Category Archives: Trading

Stocks Up, Dollar Down as Market Expects Investor Friendly Changes (Expanded)

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“The stock market has rallied the past three days for any number of reasons, chief among them it was due for at least a technical, “dead-cat” bounce after hitting 12-year lows on Monday. One fundamental factor in the rise is Wall Street’s increased expectation for at least some help from Washington D.C. on two issues: mark to market accounting and the uptick rule.On Thursday, the House Financial Services Committee held a , during which Robert Herz, the chairman of the Financial Accounting Standards Board (FASB), agreed provide more detailed guidelines on the controversial accounting practice within three weeks.”

More by Aaron Trask at Yahoo Finance

Comment:

Never make a public pronouncement. You’re sure to eat it. Having affirmed my short-term faith in the dollar (at least until its hits 90 or there abouts on the index),  I’ve had to second-guess myself.

The dollar’s taken a hit since yesterday and gold’s popped up a bit, part of that just the usual bounce after a leg down, but also because of several things:

1. The perception that the stock market may be due for a bit of a rebound (or, at least, a dead-cat bounce). That makes cash less attractive.

2. Signs of the revival of the uptick rule, which would require short-sellers to sell only on ticks up of the price and would probably prevent cascading short-selling…at least to an extent…

Signs also that mark-to-market may be in for some reexamination. Mark-to-market is seen by many banks as unfair, since it requires the mark down of perfectly sound assets to current (fire-sale) prices.  One alternative that’s been proposed is to go to a 3-month rolling average.  Again, that makes equities look more attractive than cash and is dollar-unfriendly.

3. The sale of the Swiss franc by the Swiss National Bank (SNB)to bring it down against the euro. That’s sparked fears of currency wars and simultaneous depreciation of all currencies, which in turns, reduces the dollar’s attractiveness as a safe-haven.

4. Increased flows into the gold ETF (GLD) to a record  1,041.53 tonnes, making it the 6th largest gold holding outfit in the world, overtaking the SNB. (I have to look up the flows and will add a link and a note here later)

5. Unexpected rise in consumer confidence from the preliminary March data.

6. Announcement by Citi (as well as JP Morgan Chase and Wells Fargo) that it’s showing profitability in 2009. (Why don’t they start paying us back then?)

But until gold shows conviction in going through resistance in the 930-940 band, I’ll stick bull-headedly to my belief that the dollar will chug on or at least bounce around 87-89 for a bit more before coming down.

Mind you, I’m not wedded to that opinion, and if I see signs of change I’ll start stock-loading food, buying up gold coins and foraging for wild roots in the backyard…I’ll let you know..

Obama Tanks the Dow

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More here

Comment:

Going further,  the Deal Journal gives the President some tips on how to make nice to the market and stop being Obummer.

The budget numbers are out, and they aren’t pretty, projecting a $1.75 million deficit for the year and including a provision to auction off permits to exceed carbon emission caps (frankly, this sounds like the sale of indulgences by popes during the Middle Ages – only now, we’re all so much more enlightened...).  This might tank the Dow even more,…

Especially if it also takes a look at  GM’s horrible numbers (a $9.6 bn Q4 loss and a decline in its cash position from the previous quarter of $2.2 bn ($16.2 bn to $14 bn).  And let’s see what London’s FTSE will do now that Royal Bank of Scotland has announced the biggest annual corporate loss in UK history ($34.2bn/24.1 bn BP)

Gold Double Top?

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“When gold hit $1000 for the first time ever on Friday March 14th 2008, silver hit a high of $20.88 but now it can only muster about $14.50 when gold breached $1000 again. Why the dismal performance? The answer is because silver is a more recession sensitive metal compared to gold and decrease in industrial demand is acting as a dampener on the silver price. As said before, when the unemployment figures peak then and only then does silver become a multi-year buy. What is going on just now is a trader’s market.”

Gold Up But Dollar Up Too

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“THE SPOT PRICE of physical gold bullion touched an 8-session high early in London on Wednesday, turning lower from $927.50 an ounce as world stock markets slipped following Wall Street’s shock 5% slump overnight.

Treasury-bond prices rose despite a record $21 billion auction of new 10-year notes due today, while crude oil slipped below $38 per barrel.

The Bank of England said in its latest quarterly Inflation Report that the UK economy is now in “a deep recession.”

Business confidence across the 16-nation Eurozone worsened for the 18-month running in Dec. according to the Ifo Institute in Munich, falling to the survey’s lowest reading since it began in 1993.

“We have to be cautious on gold short term,” says Phil Smith in his latest technical chart analysis for Reuters India.

“The near term signals are still bullish but are looking like they may turn. Overall still a bullish chart, but with near-term downside risk.”

From Adrian Ash

Comment:

GSax has been saying gold will be up above $1000 in 3 months. Considering that it’s around 900 plus and that over spring it often moves up, they didn’t need Nostradamus to come up with that. Not when they have their guys stashed in every corner of government.

Some people might still think a 15% upside is a good deal. But I think buying on the dips is a better idea. I’m still of the school of thought that the price may have to go way back…maybe even below 700…. before it resumes the next bull leg.

But that’s just my no-account opinion.

Financial Follies: Dollar Uptrend

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From a trader whose predictions I’ve liked, Nadeem Walayat: 

“U.S. Dollar Forecast 2009

TREND ANALYSIS – The correction following the November peak was more severe than expected this implies a weakness, however the US Dollar did hold above the previous low of 75 before resuming the up trend. Immediate resistance lies at 88, given the violence of the correction this implies choppy volatile trading in the region of between 80 and 90, this is inline with the conclusion of October 2008 with regards trend expectations for 2009.

PRICE TARGETS – The upside price target for USD remains at 90 and then 92. The USD has significant resistance above USD 92 and therefore suggests the USD will find it tough to sustain a breakout above USD 93. This suggests a trading range with an upward bias. The key here is for the USD to continue making higher lows, with the last low being 77.7.

MACD – The MACD was extremely oversold and has helped contribute to the U.S. Dollar turnaround, how-ever the MACD has some way to go before it reaches what could be termed as an overbought state and therefore implies more immediate term U.S. Dollar strength.

SEASONAL TREND – The USD Rally into January is inline with the seasonal tendency, which suggests a corrective February.

ELLIOTT WAVE THEORY – Octobers elliott wave analysis proved accurate, given the power of the corrective wave, this suggests a more complex sideways elliott wave pattern during 2009 rather than a breakout higher.

Madoff With It: Did Bernie Siphon Off Money Through Primex?

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FINRA has found no evidence of trades by Bernie Madoff on behalf of his private investment fund through Bernard L. Madoff Investment Securities, a commercial brokerage founded in 1960.

This appears to be a brick in the wall of ‘rogue trader’ status. He could do it himself because he made no trades at all.

However this was not Bernie’s only commercial operation in the securities business, in addition to his now nefarious private fund.

Primex was registered as Primex Holdings, L.L.C. in NYS in October of 1998. Primex is a joint venture involving a digital trading auction which operates out of Bernie’s 18th floor office at 885 Third Ave.

Madoff’s business partners in the Primex Exchange were Citigroup, Morgan Stanley, Goldman Sachs, and Merrill Lynch.

Did Bernie give any business to this joint venture? Did any of the above brokers have any investments or losses with the Madoff Fund? If not why not? It was one of the most successful funds, on paper, on the Street?

More questions than answers. Let’s hope this one does not disappear down a black hole like the enormous put option positions placed on the airline stocks just prior to 9/11.

See Jesse’s Cafe Americain

Comment:

Haha, Jesse. Did I hear 9/11 put options?  In DC-think that’s, “I am a certifiable loon, a gun-clinging survivalist-creationist with neo-Nazi leanings. Please ignore my ravings and leave me to dribble here in my corner.”

Trader Psych: Incredible Dollar-Swissie Reversal

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“USDCHF – Recent US Dollar/Swiss Franc price action is a testament to the effectiveness of Speculative Sentiment Index-based currency forecasts. Forex trading crowds had remained heavily net-short the USD/CHF since July, and the pair went on to mount an impressive multi-month rally. Most recently, that same crowd capitulated and actually went net-long the USD/CHF near the 1.2000 mark. The US Dollar subsequently went on to post its biggest monthly loss against the Swiss Franc in history—incredible by any standards. Looking to very short-term trading, the crowd is currently net-short the pair, with short positions outnumbering longs by 1.08 to 1. Such a flip gives us reason to look for a reversal, but a sharp drop in open interest gives us little conviction in our forecast. Our forex trading signals previously went short the USD/CHF for sizeable profits, but the strategies now hold a weaker bias….”

– trader, David Rodriguez 

Comment:

This was quite a move up for the Franc and it shows why trading currencies in a regular (non-trading) account is hard to do.

I had planned to buy Swissie at the end of last week and then decided that the dip in the dollar from 86 – 83 on the Dollar Index had already priced in a Fed cut. So I held off, waiting to do it on Monday.

Then came Madoff. And on Tuesday, a Fed rate cut that was historic.

And as a result, from Monday to Wednesday, the dollar lost more than half the gains it made this fall. The Swissie shot up. A great trade on Friday looked almost risky by Wednesday. What if the Swissie fell back after that surge? Trader sentiment switched to shorting the dollar.

As if to confuse sentiment again, at Thursday close, the dollar had recovered some of its footing against the majors.

In Forex, trying to look for a bottom (as I was trying to do with the Swissie) takes just a little too much time for action that quick. Crowd sentiment out there is as volatile as it could possibly be.

Now the crucial thing is if GLD (the ETF, as a proxy for the spot price) can hold above 850 and the dollar over 80 by Friday close. If they do, a trend reversal of the pair will be confirmed technically.

Note: I am talking about GLD and the dollar as inversely correlated, once again. They had decoupled for a while but have returned to their inverse relationship recently.I don’t know how long that will last though. Not very long, I suspect. Notice that GLD is moving out of synch with other commodities. Oil, for instance, is down at 41/2 year lows. GLD’s move, in step with the Swissie, typified a rush to safety.

Bank Wars: Market Machinations – Update on Bush

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“The US House of Representatives voted in support of the Wall Street bail-out package. As the vote began at 1:00pm, Europe’s equity market gains of +1.5% across the board had been locked in, but the US equity markets started to plunge, down -4.0% in the final three hours of trading.Was this a message from Humungous Bank & Broker that the Paulson Package was not a Wall St bail-out after all? You betcha. Deceitful stuff, this. And when Europe opens well down on Monday, will that be a message from HB&B that they want the same bail-out from the governments there? You betcha.

Interventionists are now in full control of the global equity market. Paulson has won. The banks have won. The people’s representatives caved in and the people can take a hike for all the banks care at this point….”

That’s the excellent Bill Cara who agrees with my take that this crisis was exploited to pave the way for mega-bank consolidation at the expense of the weaker banks.

Comment:

Giving credence to that view, the fight between Citigroup and Wells Fargo heats up. The NY State Supreme Court blocked the incipient merger of Wells with bank-in-distress, Wachovia. Then Wachovia successfully appealed the decision. Now Citi, which has an exclusivity contract with Wachovia, plans to appeal the appeal.

Meanwhile, Wachovia has gotten a restraining order from a N. Carolina judge to prevent Citi from enforcing the exclusivity contract, charging that following the Wachovia-Wells merger announcement, Citi had taken steps to force Wachovia’s collapse.

The Citi offer (for $2.2 b) has the backstop of the FDIC and would cannibalize Wachovia, taking over only the banking operations, not Wachovia’s asset management or retail brokerage. Wells Fargo’s deal, on the other hand, would leave the bank intact and would give it $15.1 b.

Over at the postmortem for Lehman, unsecured creditors have filed a claim that JP Morgan prevented Lehman from accessing its assets, causing the bank to collapse.

And at the Congressional probe into AIG’s contribution to this mess, documents seem to show that AIG’s auditor, Pricewaterhouse Cooper gave a confidential warning that internal overseers weren’t allowed proper access to the highly-leveraged desks. (Of course, if you go back to 2005 and earlier, you’ll find Pricewaterhouse itself was being questioned for its behavior).

Secrecy has been the complaint for years over at Goldman Sachs. What beats me is why no one called these firms on any of this.

Crude Oil Decoupling from the US Dollar

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“Crude oil has detached itself from movement in the US dollar. Movement in crude oil prices suggest that the options markets has a big role to play and a part of the rise in crude oil is attributed to covering by option sellers. Frankly, very few traders and investors expected crude oil prices to rise near $125 at this time of the year. Long term investors will exit their investments once crude oil breaks $150 as incremental returns will fall over $150. Investors have made over 100% returns when crude oil prices rose from $50 in early 2007 to now. Crude oil over $150, investors will not get 100% returns in twelve months once crude oil breaks $150. If crude oil prices float over $200 for a long time whether in 2009 or 2010, there will be real evidence of a global slowdown. Even emerging markets like India where petrol and diesel prices are subsidized, the government will start reducing subsidies. The rise in crude oil prices may last another year and a half and thereafter the pace of the rise will fall….”

Chintan Karnani, Asian Metal Markets

Part II Riding the Gold Bull at the Daily Reckoning – or How She Missed Conquering the Rock 5/17/2006 (reprinted)

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Here’s me in Buenos Ayres rushing around checking out house prices in 2006 while trying to jump on and off the gold bull (scroll down for the note):

Wed, May 17, 2006 12:41:28 PM

From:

The Daily Reckoning

Subject:

Today’s Daily Reckoning

The Conquest of the Rock

The Daily Reckoning

St. Michael’s, Maryland

Wednesday, May 17, 2006

———————

*** Having the courage to grab the bull by the horns…how do you know
when it’s time to get in, and time to jump off?

*** GM lays off thousands of Americans – and hires in India…an economic
“Code Red”…

*** The perfect ingredients for a plunging dollar…it’s all about
timing…and more!

———————

The only thing more frustrating than a long bear market is a long bull
market. Riding a great bull market is like riding a real bull. You are
always in danger of getting thrown off. And once on the ground, it is hard
to get back on.

(See colleague Lila Rajiva’s attempts to get into gold, below…)
*** Lila Rajiva, trying to climb onto the bull’s back:

“Bill: As a faithful believer in the doomsday scenario for the dollar and
the final revenge of gold, I admit I am not having an easy ride. In fact,
I think I have had a bit of a mauling. With some nervous selling across
the board in the metals, and options expiration at the end of the week,
the ride gets stormier.

“Of course, I’m still a dollar bear. What’s not to hate?

“Massive trade deficits, staggering debt at all levels, a tumescent real
estate market hissing into an inevitable slump, saber rattling in the
Middle East, a war of words with China, oil bubbling steadily around $70,
and inflation simmering under the cooked-up numbers the government spews
as it sees fit…it’s all a recipe for a plunging dollar.

“And way back in 2004, it seemed the dollar was taking that ride in a
straight line down as it fell nine percent against the Euro. Some of us
opened Everbank accounts and got ourselves a basket of mixed foreign
currencies or other exotic goodies. Buffet was betting against the damn
thing – how could we be wrong?

“But in 2005, Buffet and the rest of us sinners, had to dine on crow. The
dollar strengthened, if it did not actually flex its pecs, erasing half
its losses against the backdrop of continuing tight money policy and
higher interest rates in the United States versus the euro area and Japan.
The dumping of the European Union’s Constitutional Treaty in France and
the Netherlands, also stiffened a few rickety vertebrae in the greenback’s
spine. Of course, it was merely a touching coincidence that corporations
got to repatriate earnings in stronger dollars, courtesy of a convenient
window created by Congress.

“Even the trusty little GLD ETF, which was supposed to cushion my dive
into the big bad speculative world of metals, stayed down the whole year.

“Naturally, as a newbie I’d bought it just when it came out in November
2004. And naturally, after being heralded like the Second Coming, it sank
almost immediately. On sundry Web sites, reports surfaced hinting darkly
at dire manipulations, the lack of verification of its holdings, and all
manner of sinister machinations calculated to strike terror in the heart
of someone’s whose last encounter with the metal was buying an ankle
bracelet at a souk in Dubai. Equity bulls of our acquaintance cast a
derisive eye at us. Gold? Had we forgotten that stash of 850 buck ingots
from the eighties still moldering in our basement? I was ready to cave in
and sell for what I’d bought it.

“But then as the year ended, the metals minuet ended and the action on the
floor became hot and fast.

“Sleeping Beauty leapt out of her coffin and darted ahead almost 25% in a
matter of weeks. Too much too fast? It seemed that way to me. I wasn’t
going to wait around to see that thing fall back just as fast as it had
shot up. A profit is only paper, until you book it, right? I booked it.

“Yeah! Wait for the correction and ride it right back up again like a
Ferris wheel. But market timing is never as easy as it sounds, which is
why some gold bulls, like Doug Casey, of the International Speculator,
will tell you that this isn’t a market you can trade – the moves have been
too fast. You drop out when it drops and you’re liable to be left
standing. You miss the big profits.

“And that’s how it’s been. The first correction came in February as
expected, but the next leg up was so fast and furious that by April we
were hitting multi-decade highs with hardly a pause along the way

“Too bad I wasn’t on board. I was still figuring out the right moment to
buy… and clearing the dust out of my eyes.” Continue reading →