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, August 3, 2010

Is the glass half full or half empty?

My track record of being absent at work and missing something big in the markets is amazing... Keep in mind I will be off coming Friday, so expect something big to happen on this day, possibly NFP's will be a big surprise.


Deflation talk accelerates, now growing into a debate whether FED is to speed up money printing... while important as such, no obvious consensus is seen yet.

Answer the following question: is the glass half full or half empty? There is nothing wrong in answering either way, Eevery day we ask ourselves the same question, when reacting to economic data and majority wins. Yesterday it was the optimist camp that won the battle. However, it feels like yesterday's move was short covering rather then something else as volume in indices was very low. Last month performance in equities resulted in outside month bullish reversal pattern. While it is a sign of caution this actually makes little sense for trading as time frames are shorter for active investor/trader.

Does this change the picture? Are we going higher from here... Ehhhhh, I am not convinced. Start with equities:

S&P500 is still trading in bear market, according to my other scenario: having broken through 200d moving average it is sitting right under 100d and not far from June's peak, only sustainable gains through 1300 will make me change my mind:


The rally on Monday started with Chinese markets and looks like it might end with it as Shanghai index collapsed in the last minutes of trading to end up the day lower then Monday's open resulting in outside day bearish reversal:


Oil, while being up, still shows signs of range trading rather then a strong trend, especially when equities are to remain weak. Probably it is a good sell at $82:


EURUSD has effectively reached head and shoulders target and is currently a function of risk appetite rather then internal strength. my Need to wait for reversal confirmation under 1.31:



Outside bearish reversal day in Nymex gas was a surprise as well, while I think the market will rise over the long term, this signal cannot be ignored - time to tighten the stop losses:


Happy trading all!
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