Wednesday, January 06, 2010
While Macro Man intended to unveil the second half of his 2010 non-predictions today, nature has conspired against him. A dozen hours of solid snow has left half a foot on the ground, leaving him stuck at home amidst the Surrey hills. (In fairness, the trains last night were buggered before it started snowing; good to see public transport employees looking ahead for once.)
In any event, he left his notes on the second half of the list on his desk last night, and rather than try and hurriedly reconstruct the list this morning, he figured that his time would be better spent scribbling down a few ideas on early-year trading.
There seem to be two predominant themes so fur this year: "everything goes up", and "low volume." Looking at the charts, we've seen the SPX move to new post-Lehman highs this week, but with volumes that remain well below those prevailing even in the first two weeks of December. While the SPY, pictured below, possibly exaggerates the phenomenon, the general profile is broadly similar for major Western stock markets.
Similarly, bonds have put in a decent bounce so far this year after the late December kiboshing. While it's true that volumes are nowhere near normal, they are at least a bit higher than when TYH0 took a shellacking late last month.
And while crude is gushing higher (up nearly 20% over the last few weeks), observe once again that it's come on much lower volume than was observed during the prior downswing.
Now, what does this mean? It could be that someone has chosen relatively illiquid conditions to bully the market. It could represent a lack of natural sellers in some markets. Or perhaps it just means that conviction to strap on risk is low ahead of Friday's potentially critical payroll data (critical in the sense that it could well register the first positive reading in what seems like forever.)
Or perhaps relatively low volume is simply a reflection of the fact Western asset markets are paling in significance (or at least opportunity) in relation to their EM counterparts. Anecdotally, Macro Man has heard much more interest in EM, particularly Asia, than in most bread-and-butter G10 markets. The chart of USD/INR, for example, gives a bit of a flavour for what folks are looking at. Charts of stuff like KRW look broadly similar.
While Macro Man has started the year fairly quietly, what few trades he has done thus far have been predominantly EM in nature. While getting the Fed right is still of paramount importance (and there will be opportunity to make big money trading a Fed view, in his opinion), chasing low-volume moves in G10 markets looks like a sucker's proposition.
Macro Man suspects that patience will be one of the keys to profitability in 2010, and he is attempting to exercise some in the early going as markets get off to a somewhat stuttering start.