> EUR/USD: long since 1.5891 / sell @ 1.5952 (closed)
> USD/JPY: small trading range 102.8/103.4 => no trade…
> GPB/USD: long @ 1.9043 (on going) /sell @ 1.9941 (closed)
> USD/CHF: waiting for a signal
> EUR/JPY: (14h17) trade just started: short @ 164.40 (stopped @ 164.60)
reversed => long @ 164.60 / sell @ 164.87 (closed)
> EUR/GBP: waiting for a signal
> EUR/CHF: waiting for a signal
Yen has tested a major resistance last week @ 100 for $XJY… It is nothing else that a 13y record: good shot! and for those who follow our blog, it is not a surprise as “carry-trade” is part of this big party that finance has now to pay back.
This is obvisouly not good for stocks, especially for NIKKEI…
In a previous post on 7/03
http://www.safetradingblog.com/stock-code-trading/201.html
we were writing:
“Indeed, a bounce on the XLF would directly impact the market on a short term basis (at least): XLF above 25 would be a good trigger (but not today)!”
Check the XLF graph today: that’s not so bad… (from the bull point). Be careful, the trend is still down and we have to keep the bear thinking, till proven otherwise… Which means sell the few days rallies. In practice, we are doing a bit differently with a long/short porfolio, see http://www.safetradingblog.com/stock-code-trading/todays-action.html
More later… Note also a key element today, usd rallied against the yen! We had almost forgotten that it was a possible move :))
but commodity markets has kept his road on the upside…
As mentioned early this morning, odds were in favor of a bounce today. FED action has fueled this bet (*)… It will not change a lot the situation: it is a substancial increase of liquidity. Just for fun, check the ratios like TLT over TIPS to observe the inflation fears…
You’ve got trade ideas in the previous post: take the opportunities where they are, just follow the market…
Another way to fade the rally (today’s action only) is to look for big loosers, like FRE, MBI (for financials), WY (for materials), GOOG (for technology) and make some buys on these guys. Materials is an intersting sector, following my post of this morning, and financials can make a good shot during liquidity injection (monetary increase)!
Note that the SPX is about to open with a large gap up and thus, there is nothing to expect on the upside with the index itself… It is most probable that it will conserve its gain and that’s all… Hence, the reason to find “elastic” choices as indicated above…
(*) To promote liquidity and “foster the functioning of financial markets more generally,” the Federal Reserve said Tuesday it’s expanding its securities lending program. The Fed will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days, rather than overnight, as in the existing program. Securities will be made available through an auction process. Auctions will be held on a weekly basis, beginning on March 27. The Federal Open Market Committee has also authorized increases in its temporary reciprocal currency arrangements with the European Central Bank and the Swiss National Bank.
Welcome in the SafeTrading area !
If you read this file, it means that you are interested in financial markets: whether you are involved as an observer analyst or a practitioner attempting to make money out the present mess, you stand at the right place. No previous knowledge is required: in fact, as you will see with the forthcoming documents, issues are not so complicated for a safe investors or traders.
One of the main problem in making decision on financial markets is that we are constantly under the gun of various news or of the last best opinion by an analyst. It seems to be a hard job to understand what is relevant and what is not. What we intend to do here is to work above the noise. Is it possible by principle? Can one identify the bullet points and noisy news in the flow? In a sense, that’s what market does! We will show you how it works in details. That’s what an investor needs to do first: work and think above the noise, otherwise, it’s lost.
It will be our leitmotiv along the pages you will receive. It is not a common approach if you check what other groups are doing. Here, we base our strategies on fundamental grounds, well rooted in the functioning of markets. We take the most possible care. Then, we can propose investments and trade opportunities depending on some triggers we define or upgrade each time.
At this date, late February, the US real estate crisis associated with the financial crisis and the “slow down” of the global economy give the trigger for a bad period within financial markets. It started months ago but it does not prevent from being active on stocks, rates or commodities.
This period is a perfect illustration of the necessity to balance various analysis and news. We do not enter into details in this first note. We want to illustrate the conflicts between views that seem reasonable at first glance:
The bear point of view is the most natural one. One important argument of this side can be summarised on the plot below. In a period of lowering the main FED rate, stocks “obviously” follow the move down in average.
The bull point of view can be based on a contrarian sentiment: everyone yammering about a crash, odds are high that the market is near a low and that a snap back recovery rally should get underway.
In short, we have two kinds of analysis on the stock market, both can be extended with a lot of other arguments and subsequent ideas and both are concluding inversely. That’s the key point! It’s fine to look at the correlation between rates and stocks, but one has to question also the continuity of the FED policy. In fact, it happens that the medium/long term yields have already anticipated a new action(s) by the FED, but we can not claim with certitude that B. Bernanke will go further than a broad 2% FED rate target. On the other side, the bull view must be confronted to the economic uncertainty prevailing nowadays! There may be some good news booming the stock market with an improbable timing but the financial crisis generated by 10 years excess may take some time to get solved.
Of course, a complete overview would lead us to act differently on capital-weighted or price-weighted indices, to look at currencies (in particular YEN/USD), at commodities etc. What about the commodity cycle? For example, the correlations between GOLD prices and stock market prices must be questioned.
Each time, we need to understand the basis: what does stock market measure? does it change with time? No, it is always the same since markets have been studied. In short, stock market measures the marginal profitability of the capital with respect to the marginal cost of the capital. We will make this complicated sentence dead simple in a next document. We will show practical and simple examples… Then, you will be able to follow our investment process and our help in making decisions on financial markets.
TRADES published on line this month:
Closed positions (no open position):
Long VINCI: 26/02-27/02 => Gain +1.3%
Long VINCI: 25/02-26/02 => Gain +3.7%
Short RENAULT: 20/02-22/02 => Gain +4.5%
Long AIR LIQUIDE: 14/02-19/02 => Gain +4.0%
Long MICHELIN: 14/02-19/02 => Gain +2.4%
Short GOLD: 11/02-14/02 => Gain +15 points!
Long basket AXA/VINCI/PEUGEOT => Gain +3.5%
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Short outlook:
http://www.safetradingblog.com/stock-code-trading/sp500.html
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More on the Stock Code for US market:
check http://www.safetradingblog.com/stock-code-trading/more-on-the-stock-code.html
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Remember that in dec-2007 we have published a pdf file with real trades using the Stock Code in a systematic way:
http://www.safetradingblog.com/stock-code-trading/axa-paris-5.html
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TRADES published on line on this BLOG for feb-2008:
On going: Long on VINCI (46.5e)
Closed positions:
Long VINCI: 25/02-26/02 => Gain +3.7%
Short RENAULT: 20/02-22/02 => Gain +4.5%
Long AIR LIQUIDE: 14/02-19/02 => Gain 4.0%
Long MICHELIN: 14/02-19/02 => Gain 2.4%
Short GOLD: 11/02-14/02 => Gain +15 points!
Long basket AXA/VINCI/PEUGEOT => Gain +3.5%
+++++++++++++++++
Remember that in dec-2007 we have published a pdf file with real trades using the Stock Code in a systematic way:
http://www.safetradingblog.com/stock-code-trading/axa-paris-5.html
+++++++++++++++++
If a betting game among a certain number of participants is played long enough, eventually one player will have all the money. If there is any skill involved, it will accelerate the process of concentrating all the stakes in a few hands. Something like this happens in the market. There is a persistent overall tendency for equity to flow from the many to the few. In the long run, the majority loses. The implication for the trader is that to win you have to act like the minority. If you bring normal human habits and tendencies to trading, you’ll gravitate toward the majority and inevitably lose. That’s a very important bottom line that all market practitioners must keep in mind. It has been formulated many times in market history… Note that’s it’s a bit more subtle than being contrarian. Indeed, when one acts in a contrarian way, it happens that it could already be the majority bet! In addition, it gives a kind of ground basis for any analysis process of market moves, for any financial products! An interesting consequence: the desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance.
What’s up? Right now, one needs to understand the negative market psychology and find right opportunities. One needs to anticipate where the economy, earnings, will be in a few months…
“I’d be bum in the street with a tin cup if the markets were efficient” (W. Buffet). In practice, all traders and external news result collectively into large fluctuations of any price of a financial product. It follows that any predictability pattern is neither detectable nor exploitable. This is basically what is called the “Efficient Market Hypothesis” (EMH) that Buffet contests: for him markets are not efficient, arbitrage opportunities exist and it’s possible to make money out of them! Of course, we have to consider any proposition by Buffet with the highest level of attention. Markets are complex systems that incorporate information about a given asset in the time series of its price. The EMH was originally formulated in 1965 by Samuelson. A market is said to be efficient if all the available information is instantly processed when it reaches the market and it is immediately reflected in a new value of prices of the assets traded. The conclusion of this ‘weak form’ of the efficient market hypothesis is then that price changes are unpredictable from the historical time series of those changes.
In 1970, E.Fama developed the first ideas on Efficient Market Hypothesis (EMH) and made a distinction between three forms of EMH: (a) the weak form (of Samuelson), (b) the semi-strong form and (c) the strong form. The strong form suggests that securities prices reflect all available information, even private information. Seyhun (1986, 1998) provides sufficient evidence that insiders profit from trading on information not already incorporated into prices. Hence the strong form does not hold in a world with an uneven playing field. The semi-strong form of EMH asserts that security prices reflect all publicly available information. There are no undervalued or overvalued securities and thus, trading rules are incapable of producing superior returns. When new information is released, it is fully incorporated into the price rather speedily. Again, no arbitrage opportunity exists. What next? Certainly, the weak and semi-strong forms of the EMH are not fully correct and Buffet is right. Then, one can start from EMH and incorporate deviations from rational expectations in the behaviour of agents in an attempt to explain anomalies of financial markets. It raises the question of finding arbitrage opportunities! In addition, it is not so obvious that even if an arbitrage is present, we could exploit it. Since the 1960s, a great number of empirical investigations have been devoted to testing the limits of the EMH, which has been put on trial and subjected to a constant critical re-examination.
WEEKLY. Make it simple: the first target is the SMA30weekly (1.44) and then, check this level. In case of break down, XEU would be waiting @ 1.35.
