Friday, 22 August 2014

Same Theme Continues

Stock Markets had a record week as ES hit new highs and the Nasdaq smashed past 4000 and is on the way to 4100, with a 240 dollar bounce in 2 weeks. The rise has been relentless on the back of falling volume. The wealth expansion for the 1%ers continues as the capital required to push this market up is falling as the markets are alot more thinly traded relative to the days of old, yet the market valuation rose by $900 Bln in the past 2 weeks.

At the same time Bunds and Bonds in general remain very bid despite better news, and hawkish BoE minutes, and slightly more hawkish FED minutes. Yet the appetite to buy everything from Equities to Bonds remains in full force.

Its come to that point where metrics don't really seem to mean anything, I mean looking at the Bund trading mid 150s, with a 10 Year yield of less then 1%, to me makes no sense, despite calming tensions in Ukraine, and better data out of Germany, the Bund, like the Equities have the characteristics of a beach ball in a pool. You try to push it down but it pops back up again. 

To say these are tough trading conditions is an understatement, but in these times its a matter of trying to adapt, and in this case its about have more longer term views, as well as the obvious buy US indices blind every day.

Going forward we have Bank Holiday in the UK on monday and then US holiday on the following monday so it is likely that volumes remain depressed till we enter September. 

Update on 30Yr Bond Strategy
Its been a rough week for the strategy as we had 4 losing trades and 1 wining resulting in a net 15 tick loss. The slow grinding and low volatility has not been kind to the results, but overall its still up small. Hopefully September will work out better. 

Friday, 15 August 2014

Buy everything as Bonds and Stocks back to Highs

So the little sell off we had lasted a week, and now the markets have pushed up massively from lows. The NASDAQ has touched year highs again and ES is within striking distance. Its a very frustrating environment right now, as Bonds are being driven to the moon, as well as stocks, there is just no sign of anyone selling. 1% Yielding Bunds are being pushed up on a daily basis, and while this all happens, volumes are touching 50% of the normal for the year as interest is falling rapidly.
It takes so little to push everything to highs and while this is the case we will continue to hit new high after new high as the market doesn't care about anything apart from yield chasing through cheap money.
Worse numbers the past week has just solidified the rally as the likelihood for more longer period cheap money leaves no alternative then getting long real estate and Equities.
I don't know if we will ever return to the markets of old, but I sure hope so

30Yr Strategy recap: We had 2 trades this week, and both were winners, but in general, its just been slow markets, so more likely to get more activity as we enter into September.

Friday, 8 August 2014

Volatility Increases as Bund hit record low yield!

Geopolitical turmoil has this market on edge as Bond Yields have dropped sharply and Equities have followed suit. When both markets were going up, you knew that one had to be mispriced, and usually the Bond market is pretty good at pricing what the market is really thinking. The Bund hit a record high of 149.83 today after being 200 points lower only two days earlier. This caught me out by surprise, and I ended up taking a bit of a hit trying to short it. I guess yield doesn't make any difference right now, since they buying these 1% yielding bonds as if its the best thing since sliced bread!

There is a key difference in this market and those of a few years back, that is that a rise in volatility has lead to a rise in trading volume, especially in Bonds. In these conditions the market gave the best opportunities 5 years back, but in this case its the opposite. During the ECB press conference yesterday, probably 3k contracts got traded from Jun15 to Dec16 in 45 minutes plus, which needless to say is un tradable.
With weak data out of Germany and Italy, it seems like the Euro area will be depressed for a while longer.

My trade short ES had worked out well, but I got out a bit early, and my trade in Bunds was initially a scratch then, I reentered and had to take a hit, although the path of least resistance seems up, I think risk/reward wise, with Yields where they are I feel more comfortable having a downward bias to the Bund.

Looking to next week, the main event is the BoE Inflation report. Hopefully this will move Short Sterling alot and give some opps.

Finally an Update on the 30 Yr Bond Strategy. Its been a pretty tough couple of days with the one way action of the Bond market which has resulted in a draw down the past week, but over the longer term its still positive, so i'll continue to monitor it. Generally the trade wouldn't take place before Non Farm payrolls, but for curiousity it was done on a demo account.

Short Sterling spreads nudge higher on hawkish Fed; Walmart blowout

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