The Sharp End Of The Stick

OK, now we're getting to the sharp end of the stick. Yesterday had all the hallmarks of a potential "turnaround day", but perhaps fell a bit short. With the ECB/BOE/BOC today and US non-farms tomorrow, there is no kind of price action that should surprise (except, perhaps, a low-volume, summery flat-lining.)

The currency market has been rumbling for a couple of weeks now. Perhaps it's been the drumbeat of sturm und drang over the fate of the dollar (the latest example of which is here)...but it's interesting to observe that demand for FX options (and thus, implied vols) have been rising for the last week or two. This is the first sign of an uptick in FX implieds this year, and contrasts sharply with the ongoing decline in VIX.
A sign of a big move comin' perhaps?

Meanwhile, in equities, major indices fell yesterday, but not enough to provide more than the faintest crumb of comfort to bears. Specifically, both the SPX....
..and Eurostoxx...
...were supported by the recently-breached 200 day moving averages. It's interesting to observe that number of other asset prices never looked back once breaching their 200 day MAs over the last few weeks. (Naturally, one of the few that Macro Man tried to play, copper, was an exception.)

Regardless, it looks like the 200d MAs represent a useful trading pivot for indices over what's likely to be an eventful 30 hours of trading.
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H(oratio)
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June 4, 2009 at 9:45 AM ×

Big move but where? Reverse the dollar death march? CDS widening on sterling debt, among others.

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H(oratio)
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June 4, 2009 at 9:51 AM ×

One more thing. You are dwelling lately on your bad trades and your lack of play in this toothpaste explosion upmove. Snap out of it trader and call a position like you used to. Don't know how the sterling is going to hold up, whether this govt stays or goes, for a teensy idea.

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Anonymous
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June 4, 2009 at 9:59 AM ×

any view around recent price action being due to the popularity of selling vol recently and the need to hedge gamma?

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June 4, 2009 at 10:38 AM ×

Macroman, if you look at my blog the whole metals space is looking very far from cheap right now. Cash costs are conservative baselines but when just about any schmuck can make a buck digging copper out of the ground you've got to wonder whether the risk reward has left this trade.

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June 4, 2009 at 10:56 AM ×

For EM trades this whole Bolivia/lithium thing caught my eye. Bolivian net exports are currently $350mm USD p.a., exports of lithium in 2010-11 should be 100kt, price of lithium is ~7000/t. That magnitude of move in a trade surplus would be quite relevant for a currency like this. Can't get an NDF offer from anyone for the life of me though and the layup equity trades (FMC, SQM) seem to be thoroughly over.

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Anonymous
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June 4, 2009 at 12:25 PM ×

Macroman, Aren't you suspicious about (a) the way the SPX breached the 200 day moving average -- on huge block trades showing no regard for price -- and (b) the way SPX got a big bid just before the close yesterday to close above the 200 day? If Geithner's $150 billion in leftover TARP funds that they aren't going to use for PPIP are now being used to support the market as banks and their client REITs raise equity, and if they're targeting technical traders as their fish with the 200-day as bait, do you really want to take the bait?

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Macro Man
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June 4, 2009 at 12:31 PM ×

No, which is why I am flat stock indices at the moment. I am beginning to wonder, though, if it's not worth a punt to buy some June puts struck just below the 200d ma and then buy a bit of futures, doubling down on a dip.

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SFOT
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June 4, 2009 at 12:32 PM ×

Interesting that everyone is concentrating on 200day moving average, across asset classes, crude 'CLZ9' not excluded.

http://sfot-otb.blogspot.com/2009/06/upside-for-gasoline-crack-determined-by.html

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Professional Gringo
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June 4, 2009 at 3:42 PM ×

Was it the London Banksters that dumped the Aussie this morning?

I love you. I will go on another date any time.

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Macro Man
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June 4, 2009 at 3:51 PM ×

The hot rumour is that Rio told Chinalco to eff off, and that all the AUD and £ that Chinalco had bought in anticipation of the deal was dumped by a TARP-repaying bank in a less-than perfect fashion.

Amusingly, it coincided with a rumour that Gordon Brown had resigned (sterling sold off), and then a denial (sterling still sold off.)

Which just goes to show...any time you think about Gordon Brown, it makes you want to sell sterling.

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wcw
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June 4, 2009 at 4:10 PM ×

I've been thinking about near-term index puts, myself, but so far contenting myself with my usual opportunistic single-name trades, roughly split between shorts and longs, mostly a wash since I quit the bear-market-rally long-beta trade. Markets are not, imo, discriminating right now unless the data simply hit them over the head. That lack of discrimination is what's keeping me out of shortish plays like your mooted synthetic straddle.

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Professional Gringo
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June 4, 2009 at 5:28 PM ×

Well that explains it. That was one heck of a red 15 stick and it caught me off guard. I thought something major had happened and I was scrambling to look for a pull out point.

Many thanks

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June 4, 2009 at 5:31 PM ×

So I guess getting into Rio is probably a good idea now then - CDS is 350ish - they don't need to raise that much equity and if they do its going to be at a whopping discount. At which BHP will probably take a swipe at them.

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Anonymous
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June 5, 2009 at 2:19 PM ×

oh 950, we are so close

mpm

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