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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Friday, June 4, 2010

From Business Insider tweet

Still Don't Think The Flash Crash Low Was Real? Now The Market Can't Get Above It by http://bit.ly/9qoIYH

That says it all... While were we were looking for someone to blame for fat fingers, it was in fact simply the start of the next leg down in the market!

Weekly markets summary

Do not fight the trend or it will bite you back. So where do we go from here next?

I focus on monthly Dollar index chart. We're through 100 month moving average and as I said before (see my previous post), if we close above it there is good chance we enter into multi year dollar bull market. Does it look like situation is going to get worse? Well, immediate picture does not look good...

Below is the monthly chart of dollar:




Double top in dollar index has been invalidated, so the upward trend remains intact as Euro makes new lows since quite some time:





As discussed yesterday in yesterday's post commodities had a counter trend rally on oversold momentum and and reversed this week. Copper has made new lows for the year and oil failed to get back into the upside channel that had been in place for over a year.




We have posted a higher low in equities though (see chart below). This also corresponds to "flash crash" low in May. if we break these levels, double bottom (January and May lows) should give up relatively easily.


On the good side, NYMEX gas is through 200 days moving average and continues to shine. However I would be cautious now as further losses in equities and commodities might drag this market down:



Bottom line, go with the trend until it ends. And I don't see the end of it yet...
Have a good weekend everyone!

Liar Liar 2 - remake of 1997 movie

From yesterday's post: "The good: There are two days already I have not heard any news on "European debt crisis". Is it time to turn the page and move on? Yes, until someone else makes a comment."

This world is based on lies! Governments are Bernard Madoffs and Jérôme Kerviels on a global scale! Hungary is the next country to admit they manipulated economic data. Someone make a wish so these guys come out clean quickly.

So at the moment the record stands at two days without any news of a debt problem. Whose turn is next?

Thursday, June 3, 2010

The good, the bad, the ugly... and uncertainty

Right now I have more questions then answers on direction of the market. Also some readers advised that the messages are just too long to read... well here is a short version.

The good: There are two days already I have not heard any news on "European debt crisis". Is it time to turn the page and move on? Yes, until someone else makes a comment. And my NYMEX gas - the only asset I like right now - has broken through the upper channel line and is testing 200 days moving average. and momentum is not even close to the extremes. The good.




The bad: I remember some equity trader once said that he did not believe in triple tops and bottoms. Dollar index is trying to close above 87 and Euro is trading back under 1.22. Invalidated double top? Ugly set up going into NFP number on Friday. the Bad.





The ugly: Momentum is unwind in metals equities and oil (metals are already making new lows for the year). Given the set up we have in currencies, are we ready to make another move down? Still any directional move in the above markets is a mess unless you stayed short metals from the beginning of the move...

Uncertainty: I am not sure whether broken correlations are the new normal. I still like NYMEX gas - everything else is a mess...

good luck tomorrow and sorry I couldn't make the post shorter then it is.

Wednesday, June 2, 2010

It is all about one number this week

Today's post will be short as there is little to say. Intraday correlation of macro assets fell today. This makes me think that this relationship might break if NFP's (highly anticipated number on Friday) are very good, meaning stronger dollar, commodities and equities. However macro assets lack both direction and momentum currently and if there's no any good technical set up before the numbers I would stay in the market through options only.

Currently I see only NYMEX gas (see my previous post for market background) is building momentum and trying to break out of the range. Barring market sell off during tomorrow's inventory numbers, this is probably the best recovery play.

One link replaces thousand words )))... Michael Covel - a Turtle Trader gets emotional. I absolutely agree with him though, but, as I said before, my and probably his opinions never mattered to the market... It is still anticipating good NFP number on Friday.

Tuesday, June 1, 2010

Do you still want to play US recovery theme?

I like NYMEX natural gas market for its reliable technical behaviour and lack of correlation with macro game. Have a look at the most recent update of intraday correlation matrix:



Can this market be a good indicator of true state of the US recovery? I agree that market is oversupplied due to increase in shale gas production. But on the back of it we see some good demand growth which showed up only recently (ask any bank for their estimate). So if you want really to play US recovery theme have a closer look at this market. If you think recovery is to continue this is probably the last asset that has good risk reward ratio to play long despite all its bearishness. Everything else is just too risky.

Flipping this idea around - have the state of the US economy only now got better? And everything else we had seen before was just 'free money at 0% interest rates' idea?

And if there are smart people in the US, they should ask authorities to use more gas and less oil. Mr. T. Boone Pickens has already started pitching this idea and I hope it will get support from the US government. You have my vote on this, sir.

Technically this has been a boring market as we got stuck in a range since the end of April this year (below you will find front month continuous chart), but watch rising momentum. Is it strong enough to propel this market higher this time? Time will tell.



In the other news, the question of double top or no double top in the US dollar index still remains open. See my recent post on this topic...

Monday, May 31, 2010

Markets, Elliot, K-wave and some scary stuff

Ever since I started writing this blog roughly a month ago , I couldn't get rid of the feeling that we needed something very big then rebounding economy to propel equities markets higher. Well, yesterday my pessimism could have been described as "one step from panic". I feel better now thank you. Here is what happened...

I am a fan of socionomics and Elliott theory in particular. I normally let other people do proper Elliot wave analysis and here is what I found. Looks like in 2007 we have finished Grand Cycle Wave III and entered Wave IV which is a correction of big run up in equities that started in 1933. Downside target for Dow Jones index is rougly around 1000 (yes, somewhere above one thousand). Scary, right? Ok, I agree Grand Cycle waves last for years and can have big swings within, but this confirms that recent rally is no more then bear market rally.

B****it you say! Well, here is another one called Kondratiev wave or K-wave. Read Wikipedia carefully - this theory has very good economic predictability. And, guess what is says... Contemporary era that started in 1971 should peak around 2010's... Implications? we need a technological breakthrough to propel this market post 2007 highs or we need a catalyst to bring asset values down so they become attractive from very long term perspective. Well, I don't see any significant technological breakthroughs coming in any time soon. To my mind, in 10 years it will be either new energy source or nanotechnology that will mark a start of new era. But right now I see some risks to further assets depreciation until they again become attractive for long term... Which risks exactly? I don't know, but watch what is going on in the markets.

Now the following is very scary and while I am sceptical about reliability of this information, it fits well into the picture. Web Bot Project was created in 1997 to examine collective unconscious of internet and predict the future. Remember my idea on measuring the sentiment on CNBC website or Blogger Sentiment Poll? Same staff but more sophisticated and less understandable. Anyway apparently this WebBot was able to predict some catastrophic event few months in advance. And the next catastrophe will possible be World War III. Not so unlikely given rising tensions in Middle East and Asia. And, if you ask, I do not believe into end of the world in 2012. Why? Simply because, while you can be in fact prepared to weather the war, there's not much you can do about the end of the world. And, like one friend of mine said recently: "Definitely the end of the world will come in a way you would never imagined". So why bother? ;-)

One more thing, is it just my feeling or there's nothing good happening on the global scale? When I read the news, watch the TV or surf internet, there's just bad news. Drop me a link to a good staff please if you find any... have a good week.