I am a part of the team which is responsible for management and hedging of commodities exposures. Some say corporates are good only in following advice from banks or brokerages. I do agree corporates do not have market insight of a bank. But here is a problem. It is not bank or broker or a hedge fund that has biggest risk that markets will go against them. These guys always have an option to do nothing and wait for a better trading opportunity where as we don't. We have to continue to purchase commodities, spend currencies for daily business. Such company is always exposed to changes to market price even if it decides not to hedge. In fact my company has probably one of the biggest short commodities portfolio in the world. Managing such risk effectively is a challenge. It is like being between a rock and a hard place. You get your behind kicked all the time be senior management, whether it was a missed opportunity to hedge or hedge that turned to be out of the money. Critics will say if you lost money on your hedge then you probably bought it cheaper on physical market. let's face it, nobody wants to loose money, full-stop.

So I do not have an option to do nothing as I am always in the position (short in this case). I think people like me have higher motivation to earn positive return on their portfolio then other players. In fact my intention is to bring hedging to a performance benchmark of proprietary trading.

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Tuesday, July 27, 2010

Shoes... dropping...

Well, I agree, corporate earnings are good, economic data is mixed, but ok, especially in the UK and Europe, equities are positive for this year... So why am I still pushing for this crazy idea of a bear market? I am a true believer that neither me nor Jim Rogers together with Mr. Trichet know where we are going with the economy. It is the market itself that is giving you hints on its future direction. Markets advance or fall, sometimes defying fundamental data. But they never stay in equilibrium, so there is always something going on... Funny when someone on the TV says that market got it wrong. Anyway going back to bear markets....


Lower highs - this has been bothering me for a while. I see lower highs in equity indices and lower highs in oil. Base metals behaved a little bit differently, nevertheless we're still lower then the highs of end of March. And this is not what I want to see in a recovering world economy. Obviously there is no money to be made using big picture, so lets look at short term trends.

Looks like the shoes started dropping today. US is still open so anything can happen but for now... S&P opened higher today but is at the lows of the day... if it finishes in red and especially under 200d moving average I would call it a top, a lower top. Risk/reward will tilt towards going short:

Oil and equities correlations are still good. Oil failed to push above 200d even though it had every opportunity. Lower high:

Such developments in oil would imply that USDCAD triangle is likely to resolve to the upside:

Euro is struggling above 1.30... Will the head and shoulders target be reached in such environment? I doubt it:


While I can be wrong, feels like "risk off" positions might end up quite profitable...
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