A New Theme

Home builders, Semiconductors, Biotechnology, Water and Natural Gas... a strange assortment of market leaders for the day.
ITB is a home builders index and like its better known brother XHB, it has taken a beating over the last two years, down nearly 60%. After finding a low ~13.50 on January 9th, ITB has shown remarkable strength, and is trading ~20.
USD is ProShares double long semiconductor etf. It traded as high as 100 some time last year, but after a shocking drop into the mid 30's in January, it is trading at 46.
Similar stories can be found in XBI (bio tech), and PIO (water).
UNG (natural gas) was the strongest commodity of the day, and has a very good looking chart.
Precious metals are struggling again, and the banks are in need of a catalyst for further downside.

Blah Blah Blah Blah... This market is so unexciting, I wish there was something newsworthy to scare the shit out of everybody.

Looks like one of the best places to put money in times of panic is in .foreign government debt. BWX is an assortment of inflation sensitive treasuries from countries like Germany, Japan etc. It is outperforming the domestic alternative TIP, and makes fundamental sense from a dollar bear perspective.
A lazy portfolio could assign weightings to EEB and BWX based on moving average relationships to further reduce volatility. If EEB and BWX were bought in equal proportions at EEB's Halloween high, the pair would show a 12% decline today. Compared to EEB's 30% fall, this certainly offers a great deal of downside protection. Unfortunately, there isn't any trading information for BWX during EEB's bull market phase, so the upside impairment cannot be quantified. A similar test of QQQQ and TIP shows a 15% decline, giving us 3% of out performance in favor of foreign exposure.
Plenty of statistical manipulation was done to maximize a desirable result, but the facts speak for themselves.

Happy Days Are Here Again

DGP + SKF = Win. Buy Yen, sell real estate, here we go again... "Normal" bear market conditions have returned with dramatic under performance in banks and real estate. Gold and silver continue to rally, and the dollar is beginning to slide to more all time lows. I would like to thank the bulls for an absurdly low entry price in SKF @ 100 dollars... this shit could rise 50% in the next two months... Folks, it's raining money outside, bring a bucket.

Wild Week

I've been so overly medicated these past few days I haven't had the patience to write more than two sentences. All I can do is come up with half-brained t-shirt ideas like "Liquidity Crisis" underneath an empty beer mug. I'm smoking more of everything and doing less of anything, and damn it feels good to watch Weeds all day. Why so utterly sloth like you wonder? Banks are marching higher, gold is falling lower, and the dollar isn't falling through the floor. Home builders and retailers are appearing to make bottoms, while oil continues to fall from its breathtaking highs. Taiwan is on fire as a new President is ushered in, and the BRIC countries seem to be showing some signs of life. The yen and franc are slowly slipping, but remain well within a multi-month uptrend. With the markets "flooded" with liquidity, stocks are on the rise and fear is being washed away. The talk now is the talk of the last 6 months... Have we hit bottom?
FUCK NO (I Think)
This countertrend rally happened in January, it will happen for months to come, but it is not to be believed (yet). Gold (GLD) will rise again, probably after bottoming somewhere in the mid 800's. Financials will fall 20% (XLF), and we will hear of another huge company totally failing a la Bear. I'm currently in a sloth like state because I don't need to go hunting. Thee market is coming to me, the higher it rises, the further it will fall. A correction in gold is long overdue, and though it may trend sideways for a month, it will provide a great buying opportunity and base for further upside growth. If this rally does manage to sustain itself, the key markets to follow are Taiwan (EWT) and the BRIC's especially Brazil (EWZ). So long as the dollar doesn't lose strength and can stay at parity with the Fran and 100:1 with the Yen, the market will not fall, but any sign of dollar weakness will likely encourage further unwinding of carry trades, and downward pressure on the markets.
A few weeks back I mentioned buying SMN (short basic materials) and UYG (long financials). This pair will lose its edge in the coming days, and will resume under performing once this counter trend diminishes and the sellers take control of the market.
Some of my favorite individual stocks have taken hefty corrections, IBKR, BPT, HTE, BPT, TELOZ. I'm not sure what the story is with IBKR, I'm not gonna touch it for now, but the rest are energy trust, with high yields and low P/E's. Once oil stabilizes, this will be a very safe place to park my money for some yummy 15% dividends.

The Dollar Collapse

Booooyaaaaahhhh! I think I'm gonna quit trading equities and move into Forex (just a thought)... Sometime last week I moved everything into Yen. This has turned out to be a nothing short of perfect as the dollar fell to new lows Sunday evening. I sold my Yen as it regained strength, but then quickly jumped into Francs the as the dollar lost a few percent in a couple of minutes. Now, I'm back into dollars, hoping for more dollar strength so I can buy yen/franc a lil cheaper. I think there has been a bit of a panic (quite rational), and that a near term bottom has formed for the dollar (till Tuesday). I'm pretty sure the equity markets will do the same... high volume sell off, and then a slow steady recovery throughout the day. I keeping a close eye on FXI, looking for some good old fashioned panic, and a nice entry in the low 120's. I'm sure gold and oil will be ballistic tomorrow, but energy and precious metals seem badly in need of a correction, so I'm not exactly jumping all in.

A Good Day To Wake Up Late

Having missed the market open by about an hour, I didn't have to do any guess work as to the markets direction. SMN (double short basic materials) is up 6.97%, UYG (double long financials) down 4.85%, which is roughly a 2% gain on a -1.5% day. Thus, the hedge trade worked, but there was no reason to go long the financials w/ the news on Bear Sterns. Oil still made a nice new high, but Silver had a sharp drop early in the morning, and at this pace, it could easily work its way bay to 17 dollars an ounce. Perhaps we're gonna get a nice correction in commodities as the bear eats everything.
Having said that, I'm pretty disappointed with the last few months of trading. I'm showing ~6% gain for the last 2 months of trading, which is a anemic 3% a month. That's just fine and dandy if you have $100,000 and don't mind living on a shoe string, but I'm not even half way there. On a brighter note, the SPY is down about 15% in the same period, so I don't want to give up trading because it seems to be working. By the same token, I could have put all of my money into gold in May of 06, and laugh all the way to the bank, no trading, no fucking around, just laughing... Come to think of it, my 6% gain barely covers the drop in the dollar against... EVERYTHING. Glad I went to Europe last summer, because trips overseas are getting more expensive by the day.

An Interesting Week

In my last post I suggested a pairs trade including SKF and DGP. Since that post, DGP has fallen 3%, and SKF has risen 10%, netting a handsome 7% in the last 4 days. While I firmly believe in the soundness of the fundamental logic (a move to hard assets over paper assets due to credit worries), the technical picture doesn't look good in the short term. Precious metals have found resistance at the nice round numbers, Gold just short of 1000, Silver ~20. Moreover, oil prices rose to a record high on Friday, but fell on high volume, signaling a short term turning point. Energy stocks in the OIH failed to make a new high in spite of crude oil's advance, and it showed great weakness on Friday, along with miners. More importantly, SKF closed down 1% on triple the average daily volume after reaching a new high. The last time this happened was ~the January 22nd lows, which leads me to believe that there will be a strong counter trend in the coming week. The market may continue lower, but unlike the last few weeks, it seems like energy is leading the way lower. There may even be a short squeeze in real estate, finance, consumer discretionary. If Asia can recover, then there will be strength in energy and commodities, but if China continues to swoon, then I suspect there will be further price pressure in the near term. Perhaps the new pairs trade is UYG (double long banks) and SMN (double short basic materials). Hard to tell without my charts spitting out new numbers. In any event, keep your hard hats on, I suspect we're in for increasing volatility and a VIX in the mid 30's.

Smooth Sailing

Today was perfect. Everything I'm dabbling in was on the up and up, except for the Swiss Franc FXF. SLV and IAU continue to make new highs, and I started a position in DGP. Even the double inverse funds made new short-term highs. DBA rebounded above 42, even though UDN failed to close higher after a very strong open. GDX, SLX and EEB recovered some of their losses, and remain technically sound, but close to danger.
The skinny of the story is, I'm having cake and eating it, and there is plenty more to go around if the trend towards hard assets remains intact. Financials took another step towards failure today, and if the home builders follow suit, this will be a panicky drop to the January lows.
Pairs idea: Double Gold w/ DGP (26.36) and Double Short Financials w/ SKF (121.50). Equal weight.

Doubling Up On Gold

Deutsche Bank is offering leveraged and inverse Gold ETN's DGP (+2x), DZZ (-2x), DGX (-1x). This is very exciting, but also quite scary. Looking at DB in the charts gives me little faith in the banks debt, but so long as the market believes in these awesome debt instruments, I will certainly go along for the ride. DGP is trading @ 25, so if gold moves to 2000, it should trade around 75.
Bond yields continue to move lower as BSV, TLT and TIP are trading at all time highs. Still no sign of a major financial collapse as bonds continue to offer safety.

Blamo!

The market shat on the bulls Friday, which made tons of cheddar in SRS, SKF, TWM, DXD. UDN, FXF and FXY are trading at all time highs, and continue to show strength as the markets weaken. Commodities were mixed as DBA moved lower w/ USO, and the precious metals IAU and SLV remain unchanged. GDX, EEB and SLX collapsed today, falling between 2 and 4%.

If the emerging market continues to weaken, I suspect we will visit the January lows, so keep the long trades hedged, or on a short leash. If EEB stays below 50, I will either exit or reduce my position. I'm still market neutral with a short dollar bias, but if the XLF can stay below 26.20, I will increase my position in SKF. Banking indexes have fallen roughly 7% in the last 2 days, and look poised for further deterioration.

IAU and SLV continue to offer a safe haven in this fiasco. Even though they are trading at lofty nominal heights, adjusted for inflation, there is plenty of room hard assets to run. Right now the Dow @ 12300 is worth ~13oz of Gold @ 960. I suspect this ratio will continue to favor gold, considering that sometime in 2000, the Dow was worth more than 40oz of Gold when it traded ~300. Peter Schiff predicts that the fall of paper equities will bring the ratio to a 1:1 parity, and points to the 1970's as a similar phenomenon. This implies a DJIA trading @ 5000 w/ Gold @ 5000. While I'm not quite as optimistic (pessimistic?) as Peter (not yet anyhow), 5:1 seem achievable without much difficulty. Dow @ 10000 and Gold @ 2000? Sounds good to me.


On another note, what happens when a civil judgment is entered against you in NYC for public urination?