Tuesday, 29 March 2016

Yellen, are you fully in the price?

Yesterday started well for this born again bear. Commodities continued to roll over with oil and copper indeed leading the way with European markets not taking long before they got the hint and headed south. the FTSE hitting levels about 100pts below its overnight future equivalent highs. Oil was off 3% when the US markets opened and the US markets opened on a down wave. But the subsequent price action in US stocks was not really melting. Of course we then had that Yellen speech which stamped a great big dove over the recent hawkish tweakings of various other FOMC members.

The one take away from Yellen, more than her being hawkish or dovish, is that she was decidedly 'stockish'.

I’m now going to say something sacrilegious amongst us macro folk, I did not listen to nor read one word of what Yellen said. I just watched the price, well I watched lots of prices. And here’s why. I just cannot compete in speed of comprehension, analysis or action against the rest of the players in the market. It’s not that I am too old and senile, it’s because I am a human and not able to keep up when the actions in the market are conducted by robots. These players can parse text at near the speed of light, deduce the tone using key word sampling and then act on it. So what chance have I to get ahead of the price before the price reflects the new information? Very little if the information is binary or relatively simple. So instead I watch the price and that tells me most of what I need to know. I will, later on, probably read what was actually said and see if there is any undiscovered discarded morsel of germ in the chaff discarded under the dining table of the algos, but let’s be honest, there probably won’t be.

The 'beat the algo’ game is easier when it comes to the ECB. The complexity of the ‘unconventional’ policy actions does need a human mind to unravel the non price dependent linkages to the economy. Here we stand a chance. But with FOMC type statements it may be easier to play the counter moves to the knee-jerk ones.

In the case of today’s new Yellen information we had the spike, we had the second spike and then I assume that the information is in the price. Granted there are good old fashioned funds who will it down at their monthly asset allocation meetings and discuss the new information and act upon it with respect to rebalancing, but they are now in the minority and normally have missed the bulk of the price move. I would be happy to say that any modern day player worth their salt would have reacted to the Yellen information by now. So that’s done.

So I examine the price of stocks in the context of the other factors that appeared to be driving them the morning and deduce that, not suprisingly, the bulk of the action was in the US markets. No genius involved deducing why. But it was interesting to watch the response of oil, copper, European stocks, and FX.

Oil ripped higher off some new lows but couldn’t hold it for long and still looks offered. The same with copper. As these are the two puppies have been so influential in the original market woes and the subsequent comfort bounce this is notable. AUD and AUD/JPY meanwhile caught me out through the morning's down moves by really not joining in. A counter clue there. FTSE made new recent lows but bounced, yet is now looking as though it's the higher part of a new lower range rather than the base of a higher range. Dax is caught in a EURUSD vs global stocks move and is not really showing any general love form Janet. The rates markets have liked it though, with USTs and Bunds both enjoying the ride.

So here I am thinking out aloud. The markets and relative inputs into price were looking shakey into Yellen’s announcement. Since then stocks have rallied and the US ones are threatening recent highs again. This I take on board as it challenges my ‘things are rolling over’, 'born again bear' theory of last week. In these markets you can be as dogged as you like about your fundamental theories but at the end of the day you are paid by price not on academic peer group review.

But against this all the risk ducks are not lining up. The peripheral ones I am watching could well turn and join the flying formation but as yet this doesn’t look like a full set. Being so close to my stop levels on my medium term positions I am not going to towel chuck to the upside just yet, instead I am going to leverage up some larger short term shorts with tight stops. As I consider us at do or die levels, that justifies do or die trading. Well not die, but larger risk than is usual for relatively small moves.

By the time you read this my stops may well be done and you’ll have have started laughing long before you reached this line which was written with SPX at 2051 (market price, not my stops - they are above 2060 and dependent upon other indicators being in line too) .

One last added factor to the short loading rather than longs - The market, especially the US market commentary cannot cope with grey (as we saw with their interpretation of Europe a few years back). It has to be black or white and with the fed only looks at last thing spoken by anyone. So, last week was tending more hawkish than FOMC and now we are back to total dovishness expectation. The truth lies in between. But market narrative doesn't do in between. That's actually one reason I chose the short side to load up on rather than the long, on the belief that the next oscillation of Fed expectation has to be back from this current uberdove puff.

And finally, having embarked upon the series at last, I ask fans of "House of Cards" - Does Yellen have a Tusk?

Addendum 8.30am London Time 30th March.

That didn't take long. An explosive Europen open leaves me stopped out of all shorts. I will sit back and watch the fun from a distance as I de-stress and spend time in pursuits that don't involve staring at price covered screens all day.

Have fun out there, I'm planning a long lunch.


Hotairmail said...

Well, whether you win on that particular trade or not Pole, you've played well. Good opportunity spot, not too big a loss. Good discipline and great attitude. Periodic trading rather than day trading is essential for my own mental well being - you need to get away from that screen and "trying to will the impossible line". Simply walking away for a while actually pans back your perspective somehow and re-builds the mental batteries for the next trade. I like your style. I don't know why I'm saying this because you are way more knowledgable and experienced than me - probably writing to myself really. ;-)

Anyway, if there were one thing I could suggest. I have to say I don't hold by the place a stop above a consolidation area in this instance. I don't think on balance you needed to do that. Especially doubling down at that point because of the limited risk (and the fact you made a large amount of money on your previous trade - you probably 1. had a little feeling of thinking you can read the markets like a shaman based on your previous success 2. you feel you've got money to throw around because you've just won it and it's not really yours.

No, I think the breadth was so strong and confirming at the close that it was sufficient to give up the ghost at that point. That's all.

So, overall I think a silver star for process is merited, but you could have had a gold. Take care of that money, it was hard earned.

I hope you don't mind feedback. I'm only saying things to you that I tell myself over and over.

Polemic said...

Love feedback. thanks hotair .

I suppose this comment i put on MM is worth repeating here -

I suppose it's a culmination of generally, in the words of Monty Python's dead Parrot Sketch, due to me being "tired and shagged out after a long squawk". I've been trading far too much during this down and up and feel we are now back at the neutral zone. Resolution can come as up down or even a range, but I do think that we are at a decision point. If it goes up then I'm out and pocket my profits from my longs and watch it go up as that would be entering the mania phase of stocks.

I have a pretty nuts way of trading my end of plays when we basically get to a point which I consider neutral. I load up one way or the other in large with tight stops and see what happens. Call it the last super leveraged trade using a smidge of the prvevious profits, the last lottery ticket, the last roll of the dice. I am pretty close to walking out of the casino for a while as things get a bit less clear here and my luck may run out.


Hotairmail said...

Thanks for coming back. Yes I saw that. It was just that, at that point it wasn't a 50:50 outcome to my mind. The balance was tilted the other way. On probabilities I don't bet against Breadth. It's not always right by any means, but on balance in situations like that, I've found it tends to pay to follow her. I won't bother you any more on this - just trying to help. Have a nice sojourn. (Warning: totally unscientific ;-) )

Farhan Khan said...

This blog provide instant updates related to the stock market which is very useful in trading and Epic Research also update market news on its several blogs.

Hotairmail said...

As I'm dishing out undesired advice like confetti, my last one is not to do so, as when it comes to trading, it will invariably make you look a fool.

Things do look horribly extended here don't they. vxv:vix extreme low. As you say, oil and copper not confirming and a divergence with the risk ratio jnk:ief. Not a time to go long methinks, but it may not be that long until it is time to lay on some shorts.

Oh, and thanks to Mr Khan for his input.

Jonathan Galitzer said...

Hiya Polemic,

Thanks for your commentary. I'm a second year university student trading a live (but small, think $20k) global macro portfolio via mini index/etf derivatives, and I'm eagerly trying to learn the tricks of the trade. So first off, thank you for taking the time to sketch out your thought process, it helps someone like me more than you know.

Question for you that might be naive - you mention price action quite often and maybe it's bc I'm new to this game but in terms of 'shakiness' or prices still being 'offered', are you simply looking at the chart? Or are there particular technical indicators that help you with the analysis.

Again, thanks a lot! I really enjoy reading.

Hotairmail said...

Well, that didn't take long. I think we're there or thereabouts now on the S&P. Will be laying my first Lot Monday and waiting.

Given the underlying strength I'm with you Mr Polemic sir, in that I'm agnostic about how far any correction will be.

JimJones said...

I just want to express my gratitude and support for your blog. Its a rare case that i see such an honest approach towards one's positions. I love that i get to see your thought process and their manifestation in trades. I am relatively novice and been trading for only few years, thus it helps me to develop a lot. Thanks! I only wish to see more of that in the future. Best of luck!

Polemic said...

Jon and Jim, thank you for your encouragement. very flattered but please don't take anything as I do as advice nor the thought process as well thought out.

Mr Khan thank you for once again polluting this space with your mindless Epic Crap.

Hotair - I really don't know. I do like EM though. And selling USD FX vol. I'd rather move out of DM space for a while. I need to do the investing equivalent of wandering off into the woods to whittle something strange and exotic. Any good ideas anyone?

Hotairmail said...

I've never seen a sculpture of a navel. Perhaps if you whittled a block of wood into the shape of one, we could productively sit and gaze upon it.