Sunday, 14 December 2014

Stocks drop as VIX ramps up

After a  roughly 15% rally in many of the major indices since the October lows, crashing Oil, as well as general geopolitical tensions have put the brakes on the rally, and we are now 3% off highs in the SPX, over 6% in the FTSE100, 4% in the Dax, to name a few. With WTI OIl trading below $60/barrell, basic material Stocks and Commodity stocks as you would expect have been hit hard,  and whilst cheap Oil is good for our pockets, its effect on the Stock Market is being felt with the Energy Sector dragging down the overall market.
On Wednesday the SPX fell 33 points, and the Nasdaq dropped over 60 points, which was the biggest sell off since October, but what was different was the price action yesterday. The SPX  and Nasdaq jumped 28 points and 60 points respectively off the open, and it seemed like it was your usual rally after a sell off, the price action was very similar to previous days too, where every down tick was met with a barrage of buyers. Now the theme for the past two years has been that when ever there is a big up move, it usually sustains it but yesterday we witnessed a 20 dollar drop in the SPX and 50 point drop in the Nasdaq in the last couple of hours, to still settle up on the day but way below the highs, and this was enough to install quite a bit of fear into the market.
The VIX, the volatility index on the SPX ended up the day over 8%! Heres what's interesting, not once in the last 5 years has the VIX been up on a day when the SPX has been up, let alone up 9 points on the day, is this a freak event, a so called black swan event?
What can you infer from this, well given this is the first time in 5 years such an event has happened, suggests there is alot more fear out there, everyone is expecting the Santa clause rally into the end of the year, but maybe...just maybe, the market may not play nice, and we are in for some downside. One thing is for sure, is when you move up and down in a straight line without healthy pullbacks on the way, price action is likely to be more erratic. With lower volumes going into the holidays, price action is likely to be wild!

Wednesday, 10 December 2014

Oil Drags down Equities

A 60 handle in Oil finally took the shackles of the Equity markets as ES dropped 1.5% and other Indices fell over 1% too. T- notes pushed above 127 in the March Contract and Bunds traded above 154!!
Bonds keep catching a bid as risk aversion takes place. Whats crazy is that Equities are just marginally off all time highs, so if we get any type of real correction, its safe to assumes Yields will continue to get crushed, and the curve will continue to flatten.
Personally I think that buying the dip in in Eurodollar Spreads is the play as it is likely that rates will tighten slightly next year as the Economy picks up steam, and cheaper Oil will only help that.
I've found it tough recently, cause you had a massive buy the dip yesterday and today we maintained the downside momentum, tough to tell which market you will get. I think there should be more downside to come but I don't think the dip buyers are done yet and its likely there will be choppy action till year end.
STIR Spreads remain flat, with a slight pick up in volume in Short Sterling, Although not enough to get me involved as much, I will be trading it light until next year where I hope for a pick up in activity.

Friday, 5 December 2014

ECB Sources hint at January QE Program

So after massive run up in the Equities, which is just the norm these days, with a down day a collectors item now, Draghi said in the ECB press conference that they had the reins in place for QE but mentioned it would happen early next year not necessarily January, but maintained that he would like to see the effectiveness of existing policy before embarking in such a move. 

The markets didn't like that and we saw a 200 point turnaround in the Dax, which is warranted given the 900 point move up we had based on the idea QE was happening. However it just seems like Central Bankers just cant let this market go down, its as if there is an agenda to ensure it continues in this trajectory. 3 hours after the ECB press conference finished "Sources" reported that the ECB are preparing a broad based QE package for Jan, with the the package envisaged to include all kinds of bonds but no Equities(apparently). This as you can imagine pushed everything back up again, and we are back to where we were. 

Although this hasn't been confirmed, the market is taking its weight in gold and pushing towards new highs.
Moral of the story is don't fight this market. I've been burned quite hard balking at the rationality of this 15% up move without any pullback, but it seems this is the new way. When you probably have central banks buying stocks, sellers have no chance!

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,...