Friday, June 27, 2008

Slip Slidin' Away

Although equity markets are currently bouncing as Macro Man writes, and the blog reader indicator ticked up yesterday, do any of the following make you comfortable picking the bottom in stocks here?

1) VIX ticks up, but only modestly so- particularly given the vehemence of yesterday's sell off. Is the street a little too confident in the Bernanke put?
2) The sweetest little head and shoulders pattern you're ever likely to see. Macro Man has previously pointed out the H&S in Eurostoxx, but check out the weekly formation in the Swedish OMX. It's straight out of a textbook!
3) The yen getting its mojo back? After the collapse of the SPX/ USDJPY correlation shook out yen longs, USDJPY is breaking its uptrend line off the March lows this morning. Such a break, if sustained into this week's close, could provide the JPY with a dose of giddyup next week.
It looks to Macro Man like stocks will continue to keep slip slidin' away until someone hits the panic button. Still, if you're long and wrong, or bearish and not short, chin up. Things could be worse. How'd you like to be Mr. Watanabe, who came home from work today and found that his missus paid up for NZD/JPY while he was at the office?


D said...

It's 4:24am central time and I was busy golfing and then bs'ing with NFL ballers and some friends from the mutual fund industry (morningstar conference) on Rush street in Chitown...

short until the market tells me otherwise. reviewing the S&P day chart, it looks like the quants flicked the switch in reverse today.

Show me capitulation and you will have at least one buyer. Too many people were/are conditioned to buy this dip. As a market predator, I was well fed today, but I am still hungry.

PS - BKS hovering on support...

D said...

correction: "BKX"

Macro Man said...

Yes, I've had a reasonable run as well. Obviously, in retrospect I wish I'd had more short equity risk...but it's easy to forget how bid the bloody stock market was trading at the beginning of the month (and indeed how f****d fixed income was 2 weeks ago.)

Still, this run has provided a nice bit of P/L cushion and a platform to think of some structural trades for the next six months.

spagetti said...

lets not jinx it..

but if this was indeed a multi-month bottom for equities, it would be very atypical..

hope the yen will drag em fx with it, and especially the CaD ones.. currencies like TRY, HUF have benefited from the inflation scare, but how high can you hike rates in for example hungary when high inflation is only going to channel over-consumption into an even bigger Cad or into further loss of competitiveness and growth-sacrficie. why doesnt the mkt differentiate better between these EM inflation stories??? MM... tell me..

Anonymous said...


IF the yen will be start rising, how do you feel about the short EUR/JPY trade?

Looking on a weekly basis we might have done a double top and I feel as you do that the EUR is overvalued.

Thank you for a great blog.

Macro Man said...

Spag, I wish I knew.

Anon, I am thinking of the same thing. My only concern is that EURJPY rarely seems to do what it "obviously" should!

Anonymous said...

With all my respect to macro guys, but there is need to be a little correction on TA.

1, EJ double top? Where? Because price touched prior resistence, does not mean double top. We cant call it a top untill it breaches/closes below 153.

2, With my special respect to MM, the mentioned H-S is not a textbook one. A textbook one occured back in Dec 2007 with a neckline of 1120 or so.

D said...

The longer this goes on without capitulation, the uglier it is going to be.

Macro Man said...

I've been out of the office today (and again Monday and Tuesday), but am still following things fairly closely. And even so...I am left wondering how the f*** I've not made any money today.

Oh, that would be the kiwi with all of one wing and half of another stuck where the sun don't shine.

I do think the ball is starting to roll towards capitulation, if only slightly. Recent outperformers (NDX, RTY) are now falling more than Spoos or the Dow, which suggests to me that those funds 'hiding' there have had their cover blown.

Still, when your biggest short is in the FTSE and the effer is up on the day, it's hard to avoid the conclusion that we remain a fair bit away from capitulation.

In any event, I am looking to shift some of my deltas away from short equities and back towards yen crosses- just need the Watanabe family to take a nice long holiday...

bank analyst said...

I have never contributed to this site before, but am a regular reader. I have found your insights, Macroman (as well as the others who post here regularly), extremely invaluable and informative. While I am watching the VIX closely for signs of capitulation - which shows little signs of investor anxiety at the moment, it is also interesting that the US Treasury curve remains very subued, indeed it finished flatter on the Friday despite further equity market weakness. While the month,quarter and half year end "cleanup" could be distorting the recent price action here, until that begins to steepen more aggressively I think equities remain on the offer. Also, I would recommend watching oil as well. Front month WTI and the SPU are trading in almost lockstep fashion with one another (invertedly); suggesting that until oil begins to correct again ( which seems unlikely at this point given the Friday breakout), equities will remain on the back foot. incidentally, for anyone who has the capibility, I recommend overlaying the intra-day price action of CL1 & SPU8. Its pretty unbelievable how tightly those two are trading right now.

Steve said...

I noticed the same thing Bank Analyst did, on the inverse of SPUs and crude.

As I mentioned to a French colleague on Friday morning, "we are all oil traders now."

And I'm short oil. Ouch.

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The daily chart of EUR/JPY, FXE:FXY, the barometer of the yen carry trade, shows that the yen carry trade is unwinding. The weekly chart of FXE:FXY shows that the yen carry trade has topped out.

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