Crude..to be continued February 14, 2011
Posted by Warren in Energy, Strategy.add a comment
I went slightly “rogue” during the past week with the house money, betting on crude futures in relation to the situation in Egypt. Long story short, I took a big hit but I’ve moved my focus back to silver and the main strategy (new post to come shortly). I know I shouldn’t revenge trade, but I will get my money back from crude..it’s only a matter of time we retest $100.
[NYMEX MiNY MAR'11 2-day: hint of bearish mood in commodities complex]
Flipping to Long January 27, 2011
Posted by Warren in Metals, Strategy.add a comment
Here’s basically what happened during the past 4 weeks:
PMs developed a strong downtrend for about 3 weeks as optimism grew and the need for QE diminished. Yesterday, however, Bernanke made it clear that he doesn’t buy such optimism, at least until there’s real job growth, and that QE will continue as planned; this certainly removed any doubt about QE, and markets traded accordingly – UP.
Of course, I don’t expect silver to make a “V” shaped rebound here. Considering how strong the preceding downtrend had been (see below), it’s not surprising to see this much choppiness following the FOMC meeting. The bulls have recovered some footing (thanks to Benny), but there is still an undeniably strong downside bias. If the bulls manage to take a stand and succeed here, I expect the resulting rally/short squeeze to be quite significant; this is why I am now long silver.
I expect the choppiness to subside shortly, but in the meantime, I intend to utilize the choppiness to build the Core Position. If silver starts to challenge the downtrend line, I intend to ramp up with the Spec Position to catch the breakout/short squeeze.
[Silver: 1-month]
Whiplash January 27, 2011
Posted by Warren in Strategy.add a comment
When people say futures are too risky, they mean it – trading futures is not for the faint of heart. So don’t do it!
When you’re up, the gains are so explosive that greed fogs your mind. On the other hand, when you’re down, the loss is so brutal that panic rattles your mind (see below). So why do I do it? I think the appropriate question is, why have I not stopped?
Today was a prime example of total non-sense whiplash; it’s just hard to treat it as such when your pnl swings so wildly.
[Silver: 2-day]
SOTU + FOMC = Reflation ON January 26, 2011
Posted by Warren in Central Bank, Energy, Government, Metals, Strategy.add a comment
If I were Obama, who is gearing up for re-election, I would take advantage of this week’s back-to-back State of the Union and FOMC meeting to boost the markets and leave a positive impression. Text message to Ben: pls reflate, thx.
I’ve covered all silver shorts and flipped to long, mostly for the reason that the chart seems to be in favor of a rebound here, in which case silver will most likely re-test $28.
[Silver: 1-month]
Crude had a very steep sell off this month (despite the butt freezing cold), and I couldn’t help but to give it a punt. I’ll be on the lookout for the inventory release at 10:30am.
[Crude: 2-weeks]
Choppy day January 25, 2011
Posted by Warren in Metals.add a comment
Our friend Choppy was choppin’ it up all day long, and did not stop even after the close. I expect Choppy to stick around as we head into the FOMC meeting tomorrow.
Classic contrarian indicator January 25, 2011
Posted by Warren in Metals, Strategy.add a comment
..from my gmail.
I ramped up the Spec Position again, as I saw very heavy selling over Asia. I may ramp up one more time, but I think it’s time to ride it out and focus on covering the Spec Position. Europe just opened now and silver is already down 2% since NY close. Panic, anyone?
Update 6am: Looks like the heavy selling in PM is cooling off, and I’m seeing some strong bids for silver around $26.5. I decided to close the Spec Position and fade half of the Core Position at $26.63. Now that a good number of shorts have piled in, it’s time to expect a quick short-squeeze. I’m not sure how far a short squeeze will retrace the overnight sell-off, but I will be on the lookout to reinstate the Core Position and the Spec Position soon.
Ahead of the FOMC; Panic Sell-Off? January 24, 2011
Posted by Warren in Central Bank, Metals, Strategy.add a comment
Silver made a quick rebound to $28 last night over Asia, and I reinstated the Core Position and ramped it up by 300% with the Spec Position as planned (see 1/21 post: Managing a winning position). I must say I’ve been pretty lucky with these levels, but as shown in the chart below, the break below $28 was a key event so it was reasonable to expect a re-test of that level. Since then, silver has sold off over a buck, and I covered the Spec Position just now at $26.75. I’m pretty tempted to shed half of the Core Position as well, but I’ll probably wait it out until NY opens..who knows, this could be just the start of a panic sell-off; it’s pretty much a vaccum from here to $25.
[Silver COMEX MAR'11: 1-week]
Don’t forget..Fed day is coming up this Wednesday! It’s very nerve racking to hold a large position heading into an FOMC meeting, especially following a strong trend; I’m glad I found a good level to cover the Spec Position ahead of time (again, assuming no panic sell-off tomorrow). For this week’s FOMC meeting, I expect absolutely no change in Bernanke’s statement for the simple reason that there’s really nothing more to say (and the markets expect that, for now) – not every FOMC meeting has to be a market changing event. Regardless, markets will most likely trade choppy over the next three sessions, and I will be on the lookout for opportunities to ramp up the shorts (yup you guessed it, assuming no panic sell-off tomorrow).
Managing a winning position January 21, 2011
Posted by Warren in Metals, Strategy.add a comment
So far, my shorting strategy for silver (see 1/3 post: PM Correction Imminent) has been playing out as expected..quite handsomely indeed. But big short-term unrealized gains are not at all comforting – no sooner had you become comfortable with big unrealized gains than you bled most of those gains. One mistake I’ve frequently made over the years is mismanaging a winning position.
I established my core position (the “Core Position“) when I doubled my shorts last week on the back of a sharp counter-rally (see 1/12 post: Shorting More Silver). I intend to maintain the Core Position for the medium-term, which is my main time frame. The new stop for the Core Position is $28 (plus some); it’s a bit tight, but I want to lock in most of my gains. $28 had been a strong support level for the past few months, and I expect it to be an equally strong resistance level for the medium-term.
Yesterday morning, as a sharp sell-off began to materialize following a failed short squeeze (see 1/18 post: Taking a Stand), I doubled my shorts again at $28.2 (total ramp-up: 400%). As part of my effort to better manage the Core Position, I intend to trade such new shorts (the “Spec Position“) on a much shorter time frame. Short-term trading of the Spec Position will allow me to take on intraday risk whenever I anticipate a big move (like yesterday, and possibly a counteraction today); if I’m right, I would enhance my returns, and if I’m wrong, I would suffer a short-term loss on the Spec Position but it wouldn’t deter my focus/confidence on the more long-term Core Position. This should address my prior problems of ramping up my position too much, too fast – a quick way to lose focus/confidence and a lot of gains.
Yesterday’s session provided a great opportunity to implement my new strategy, and I covered the Spec Position at $27.2 (total return on just the Spec Position: 67%). Silver had a big down day, and one of two things may occur in the short-term: (i) re-test $28 (many shorts likely piled in with tight stops) or (ii) free-fall below $27. Considering that silver has sold off almost 7% in just two sessions, I expect a small rebound to re-test $28. To protect more gains, I decided to shed half the Core Position this morning, also at $27.2; the size of this effectively long Spec Position is 50% of the Core Position. I intend to re-establish the Core Position to its initial size once silver re-tests $28 or breaks below $27.
[Silver COMEX MAR'11: 1-month]
In the past, I would have completely flipped to longs (as opposed to fading the Core Position) based on the reasoning that: if you’re so confident about market direction to fade your position, why not just flip it? This is nice and dandy if you’re right, but if you’re wrong it’s very easy to lose focus/confidence on the longer term strategy. But I’ve tossed the scalper’s mentality out the window, and now my new strategy establishes a core position for the long-term that is ramped up or down by a spec position in the short-term to either enhance or hedge the returns. Of course, the key is to have made a solid initial trade to kick off the new system :)
Taking a Stand January 18, 2011
Posted by Warren in Metals, Strategy.add a comment
Here’s a classic 50/50 coin-flip; I’m covering my shorts if silver breaks the short term downtrend line. However, I am aware of a possible fake-out scenario; sometimes the market nudges prices just enough to cause a short squeeze, which is when the pros usually place their shorts.
I’ve made a respectable return but would like to see one last attempt at $28, which is proving to be a strong support level.
[Silver COMEX MAR'11: 1-month]
Goldilocks Economy: good for silver short January 14, 2011
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..at least based on my understanding of fundamentals (see 1/3 post: PM Correction Imminent). One of the main points I’ve raised is my expectation that 2011 will be a goldilocks economy, and that this will kill the necessary momentum to maintain the current price level of silver.
Today’s housing starts release is a small anecdotal example of a goldilocks economy where the data just range within consensus.
Shorting More Silver January 12, 2011
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Here’s a quick update on silver. Since I shorted at $30.9 two weeks ago (see below post), silver made a low at $28.3 but bounced back, closing today just below $30.
I am sticking to the view that silver is in a medium term correction/consolidation, and therefore I see this rebound (right shoulder) as an opportunity to increase my short position. I’ve been hoping to see some clearer topping patterns to form in silver (to help generate more downside interest/momentum), specifically a head and shoulder (see below chart), so this rebound was somewhat expected (which also gives comfort in setting relatively tight stops).
Although I had to give up some profits, if this head and should pattern plays out as expected, it will certainly boost my confidence (and profit) level wrt my short position.
..doubled my short position at $29.7 (avg cost is $30.3).
[Silver COMEX MAR'11: 1-month]
Precious Metals Correction Imminent January 3, 2011
Posted by Warren in Metals, Strategy.add a comment
I am sick and tired of people talking about precious metals these days. Where were you 5 years ago?
Fundamentals:
- Too much mainstream chatter about QE and related crap (e.g., hyperinflation, gold/silver, commodities, Fed abolishment, etc). QE so far is nowhere near enough; this is just the tip of the iceberg.
- Basic economic fundamentals (i.e., jobs, debt, consumer demand etc.) are still very uncertain, with no signs of genuine recovery; unless you believe in, and are willing to bet your money solely based on, government statistics. For example, payroll data have indeed improved as of late, and this Friday’s payrolls should be somewhat positive. Although I don’t think these data alone prove that we are in a genuine recovery, it’s evident that we will keep seesawing between bulls and bears..until one side eventually gains momentum.
- Bearish economic sentiment may boost demand for PMs, but I think this will be outweighed by diminished risk appetite..at least until QE3 starts making headlines later in the year/next year. Bullish economic sentiment wouldn’t be that beneficial for PMs either because the safe haven/QE longs may pull out. Until one sentiment takes full charge of the market, I think PMs will consolidate and this correction should be the first of such consolidation phases.
- I expect 2011 to be a risk-off year. 2009-2010 was great for many who made the QE1/QE2 bet. But with increased uncertainty in tax and regulatory reform, the assets/trades that benefited from the QE1/QE2 bet may consolidate this year as investors scale back and lock in those returns.
- A partner at my law firm started reading Commodities Rising by Jim Rogers, a book I recommended to him 4 years ago! (this is a contrarian indicator)
Technicals:
- Bearish rising wedge
- Negative momentum divergence
- Decreasing volume
I massively shorted silver at $30.9. BOH. I’m still a long term PM bull, but given the price action during the past few months, a correction of 5-10% (for gold, x2 for silver) is certainly fair game. Not to mention this is a pretty low risk entry point for shorts.
Target: $24-$25 (will most likely flip to long here)
Stop: $32
Time frame: 3-5 weeks
Update 1/5: PMs are starting to violate their trendlines. A short-term reversal to the upside is possible, but the direction for the next month is down.
As seen below, gold is starting to break. In addition to the technicals listed above, note the spike in volume on this week’s sell-off.
Consolidation continues.. July 14, 2010
Posted by Warren in Metals, Stocks, Strategy.add a comment
..or do we break out from here? All things considered (e.g., seasonal factor, mixed earnings, reform uncertainty etc.), there will most likely be one more down leg, and the consolidation should be over. Where to from there? We could see clearer direction post-Labor Day.
I cashed out last week of April, but it looks like Silver (used to be my main long) has gone nowhere since then (see below). Sweet.
S&P 6-months: starting to look like a falling wedge, which tends to signal a reversal
Silver 6-months: silver has held up well relative to stocks..a positive sign for risk
O Canada April 13, 2010
Posted by Warren in FX, Strategy.add a comment
Nice trend..continuation flag. Good timing with breakdown of USD index from a rising wedge pattern (see below post).
CAD Jun2010: 1-month
Update on USD: short April 2, 2010
Posted by Warren in Central Bank, FX, Government, Strategy.add a comment
Looking back, the USD has rebounded quite substantially..almost back to when the Fed launched the QE program in March 2008. The USD rally gained momentum especially against EUR and GBP, as the Eurozone came to realize the dilemma of: the need to ease credit to stimulate the economy vs. the need to tighten credit and public spending to reduce government deficits – a classic problem indeed.
One could say the [panic] over the Eurozone problems has been sufficiently played out, and that a reversal is in order. Market volume has been low recently due to the holidays, and next week we kick off Monday with ISM..so all eyes will be on whether USD rebounds from its current support. A break to the downside would be niiice.
U.S. stocks have been inversely correlated with USD for a while, but ever since the surprise payroll data came out a in December 2009, I’ve seen sessions where stocks and USD rallied together. Well, now I would like to see a double sell-off..or reverting back to the inverse correlation as stocks rally works too :) I have no view on stocks for now.
USD Index: 9-month
AUD/CAD: too obvious? March 26, 2010
Posted by Warren in FX, Strategy.add a comment
I mean, yeah it’s obvious, but there are times when you ought to be contrarian, and there are times when you ought to do what’s obvious. Most of the time, it’s profitable to be contrarian when the fundamentals are at an extreme, whereas there’s not much room for contrarian interpretations when it comes to TA (technical analysis).
Given the very diverging circumstances for the central banks of Australia and Canada (i.e., Australia has already raised rates, and is now on pause, whereas Canada has stubbornly maintained a low rate policy, that is until now), it makes sense to be short AUD/CAD, not to mention the fact that the technicals look quite bearish (below).
So if it makes sense to be short AUD/CAD, then is that effectively a bearish view on risk taking? Well, perhaps it makes sense to be a bit more specific when we talk about which risks to take. One could split risk taking into two categories: (A) risk taking based on monetary reflation and (B) risk taking based on real economic growth.
Given the above, what should we expect to see: Only A? OnlyB? Both A and B? None? I say: Both A and (some of) B, subject to seasonal factors (i.e., wait until Q4 for the real party). So in the mean time, don’t expect to find any big direction any time soon. It will be noisy, and be on the look out for Choppy.
AUD/CAD: 15-month
Silver is a Buy February 15, 2010
Posted by Warren in Metals, Strategy.add a comment
A clear break above 16 would be a good signal.
Silver Mar10: 1-month (deeply oversold)
Testing the waters..part deux February 12, 2010
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I initially thought the bottom was in a month ago, but the markets subsequently went through further deleveraging as fears over Eurozone deficits snowballed into panic.
I think we’ll see a rebound from here for about a month or two.
Deleveraging Continues, Confidence Waning. February 5, 2010
Posted by Warren in Government.add a comment
Alas, the past few days has been a stark reminder that deleveraging is far from complete (remember, it’s a slow motion train wreck), and this time, it looks like governments are also at it. Why are governments around the world suddenly so worried about their deficit? CONFIDENCE. I suppose the public is starting understand that government bailouts are only a short-term band-aid that costs a lot of freaking money..money that your children’s children will have to pay off.
When Dubai and Greece first hit the wires, I thought, ok Dubai could be a problem but, hello? petro bailout? As for Greece, I thought, this country is a tourist economy and borderline third world, so who cares? When Spain and Portugal joined the party, I was still skeptical about the initial market reaction. But the markets thought otherwise (i.e. lost confidence), and as I sit here in cash I’m thinking, what’s next? What different fundamental cross current should I expect?
In this choptastic environment, we could easily see dow up 200 next Monday morning..and close down 100 heh. But right now, the pendulum is swinging towards deflation.
By the way, did anyone see treasuries break to the upside? Nope.. If I had to pick one asset when confidence is in question, it’d be gold.
I want to steer markets..yo January 28, 2010
Posted by Warren in Central Bank.add a comment
It’s too bad not that many people know Friedrich Hayek..one of the greatest Austrian thinkers (though he gradually became a statist himself in later years).
Entering Panic Room January 22, 2010
Posted by Warren in Central Bank, Government.add a comment
Correlations are all totally wack right now, and intraday moves have stopped making sense, at least to me.
I have liquidated everything. Ever since the Mass. election, politicians are literally freaking out..and this is certainly depressing risk appetite. Over the next week, we have the FOMC meeting, Bernanke renomination and State of the Union, during which I expect to see a lot of noise. I’d rather be in cash during wild whiplashes and wait for a good entry..but gotta be quick.
I hate politics.
- Choppy McChopperstein
Volker! January 21, 2010
Posted by Warren in Government.add a comment
The man who started working at the Fed in 1952 and earned a reputation as killing the inflation crisis of the 1970′s…is now back on the headlines of major global financial news. After consulting with Volker (whose hawkish stance was not shared by the current Administration), Obama announced proposals for the biggest regulatory overhaul of the financial markets since the 1930s, and declared war on Wall St.
I hope this is all circus politics…all the while Bernanke silently continues to pump and ease in the background.
This could very well be a typical contrarian “sell the news” situation.
CAD/JPY breaking out? January 18, 2010
Posted by Warren in FX, Strategy.add a comment
This popular carry pair has gone through a steep correction as the credit crisis unraveled. However, as liquidity and risk appetite recently began to recover, CAD/JPY looks poised for a break out from it’s 3-year downtrend. Strong crude and Japanese equity prices would be very supportive for long CAD/JPY.
CAD/JPY 3-year
Crude re-test complete January 18, 2010
Posted by Warren in Energy, Strategy.add a comment
Following a great start to the new year, crude seems to have completed a re-test of the break out. If one of your strategies for the new year is to be long energy, now is the time to go long.
WTIC 6-month
Silver:Gold ratio breaking out January 11, 2010
Posted by Warren in Metals, Strategy.add a comment
It’s finally time for silver to shine.
Silver Mar10: 6-month
O Canada October 5, 2009
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The loonie looks poised for a fresh up leg, and it may even hit parity with USD by year-end.
CAD 3-year: after breaking out of a two-year downtrend back in July, the loonie has been consolidating in a tight range
Silver correction complete; update on USD September 28, 2009
Posted by Warren in FX, Metals, Strategy.add a comment
My core view is that PMs will finally break out to new highs over the next few months. Many people are expecting a further correction to August levels, but I think that is wishful thinking. If PMs are indeed headed for all time highs, they must not lose their current momentum – a further correction to August levels would impair the momentum that is required for the final push, especially considering that we are currently in a favorable season for PMs.
Silver 9-month
Silver technicals: 16 is a MAJOR level for silver (see my 8/13 post) and is currently the last line of defense. Silver dipped below 16 overnight but managed to close above it, forming a long doji. Looking at the 1-month chart of silver below, there is a potential head and shoulders topping pattern – I think this will turn out to be a significant bear trap.
Silver 1-month
USD: the chart below is a friendly reminder to DON’T FIGHT THE TREND. There’s been a lot of coordinated USD jawboning as of late, but I think this is merely an attempt to smooth out an otherwise obvious (and beneficial) collapse of the USD. As for the yawning inflation v. deflation debate, the answer is simply in the data; I’m not even going to bother explaining this. Bill Gross recently rebalanced PIMCO’s portfolio to almost 50% in long dated US bonds, betting that deflation in the US will persist – I can hear Jeff Van Gundy commentating in the background: are you kidding me?! Can’t wait for the NBA season to start :)
USD: 9-month
