Taking a look at the weekly chart of the Dow and the S&P, it becomes evident why the averages haven't been able to break through this current range to new, higher highs.
The congestion and resistance at 17,900-18,000 on the Dow, and 2090-2120 on the S&P are as plain as a bright summer day, and thus, what had been considered a Fed-driven market has now become a chartist's nightmare.
Unless there's some good reason for the averages to go higher - and currently there isn't - there's only one way for stocks to go, and that direction would not be in the best interest of most investors, fund managers or pension hopefuls.
Naturally, the market continues to look to the Fed for comfort and trading rationale, but it is becoming more and more difficult for the monetary magicians in the Eccles Building to conjure up increasingly complicated arguments to support an economy (US and global) that, for all intents and purposes, looks to be standing on a foundation built of sand.
In other words, the market is about to go somewhere shortly, and bets are good that it will not be much higher. Earnings have begun to trickle in for the first quarter, and expectations are for another sequential decline in overall top-and-bottom line growth.
Then again, Janet Yellen is god, right?
With the Dollar/Yen carry trade nearing extinction (109.7450), perhaps one should consider a world in which there are no winning trades, such as is the fate of many so-called "home-gamers."
With volatility being wrung out of markets on a regular basis through HFT, that is a consideration that must be taken seriously.
Fraud is on sale, but it cannot be had cheaply.
S&P 500 Futures: 2,059.25, +20.50 (1.01%)
Dow Futures: 17,623.00, +96.00 (0.55%)
NASDAQ Futures: 4,532.00, +62.50 (1.40%)
Crude Oil 37.76 +5.21% Gold 1,224.00 -0.46% EUR/USD 1.1399 +0.04% 10-Yr Bond 1.75 +1.62% Corn 358.00 +0.35% Copper 2.14 +0.21% Silver 15.06 -0.34% Natural Gas 1.90 -2.66% Russell 2000 1,108.81 +1.18% VIX 14.09 -8.63% BATS 1000 20,682.61 0.00% GBP/USD 1.4131 +0.08% USD/JPY 109.7450 -0.01%
Showing posts with label risk trade. Show all posts
Showing posts with label risk trade. Show all posts
Wednesday, April 6, 2016
Thursday, May 20, 2010
Global Markets Under Severe Pressure; Stocks Pounded
The most common term being tossed around Wall Street and other financial capitols the past few days has been "de-risking," (which isn't even a real word), or use of the term, "taking off risk," which implies, correctly, that investing in stocks is generally risky business. That's why the game used to be reserved for wealthy, astute investors with money to spare, though today, the market is comprised of everybody from rich company CEOs to the average cabbie or retail worker, through mutual funds, 401k plans, options, hedges and other schemes that serve to make an already risky proposition even more so.
It doesn't take a Gordon Gecko or even a Warren Buffet to understand that when major investments firms are "taking off risk," i.e., selling stock and/or buying protection via puts or covered calls, that the average Joe or Jane should be doing precisely the same. If the big boys are scared, there's usually a very good reason (of which nobody will speak) to get out of the way, and today was a classic example of just how risky investing in stocks can be.
Days like today, and, incidentally, the past two weeks or trading, are precisely what your broker, financial planner or CNBC doesn't want you to know about. Profits can be gone in a flash - a day, a week - like tossing hard-earned money down a sink-hole. The analysts call these kinds of sell-offs "liquidity plays" or "wealth preservation," when all along anyone with half a brain screwed on properly knows that its just part of the game.
The blog you are reading, Money Daily, has been warning for weeks and months that the recovery in the US was artificial and not long-lasting. The airwaves are full of blame for congress and fear over the intricacies over proposed financial regulation, but the truth of the matter is that the financial collapse which began in August 2007, accelerated into the Fall of 2008 and the Winter of 2009, was never really resolved. Financial firms such as Bank of America, Citigroup and Wells Fargo were not liquidated as they should have been, but bailed out by government fiat, using taxpayer dollars to fund the excesses of a banking system gone wild.
Now, those problems are bubbling up under the surface, and, akin to an actual volcano, are about to spew the flotsam of mal-investment all over the markets. Stocks are wickedly overvalued, the US economy is in immediate danger of re-implosion and many parts of he global system, especially Europe, are in worse shape, so get ready for Financial Armageddon Part II, which was correctly forecast here for months and yesterday identified as the breaking point, when the number of daily new lows shot past the corresponding number of new highs, a trend which accelerated today.
All of the major indices closed the session by crashing through their respective 200-day moving averages, and all are in negative territory for the year. All are also off by more than 10% from their recent highs, the technical definition of a correction, though that small tidbit is the least of what's on people's minds. Where the slide may stop has become an open question.
Adding to the myriad of global problems besetting the markets was today's announcement that 471,000 people filed initial unemployment claims in the most recent week. The number of people seeking unemployment benefits has been growing recently, adding to the "double dip" argument, which now seems to have been the correct call after all.
Dow 10,068.01, -376.36 (3.60%)
NASDAQ 2,204.01, -94.36 (4.11%)
S&P 500 1,071.59, -43.46 (3.90%)
NYSE Composite 6,653.00, -274.21 (3.96%)
Not only was there a dearth of buyers in the marketplace, but all the major indices closed at or near their lows of the day and trading volume was spectacular as well. Advancing issues were completely overwhelmed by decliners, 5162-561; new lows superseded new highs, 312-77. The rout is on, and today's action was only the first or second round. The full force of deflation has yet to be fully comprehended or felt by market participants, though the selling in the oil futures should have provided some indication of what's to come, if the stock moves weren't already enough of an indication.
NYSE Volume 9,629,935,000
NASDAQ Volume 3,258,398,750
Crude oil tumbled to fresh, 10-month lows, as the June futures contracted expired and traders were bolting from it like it was the plague. Crude dropped $1.96, to $68.01, though the contract traded as low as the $65 range. Gold slipped $4.80, to $1,187.80, and silver fell another 40 cents, to $17.69, as investors scrambled into cash positions.
There isn't much more to add to today's monstrosity other than it was entirely expected and astute individuals should be already fully in cash or equivalents, tools of trades or illiquid assets of tangible value because this is only the beginning of what may turn out to be a final reckoning for the likes of zombie banks such as Bank of America, Citigroup and Wells Fargo.
It doesn't take a Gordon Gecko or even a Warren Buffet to understand that when major investments firms are "taking off risk," i.e., selling stock and/or buying protection via puts or covered calls, that the average Joe or Jane should be doing precisely the same. If the big boys are scared, there's usually a very good reason (of which nobody will speak) to get out of the way, and today was a classic example of just how risky investing in stocks can be.
Days like today, and, incidentally, the past two weeks or trading, are precisely what your broker, financial planner or CNBC doesn't want you to know about. Profits can be gone in a flash - a day, a week - like tossing hard-earned money down a sink-hole. The analysts call these kinds of sell-offs "liquidity plays" or "wealth preservation," when all along anyone with half a brain screwed on properly knows that its just part of the game.
The blog you are reading, Money Daily, has been warning for weeks and months that the recovery in the US was artificial and not long-lasting. The airwaves are full of blame for congress and fear over the intricacies over proposed financial regulation, but the truth of the matter is that the financial collapse which began in August 2007, accelerated into the Fall of 2008 and the Winter of 2009, was never really resolved. Financial firms such as Bank of America, Citigroup and Wells Fargo were not liquidated as they should have been, but bailed out by government fiat, using taxpayer dollars to fund the excesses of a banking system gone wild.
Now, those problems are bubbling up under the surface, and, akin to an actual volcano, are about to spew the flotsam of mal-investment all over the markets. Stocks are wickedly overvalued, the US economy is in immediate danger of re-implosion and many parts of he global system, especially Europe, are in worse shape, so get ready for Financial Armageddon Part II, which was correctly forecast here for months and yesterday identified as the breaking point, when the number of daily new lows shot past the corresponding number of new highs, a trend which accelerated today.
All of the major indices closed the session by crashing through their respective 200-day moving averages, and all are in negative territory for the year. All are also off by more than 10% from their recent highs, the technical definition of a correction, though that small tidbit is the least of what's on people's minds. Where the slide may stop has become an open question.
Adding to the myriad of global problems besetting the markets was today's announcement that 471,000 people filed initial unemployment claims in the most recent week. The number of people seeking unemployment benefits has been growing recently, adding to the "double dip" argument, which now seems to have been the correct call after all.
Dow 10,068.01, -376.36 (3.60%)
NASDAQ 2,204.01, -94.36 (4.11%)
S&P 500 1,071.59, -43.46 (3.90%)
NYSE Composite 6,653.00, -274.21 (3.96%)
Not only was there a dearth of buyers in the marketplace, but all the major indices closed at or near their lows of the day and trading volume was spectacular as well. Advancing issues were completely overwhelmed by decliners, 5162-561; new lows superseded new highs, 312-77. The rout is on, and today's action was only the first or second round. The full force of deflation has yet to be fully comprehended or felt by market participants, though the selling in the oil futures should have provided some indication of what's to come, if the stock moves weren't already enough of an indication.
NYSE Volume 9,629,935,000
NASDAQ Volume 3,258,398,750
Crude oil tumbled to fresh, 10-month lows, as the June futures contracted expired and traders were bolting from it like it was the plague. Crude dropped $1.96, to $68.01, though the contract traded as low as the $65 range. Gold slipped $4.80, to $1,187.80, and silver fell another 40 cents, to $17.69, as investors scrambled into cash positions.
There isn't much more to add to today's monstrosity other than it was entirely expected and astute individuals should be already fully in cash or equivalents, tools of trades or illiquid assets of tangible value because this is only the beginning of what may turn out to be a final reckoning for the likes of zombie banks such as Bank of America, Citigroup and Wells Fargo.
Friday, December 4, 2009
Grand Jobs Number Rally Spoiled by Risk Trade
When the November Non-farm Payrolls were announced at 8:30 am, coming in far better than even the most wide-eyed optimist could have anticipated (a loss of only 11,000 jobs, when the expectations were for a loss of 125-150,000), the various futures markets exploded to the upside signaling a higher open and the beginning of what should have been an outstanding rally in stocks.
While stocks initially responded, with the Dow up more than 150 points at its zenith, the US Dollar was also busy rallying against foreign currencies on the positive news. Just before 11:00 am, stocks had begun to slip, and before noon, they were in negative territory. In all, the Dow swung a full 200 points, registering the lows of the day at a 50-point loss.
Not only were the November jobs numbers staggeringly positive, but October's figures were revised as well, reflecting an improving unemployment picture in the United States. The official unemployment rate also dropped, from 10.2 to 10%, not an enormous movement, but one which offered a glimmer of hope as the year and the decade draws to a close.
However, the risk trade was being unwound by the good news, which is just one of the evil elements to dealing in free cash. Once the money begins to cost more, the game must end quickly, and, as is the usual case, with a good deal of messiness along the way. Thus, we are now encountering a condition in which the more good news is announced concerning the US economy, the worst it will affect stocks, if the dollar is a beneficiary of the news. In more mundane times, stocks improved in price as the dollar gained value. In the risk trade, the opposite is true. Stocks purchased with free, or declining money, go higher. The net result is a zero sum, though the feeling along the way is euphoric. Obviously, such a condition cannot maintain indefinitely, and today was just another part of the great unwinding.
While stocks managed gains, they were paltry compared to what the would have been under normal circumstances.
Dow 10,388.90, +22.75 (0.22%)
NASDAQ 2,194.35, +21.21 (0.98%)
S&P 500 1,105.98, +6.06 (0.55%)
NYSE Composite 7,182.71, +25.66 (0.36%)
Simple indicators reinforced the overall trade. Stocks were, at the high, more than 5-1 in favor of advancers, but managed to finish the day with just better than a 2-1 edge. Advancers were better than decliners by a score of 4508-1991.
NYSE Volume 6,935,438,000
NASDAQ Volume 2,237,404,500
Taking the most significant hit was gold, losing $49.30, to $1,169.00, and even another $12 lower after the official 1:30 pm close. Such was the case with silver as well, which dropped 61 cents, to $18.52. Oil fell 99 cents, to close at $75.47 per barrel.
The perversity of the risk trade is such that it will do damage to assets of all kinds as it is unwound, despite the true value of those underlying assets. It's a simple proposition. As the dollar rises, speculators must cover their positions, and do so by selling assets, causing them to fall. Just as they rose artificially as the dollar weakened, they will fall without any regard to fundamental value as the dollar rises. Eventually, an equilibrium will be reached when the trade is fully unwound, which could be a matter of months, depending on hedges and various other financial games, and there will more than likely be a few hedge funds which blow up in the process, though they will likely be small (we hope).
In the end, there will be more bargains for the patient, who wait out the end of liquidity and invest in appropriately undervalued assets. It's not going to be very pretty. Good news will turn stocks South, sometimes, and bad news may send them soaring. It's a very difficult trading regimen for the average investor to fathom. Surely, more than a few home traders will be scratching their head on today's abrupt turn-around, but that's what we have currently and we must live with it.
Maybe the best advice of all is to take profits and wait it out. There should be more rational investing periods in the future.
This one is not.
While stocks initially responded, with the Dow up more than 150 points at its zenith, the US Dollar was also busy rallying against foreign currencies on the positive news. Just before 11:00 am, stocks had begun to slip, and before noon, they were in negative territory. In all, the Dow swung a full 200 points, registering the lows of the day at a 50-point loss.
Not only were the November jobs numbers staggeringly positive, but October's figures were revised as well, reflecting an improving unemployment picture in the United States. The official unemployment rate also dropped, from 10.2 to 10%, not an enormous movement, but one which offered a glimmer of hope as the year and the decade draws to a close.
However, the risk trade was being unwound by the good news, which is just one of the evil elements to dealing in free cash. Once the money begins to cost more, the game must end quickly, and, as is the usual case, with a good deal of messiness along the way. Thus, we are now encountering a condition in which the more good news is announced concerning the US economy, the worst it will affect stocks, if the dollar is a beneficiary of the news. In more mundane times, stocks improved in price as the dollar gained value. In the risk trade, the opposite is true. Stocks purchased with free, or declining money, go higher. The net result is a zero sum, though the feeling along the way is euphoric. Obviously, such a condition cannot maintain indefinitely, and today was just another part of the great unwinding.
While stocks managed gains, they were paltry compared to what the would have been under normal circumstances.
Dow 10,388.90, +22.75 (0.22%)
NASDAQ 2,194.35, +21.21 (0.98%)
S&P 500 1,105.98, +6.06 (0.55%)
NYSE Composite 7,182.71, +25.66 (0.36%)
Simple indicators reinforced the overall trade. Stocks were, at the high, more than 5-1 in favor of advancers, but managed to finish the day with just better than a 2-1 edge. Advancers were better than decliners by a score of 4508-1991.
NYSE Volume 6,935,438,000
NASDAQ Volume 2,237,404,500
Taking the most significant hit was gold, losing $49.30, to $1,169.00, and even another $12 lower after the official 1:30 pm close. Such was the case with silver as well, which dropped 61 cents, to $18.52. Oil fell 99 cents, to close at $75.47 per barrel.
The perversity of the risk trade is such that it will do damage to assets of all kinds as it is unwound, despite the true value of those underlying assets. It's a simple proposition. As the dollar rises, speculators must cover their positions, and do so by selling assets, causing them to fall. Just as they rose artificially as the dollar weakened, they will fall without any regard to fundamental value as the dollar rises. Eventually, an equilibrium will be reached when the trade is fully unwound, which could be a matter of months, depending on hedges and various other financial games, and there will more than likely be a few hedge funds which blow up in the process, though they will likely be small (we hope).
In the end, there will be more bargains for the patient, who wait out the end of liquidity and invest in appropriately undervalued assets. It's not going to be very pretty. Good news will turn stocks South, sometimes, and bad news may send them soaring. It's a very difficult trading regimen for the average investor to fathom. Surely, more than a few home traders will be scratching their head on today's abrupt turn-around, but that's what we have currently and we must live with it.
Maybe the best advice of all is to take profits and wait it out. There should be more rational investing periods in the future.
This one is not.
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