Back and Fill

Well, the SPX fell yesterday....but not quite enough to signal a greater likelihood of a deeper drop, closing just above its 200 day moving average, which, as we established in yesterday's comments section, is either an important technical signpost or a load of old rubbish.

Regardless, it is worth noting that volumes have not yet spiked in a manner characteristic of an impulsive sell-off. Perhaps Macro Man has some company in waiting to see how the current back-and-fill price action resolves itself. It's interesting to note, though, that VIX has seen a small spike recently, and Macro Man has heard some rumblings of bets being put on for a forthcoming volatility spike.
In any event, and following on from yesterday's debate in the comments section, Macro Man's reading of the technicals leaves us somewhere in no man's land in a number of markets. To be sure, there are some interesitng tactical trades to be made, but as of now it is difficult to say with an investable degree of certainty that the reflation trend of the last three months will either continue or reverse.

A visual example of this transition from trending to back-and-fill can be seen via RSIs, which can seen as a barometer of the strength of recent trends. As you can see, over the past few weeks the RSIs for the SPX, EUR/USD, gold, and 10 year Treasury yields have all ebbed from their highs.

Macro Man could see more of the same for the remainder of the week, as next week may prove critical for determining the fate of the recent reflationary trend. The FOMC announcement and the ECB tender will be fascinating, as will the usual month- and quarter-end scramble.

Macro Man has his biases of how things will play out, and has allocated a bit of capital accordingly. He hopes to get more resolution from both the newsflow and the price action over the next seven and a half trading days.
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Anonymous
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June 17, 2009 at 10:03 AM ×

1) there is a definite and marked shift from fed officials to talk down the growth story, plus rumblings (OK, a BBG story quoting anonymous sources) that the Fed has been considering communicating to the mkt some version of the bank of canada's announcement of definitely no rate hikes until 2010.

2) ML fund manager survey is crazily bullish. not just optimistic - it's gone from one extreme to the other in the space of 2-3 surveys...

just buy some bonds..

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June 17, 2009 at 10:06 AM ×

the only problem with "just buy bonds" is that Medvedev won't shut up about alternative currencies etc etc. All this talk of protectionism is really picking up too and China just released a waitress ("waitress") who killed a government official who tried to rape her. Feels like there might be a bit of heat on BRIC governments so they're rattling the saber - which doesn't make it any easier to keep protectionist democrats at bay.

Next leg down? Quite likely.

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H(oratio)
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June 17, 2009 at 10:08 AM ×

Since you warned off against the quarter end spike yesterday, I would assume you are selling risk. Who or what is playing games with the cable? The one day sell of gbp/jpy was somewhat attention grabbing. Share a position, MM.

Yoknapatawpha County was my own private Dublin in high school, speaking of impenetrable writing. Although I did enjoy Dubliners, before Joyce got too smart for the rest of us with Ulysses and FW.

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Anonymous
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June 17, 2009 at 10:12 AM ×

nemo... the diversification away from US treasuries is a non-story if there ever was one, as you know perfectly well if you are anywhere near the market. russia, china and brasil, india have NO investable assets to speak of, or even fully convertible currencies. 6 months ago Russia was on the verge of disaster, and now their buddies are going to buy bonds in RUB?

as you rightly say, there might be some heat on BRIC assets and possibly some protectionism on the horizon... if that's the case, i'm pretty sure you would rather own US bonds...

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June 17, 2009 at 10:17 AM ×

Anon, you may well be right and all that would probably work out if Medvedev would just shut up. Chinese onshore media is getting very punchy though, these guys are under pressure to do "something" (english CCTV chat, bias of presenter is no joke)

http://www.cctv.com/program/e_dialogue/20090613/104042.shtml

If that's the case then we're going to have protectionism because its hard enough for Obama to keep lobbyists under control as it is.

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Anonymous
admin
June 17, 2009 at 10:32 AM ×

hi nemo thanks for the insight, what exactly are the chinese onshore media getting punchy about? what do they want?

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Macro Man
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June 17, 2009 at 10:32 AM ×

You guys have correctly identified a number of the fascinating undercurrents here. I joked to my ML analyst friend that the FMS must have been conducted in Pamplona, given the rather taurine nature of the results.

This, combined with a rickety technical picture and an ugly undercurrent in international economic diplomacy (Medvedev can't shut up, the Chinese want to regulate Australian mergers and only buy domestic goods) and a strange silence w/r/t Q2 earnings, does indeed have me leaning to the short side of equities/long side of bonds, though only in social position sizes at the moment.

FX is frankly a crapshoot right now, and while I have a few positions there, I find it to be the least interesting of the markets at the moment.

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June 17, 2009 at 10:44 AM ×

Chinese politics 101: public opinion does count, a bit.

Basically you have a lot of grads without jobs, a declining export sector (still) and big projects in the West of the country are not going to employ the chattering classes.

The Chinese are basically handcuffed to someone they want to push off a cliff (the US, because its clearly their fault in their eyes) but it is not widely discussed just how codependent the two are, at least in China. As the global vendor financing trade is a somewhat subtle point and the average Zhou Shimu is no brighter than Joe Schmoe this is probably going to get a lot more political because it gets sensible.

Well, at least that's what I think. I've been pilfering amazon for books on trade wars and what happens because frankly we haven't seen a real fight for some time and certainly not in my twenty something years.

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June 17, 2009 at 2:06 PM ×

I think we can rest assured that B, I and C would much rather not have Russia sitting at the same table.

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pecanpaj
admin
June 17, 2009 at 2:45 PM ×

On risk appetite going forward:
Heavy-hitting SSAB and Sandvik (industrials in the Swedish OMXS30 index) today issued quite severe profit warnings. It is unusual to see profit warnings so early (reports won't land until very late in July)

From a research note from Handelsbanken Capital Markets:
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Sandvik’s warning is due to weaker demand and the cost of scaling back production capacity and inventories. Both companies do not see any improvement in Q3… Additionally, both Sandvik and SSAB usually benefit from a weaker SEK but the currency depreciation is not enough to save the situation. That does not bode well for similar companies in countries where currencies
have not weakened as much or even strengthened.

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Anonymous
admin
June 17, 2009 at 5:21 PM ×

hard to accept but markets will be going up for some time / trade wars only noise there has been a huge crash yet the public in most countries has not started to attack globalization / no inflation labor costs going no where / CMD inflation good gives money for the ME to build stuff in the sand and chinese productivity continues so they can afford to pay up for commodities - re fx maybe canada will do something crazy re the loonie it is getting very political Ont/Que feeling too much pain suspect the current gov will not last

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Greg
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June 17, 2009 at 6:52 PM ×

The left wing nut jobs in Europe forced Kyoto Accord like environmental restrictions on the EU. Whether one supports reducing emissions or not, the policy was stupid because "go power" does not exist: the energy had to come from somewhere or Europe will shut down.

That "somewhere" is Russian gas pipelines. With zero alternative infrastructure existing or planned -- Putin (or whatever puppet) has Europe by the gonads

China and India are competing with one another to get oil and gas from former Soviet republics, all the while Russia is trying to reassert control over the resources (if not the governments) of those republics.

That is why Russia was invited to the table. Keep your friends (BIC) close, and your enemies (R) closer...

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wcw
admin
June 17, 2009 at 6:55 PM ×

In re: volatility, if you want to hedge a sharp risk-assets downdraft, buy deep out-of-the-money puts on your least-favorite instruments. Otherwise, volatility is still a sell near-term. Medium term (six weeks out? more?) I think you can load up on gamma, but right now I am not seeing any catalyst, absent a quick break downwards.

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Anonymous
admin
June 17, 2009 at 9:57 PM ×

crude ends up
vix down

staying a bull

mpm

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Anonymous
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June 18, 2009 at 4:09 PM ×

May I request some opinions? Earlier this week the market "rallied" because of improved housing starts...I was wondering who is going to buy all the new homes?

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Macro Man
admin
June 18, 2009 at 4:14 PM ×

BB&T: Barry, Timmy, and Benny?

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