Sunday, 28 September 2014

Bulls and Bears Battle as markets are becoming more Volatile

Although it was pretty dry week for Bonds, Stocks have had a real tussle at these levels, although it seems that the bulls seem to have the upperhand, as anything the bears throw at them is countered the next day with pretty much an equal move back up. This is not surprising as its been this way for the past two years. Bears have not been able to get any traction as demand for Yield still persists as rates are at record lows. Although a meaningful pullback is due, it doesn't look like the Bulls will let this happen for the time being. However we know things can happen when you least expect it so always be prepared for this eventuality.

In other markets the Dollar remains extremely strong, which is having a big effect across the commodity space as well. Corn, Wheat, Iron Ore, Gold, Silver, Soya Beans and countless others are trading at multi year lows, and its hard to see where the support is at this moment. It is said that buying these around these levels is a once in a generation moment, but as it stands there seems to be no let up in the downward price action for these commodities. Commodity currencies have also been hit hardest with NZD/USD down from a peak a few months back of 0.89 to 0.78 which is a 1000 pip move in a relatively short amount of time.

Whilst Spreads have been a tough trade lately, I have focused more on directional picks on some of these Commodity plays, which my main focus on Corn. I have been using options to give me time to be right in these trades hoping for any pullback. As you can see from the Chart below the move down has been pretty steep and in my opinion looks over done, Similar charts are seen for other Commodities too.  I have been buying futures and puts, whilst selling puts below as it keeps going lower. We shall see if this continues.
Looking to next week, we have ECB meeting and month US Job figures which will provide further insights into the likely path of monetary policy from the FED and ECB. 

Monday, 22 September 2014

Equties Sell Off, but will it last?

We have had a slight sell off today in US Equities in particular, as the constant upwards grind is way over stretched. Now for the past 3 years pretty much, the losses on a day like this are usually made up within a day or two such is the appetite for Equities, but you never know if this time will be different. We haven't had more then a 4% pullback in over a year so if anything happens around those levels then it would be a good buy, using history as a guide.
The main risk event in the UK has come and gone with Scotland voting no to independence. Volatility has dropped significantly in FTSE related Options, and Short Sterling has now pushed back up again pricing in a rate hike sooner rather then later.
I think its interesting times ahead, with data playing a more vital role then before for both the BoE and the FED, so keeping tabs on this.
As far as positions go, I haven't been too active, but I have gone long Corn, as the Ag space continues to get smacked. I have also used the small sell off today to sell some premium in some Indices, but on a small scale. Not much movement in the STIRs so not much to report there, but we have more data coming up for the rest of the week so hopefully we have some movement of that.

Monday, 15 September 2014

My thoughts on Apple and the Iphone 6

Much has been said about the new phone and the response on the surface seems exactly how you would expect it to be. Regardless of what Apple really released the euphoria would have been immense, consumers were lining up to buy the phone for months, and so despite the fact that's its been slow to catch up with the competition in regards to screen size and other features, it was always going to be a massive seller.
The cult like following of Apple and its products is the dream position of any company. The fact they can release products of similar specs to the competition yet still command such a big premium in price, and have people queue up and have savings ready to buy these overpriced phones is the promise land. Demand is very inelastic with Apple, so regardless of the price demand will be huge. They could have charged over £1000 for the phone and it would still crash websites and cause mass euphoria.
While Apple have this ability to charge premium for their products, and the fact they don't need to discount at all, can only mean its great to be a shareholder. It is likely that their cash pile is going to grow massively and sales beat records as the higher priced phones will obviously add to the top and bottom line.
So whilst I would not buy an Iphone since I don't think its a good deal at all, and much better value and innovation is found in Androids and to some expect Windows phones,(in my opinion) I would however go long their stock, since the model of massively loyal customers coupled with very premium prices is likely to support the stock price going forward into the Christmas season.
Because of this I am looking for bullish strategies on any pullback. Rather then buying the shares I prefer to sell premium, combined with long call positions.

Going long the Oct 102.14/112.14 Call Spread, and financing that a bit by selling a 97.14/92.14 Put Spread would cost roughly $1.60, which is 160$ per contract  for a max profit of 840 dollars, but loss will be limited to 160 dollars if it doesn't fall below 95.64 at expiry. I prefer playing  this way as its better margin wise as you can control more shares with much less investment and, also always protect yourself to the downside since nothing is guaranteed. However with the market the way it is, low rates, and the hunger for Yield, for the time being, being long is the best way to go.

Friday, 12 September 2014

Bonds Selling off as Dollar Strengthens

As Equities remain elevated, Bonds have taken the cue to sell off, as expectations of rate movements from the FED and BoE weigh.
Euro Bonds upside has been capped as it seems as though the ECB has used most of its bullets, with rate cuts and the announcement of QE in last Thursdays rate meeting.
I have generally tried to go long as much as I can in the Euribor Spreads as the floor for now has been set, and I went long into the initial fall in Spreads during the press conference to then realize profit as the floor seemed to be reached and the curve started to steepen slightly.
The following day we had weaker NFP as well, with the instant reaction in Equities going up, and Bonds going up also. This reaction proves the fact that the market doesn't care about fundamentals, its trading on the basis of cheaper money for longer, and this is the main driving force behind the one way move that we observe day after day.
Despite this worse number, the dollar has reached multi month highs, as expectations for FED tightening takes hold.
The market has been tough to trade as the trends have been strong, and despite, oversold conditions in some USD fx pairs, there doesn't seem to be any stabilization as of now.However I'm using options to play direction so as to not be whipsawed out but the frequent spikes that have been occurring.
Currently I'm long Corn, with a put bought as protection, and I'm short ES via a Call Spread financed by a out of the money put. A slight correction would be nice!
Looking forward we have US Retail Sales due, which could provide a bit of volatility,

30 Yr Strategy Update

Its been a quiet period since the end of August with two trades being triggered, one for a loss and one for a profit. Overall profit has been 2 ticks.

Monday, 1 September 2014

Holidays Over as Volume Should Return

Last week saw more upside in Equities and Bonds on the back of very low volume. No real sellers anywhere, just short covering and thin markets helping push the markets up.
August was a very difficult month personally, I managed to make some money but am hoping for better volume and more two sided action come September.
Looking forward we have a lot of data this week, as is the case on the first week of the month. This will determine if its low rates for ever of a change in rhetoric.
Thursday is an important ECB meeting with a high probability chance of a potential rate cut and QE. This would be using up all the chips for the ECB in my opinion, which won't change the decline in Europe. If this is the case we are likely to see Euribor Yields go very close to zero if not negative, and the Yield Curve become flat, if not head to inversion. Never thought I would be saying that from such a low base.

30 Yr Strategy update: No filled trades last week

Short Sterling spreads nudge higher on hawkish Fed; Walmart blowout

As most must know trading Short Sterling is a bit of a bore, and has been for a while. Having managed to get out of my 2 month hold before,...