TRADE OF THE DAY: MOVING TO NEUTRAL
I turned bearish on June 1 at S&P 945. That just happened to be a near top-tick in the 40% bull run. I’ll admit my timing was part luck, part patience, and part analysis (the government officially moved out of the way on June 1) but either way it’s been the right call. More importantly, we’ve recommended being long anti-beta names and the reflation trade since June 1st with the idea that oil would crumble after the peak in the summer driving season on July 4th. Not to toot my own horn, but this couldn’t really have played out more perfectly. Oil folded like a lawn chair and promptly lost 18% in a matter of days while most reflation trades are off 25%. Anti-risk trades have held up well. My favorite has been the Yen, but we’re seeing ominous signs in Yen trading today as it surges 2.5% (that’s about the equivalent of a 7% intra-day move in the S&P – unreal). As I often say, my side of the boat is getting a bit full so it’s my time to grab my life vest and bail.
I am less pessimistic heading into earnings season and after a -8% 5 week move in the S&P I would be foolish not to take profits. That is a spectacular move any way you dice it. The surge in the Yen should be a near-term caution sign for anyone who is bearish. We’re either going to see equities collapse and see a much stronger Yen or risk will come back into vogue and the Yen will crumble. Either way, I am not going to be around to see it. Earnings should provide a bit of stability to this market. I will release a full analysis later on in the week, but as of now it’s still looking like we’re staring at another quarter of upside surprises.
* Disclosure: No positions.
I don’t particularly follow the yen, so no comment there, but otherwise, I agree with you on this.
It may not be the absolute bottom as of today, but this isn’t a time to be aggressively short, in my view. The fact that 10-year treasuries have so far moved 13 bp today is a hint that something is seriously out of whack at this moment. I just can’t see a sub-3.4% 10-year being sustainable for long, and these days, long-term bond and equities appear to show enough of a rough correlation that I would see today as either very dismal news or the sign of a floor. My two cents.
Good thoughts MBA. The Yen just represents a move out of risky assets into safehaven assets. It’s a good way of gauging the fear levels in the market. I wouldn’t be surprised to see the Yen move much higher, but squeezing out a move like I have is a pretty nice gain. Either way, it represents a shift more towards safety and risk aversion at a time when I don’t see things falling off a cliff.
We could easily trade down to 800-825 on the S&P, but I see more of a boring sideways market into August. Earnings will likely be mixed with tepid guidance, but tons of upside surprises. It might be enough for a little boost, but under the hood investors will notice that it’s nothing more than cost cutting as opposed to organic revenue growth.
There’s not much out there that screams “buy”.
TPC,
congrats on ANOTHER ridiculous call. What are you doing next? Please keep us posted.
Well, if everyone was on one side of the trade on the leg up…and now they are taking the other side now, this correction can feed upon itself into something bigger if they start to go on the same side of the trade again, this time on the short side.
Markets were not meant to move like this, obviously this is not healthy and I think staying on the sidelines is the best advice.
TPC,
Since 1990, there have been 38 times when USDJPY fell at least 2.3%. Buying on the close of that day and selling the next day has resulted in winning 57% of the time, but on the whole has been a losing strategy.
By contrast, since 1990 only 4 times did SP500 fall more than 7%.
While unusual, today’s move in JPY is not particularly special.
Aidyn,
I don’t mean to over emphasize the move in the Yen. My point is that it represents a major shift in sentiment into safe haven assets. I view that as a contrarian indicator that tells me the risk/reward of being short has substantially shifted here. In other words, the easy money on the short side has been made. Thanks for the stats. Good to know.
I see Alcoa beat (loss of 26 cents vs expected loss of 38 cents), but like so many companies this year they missed on revenue (4.2b actual vs expected 4.3b). At some point these companies will need to beat by growing revenue, not cutting costs.
Gregg,
The AA quarter was 100% cost cutting. As you said, their revenues were worse than expected. Expect to see a lot of this this quarter. It will be interesting to see if investors will reward these companies for their lack of growth. It’s certainly not a trend that can last, but I still don’t think I want to be short heading into earnings.
Seems as long as we hold 870 the trade will still be from the long side. Long ARMH, PALM, S….Own Puts on xrt and 80% cash. Need to see it bust through 870 on the close for me to get aggressively short. Not sure the PPT will allow it to go below 870. AAPL is an intriguing play going into earnings, wish I would have picked some up when it dipped below 135 today. Anyone have any recommendations on online brokers. I am thinking of switching from ameritrade to interactive brokers.
Eric, nice ideas. I use IB for a few accounts. They are excellent. By far my favorite broker, but don’t expect a lot of bells and whistles or customer service. It is very much a do it yourself service.
TPC,
Nice timing! I have just recently covered all of my shorts and have had an incredible run. Looks like it is good timing for getting long some gold stocks for a trade.
I agree that we might possibly see some better than expected earnings this quarter with AA being the first sneak peak.
I think the market seesaws higher in the short term unless we get unexpected news.
MARKET QUOTES
MARKET NEWS
THIS WEEKS MOST POPULAR STORIES
© 2009 pragcap.com · Login.
Home · Advertise · Contact us · Disclaimer ·