a lot less confident about being on the right side of the line, but I have made my play and am sticking with it.

So no, the terrible news is not about my trade, but rather about what I have read in the last few days.

I have long been extremely critical of the policy response to the Credit Crisis and have consistently maintained it is going to end very badly for society. With debt levels approaching or greater than 100% of GDP across the Developed World, a basic understanding of economics tells us how bad the situation is. Governments cannot continue to borrow indefinitely to fund expenditure. There has to be a balancing with revenue. The situation darkens, when we see how complex the international transactions are. This BBC graphic is a fantastic depiction of how inter-connected the mess is.

But none of this is new news. I’ve seen two other really disturbing pieces. Continue reading

16th November 2011 – Reasons to be cheerful

I really like my Dow trade. Even though it is below the peak, if I am right that we are back in a bull market then my positions (I opened a second, but more of that later) are well positioned.

Before I become too positive I should mention, I am wary of two factors at the moment. First the Dow looks to be suffering resistance at about 12,200. I can’t explain why this might be and my assessment is rudimentary (just look at the chart!). Secondly Congress’ Super-Committee is due to report next week, so there is a definite risk there.

However I remain bullish. My Market Strength Test tool has thrown out a second consecutive “1” on the 40MA so the trend is improving, if still a little weak.

I’ve also turned my attention to other indicators. Have a look at the chart below of the daily candlestick graphs of the Dow in the last 3 months.

Please click on image for full size

Continue reading

14th November 2011 – On the crest of a wave?

Despite my last entry I did go long on Thursday. My Market Strength Test tool continued to show underlying strength in this rally and I just had to trade it.

I am extremely glad I did. As of writing I am 400 or so points to the good and have set my stops to bank at least 250 points. This is a nice start to the week!

The 40MA on my Market Strength Test tool has given a reading of “0” in seven of the last 8 days. The remaining day gave a “1” reading. This is pretty good news for the Dow.

I say pretty good as it would be nice to see the reading in positive territory. A reversal from here would be indicative of the likelihood of another burst of selling.

With the weight of the European Sovereign Debt Crisis pressing down on markets this reading is not altogether unsurprising. That we are also at the psychologically critical 12,000 level also has a bearing. Continue reading

9th November 2011 – Vanity exposed!

 This morning I had planned to write a deeply self-congratulatory blog proudly announcing that I now felt myself well positioned on the right side of the line of least resistance!

 Ha ha what a joke!

 Over the course of the day Italy’s borrowing costs soared to greater than 7% as the market reacted to Berlusconi’s resignation and the Greeks continued to demonstrate why they cannot be trusted at all. I would just love to hear conversations in the Reichstag and Champs Elysees at the moment. They must be beyond exasperated.

 Markets tanked. I got stopped out. At least it was at break even.

 So what next? Continue reading

6th November 2011 – A possible golden lining for Europe and a bullish trade

 As part of my other work I came across this interesting Wikipedia article.

I checked the World Gold Council’s website to verify the figures. While there may be some doubt over their absolute accuracy, it is very interesting that Italy and France are the world’s 3rd and 4th largest national holders of gold. The Italians hold 2,451.8 tonnes and the French hold 2,435.4 tonnes.

While a general implosion is anticipated thanks to the ongoing European Sovereign Debt Crisis, these reserves could well prove to be an important backstop. Interestingly the Chinese “only” hold 1,054.1 tonnes and lie in 5th position.

Given China’s inexorable economic rise, it has to be a fair assumption that their central bank will accumulate more of this precious metal. With Europe seemingly insolvent and the Chinese awash with cash, it would not be a great surprise to see a transfer of wealth occur through the exchange of gold reserves in return for assistance/forgiveness of debt. Continue reading

1st November 2011 – Making sense of chaos

I’ve been trying my best in the last few days to make sense of last week’s announcement in Europe.

It makes very little sense.

The headline-grabbing figure of €1trillion certainly looked impressive and seemed to have triggered the next run of this bull market (as an aside when I went long on Thursday morning and banked 200 points; I remembered one of my maxims – “when on the wrong side of the line go the other way!).

However within 24 hours serious doubts started to emerge, the stock rally stalled and, most worryingly for eurozone politicians, the spreads on Spanish and Italian sovereign debt widened significantly. The latter point causes most concern because the “bail-out” was meant to prevent exactly this.

As far as I can make out the Europeans, led by the Germans and French, seem to have attempted a staggering sleight of hand. The “€1trillion” included no new money. It looks like they tried to raise the rescue package without supplying additional funds. Their plan seems to have centred on leveraging existing funds to provide the 20% first loss guarantee on sovereign debt. If this sounds complicated, don’t worry, it is. It is too complicated and looks suspiciously like the same kind of financial alchemy that caused the Credit Crisis in the first place. Continue reading