The Swiss pulled a fast one on the world today with the stunning overnight currency revaluation. The most surprising aspect of this move is that the head of the IMF, Christine Legard, was not informed and in her own words was “a bit surprised.” The implications of this fact are tremendous. The global coordination of central bank policy is now over. It likely has been over for awhile but now the global trading community has just become aware of this fact. Large commercial players will be in the process of deleveraging after the Swiss decision. In the FX market leverage of 10:1 is quite common. Knock on effects will occur and I expect stocks to be collateral damage. The Global carry trade will defiantly be affected. I urge extreme caution as we now have the Central Bank omnipotence meme called into question.
I am now convinced that financial market reflexivity has reversed and the feed back loops are becoming negative. I am working on creating a list of shorts. Once we have structural bear market confirmation I will be deploying my dry powder on the short side. I may start adding some in slowly over the next few weeks. I am up 7.5% YTD. I urge extreme caution as the game is changing and the large players begin to realize the central bank put may be over. I suspect we go lower first but then get a powerful bounce into ECB QE announcement next Thursday. I am sitting on my hands today. I will look to layer shorts into the rally next week.
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Very interested to see which stocks you come up with. Good work as always.
hey blue, i dont have capabilities of shorting single stocks due to my employment. if you were to recommend short etfs, where would you look for exposure? thanks for your guidance as always
Sad(for me) but true.
How does one confirm a structural bear market? Just seems like I’ve read you say bear market confirmation a few times over the past year and it never seems to come to fruition.
BlueBear – nice read on the situation
the game theorist,
check out the semi etf, financial etfs, materials etfs and the XLE.
Forget alpha,
I have never called “The Top”. I have been bearish as we are in a topping process. The structure has to do with cycles. I am pressed for time but may explain in a later post. But basically its about right translated versus left translated intermediate and seasonal cycles. We are at risk of a left translated top (occurred 12/29/2014) unless we go to a new high. If we take out December low then it is likely we have one. If we take out October low then it is a definite bear market.
i should have clarified, i cant short anything. i can only long, but i CAN long inverse etfs. so SSG i found for inverse semis, could you recommend for the others? and from what i understand, its best to avoid the leveraged if im planning on holding for a few months?
SEF, SBM, SSG (2x), ERY (3x)
from what i understand , i should avoid the leveraged etfs?
would it be a bad idea to start positions in the aforementioned here? if so, would you recommend an appropriate position size? right now im 75% cash. thx blue!!!
AMZN, GPRO, TSLA, and now MNST have been my 4 horsemen of completely cleaning up this week. MNST was fucking with me, but it’s down decent AH, probably big news tomorrow.
let the price discovery begin
http://davidstockmanscontracorner.com/in-praise-of-price-discovery-the-market-is-off-its-lithium/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Mid+Day+Thursday
I’ve heard rumors for a few months that Legard is on the way out because German business leader disagree with her on Russian sanctions and there negative impact on German companies.
You should consider the possibility that, either Lagarde was left out of the loop by the real decision makers and was being snarky …or that this market turmoil is being encouraged to help nudge the ECB on QE…or to give them political cover.
BlueStar, forgive me, but don’t the Oct lows need to test/break to confirm a left translated cycle?
Blue, you once said we get a stock market crash every so often and I forget the average time you said it was between crashes. 25 years or so?
Anyways, with margin debt so high, liquidity drying up, commodities crashing, etc. I’ve got to say I’m a little spooked as to the possibility, even if it is a small one.
I know you did some charts a while back comparing the current market to previous crashes and the analogue was eerily similar at the time. Do you see this market lining up similar to any previous crashes?
I saw a chart earlier (sorry don’t have the link) that shows average account equity is substantially lower than it was in 2000 or 2007, i.e., margin debt is astronomical. That is just one item of concern to me though.
I was disappointed they didn’t cover the Swiss currency. Perhaps the interview was prior to it. Some past interviews have been better.
https://www.corbettreport.com/interview-990-geneva-business-insider-with-david-l-smith/
Option Addict,
Yes you are officially correct. However, if we take out the December low the chances are much higher we take out the October low. However waiting for the official confirmation can lose you a lot of money staying long and conversely if you are right then you can make a lot of money on the short side. Its an iterative process. As you know, I have been looking for the 4 year cycle top since I joined the IBank Coin gang. We have had four potential left translated cycles that have been prevented by CB intervention. So where are we now? The intermediate cycle runs 22 weeks on average from low to low. Right translated cycles usually peak in 12 weeks or longer from last low. Left translated usually peaks in under 11 weeks. We know the last intermediate cycle low (and seasonal cycle low as well) was 10/15. Within the intermediate cycle we have the trading cycle which runs on average 39 trading days. The last trading cycle low was 12/16th. Out of that low we peaked on 12/29th which is 7 days. It is looking very likely that we have an extremely left translated trading cycle top. In cycles one deals with probabilities. This extremely left translated trading cycle top in all likely hood will lead to 12/29 as marking the intermediate cycle top as well which will have peaked in only 10 weeks (left translated). If I am right then any bounce should be countertrend and lower lows lie ahead. However, the Fed knows this as well. They may try to stop this left translation from occurring. This would be the fifth set up erased by intervention. Given the Swiss news this could be the event that overwhelms them and the Great Bull is over. I am short and looking to get shorter until proven otherwise. Hope this helps.
purdy,
The Swiss were losing a ton of money keeping this peg. It is every CB for themselves now.
Game theorist,
I hate inverse ETFs
If there is leverage you need to be precise on your timing. I suggest staying away. Read the fine print in the prospectus.
Juice,
thanks
Quality Control,
Crashes Occur every 20-30 years. We are year 28 since 1987. We had the 1929 October analogue that was perfectly setting up. The Fed knew this and it is why we had Three CB’s intervene within two weeks of the 10/15 low. That is why the BOJ came out when they did. Right when we were about to roll over. All the fed has done is extend the inevitable.
Appreciate your insights and the comments posted.
Blue, so my best bet is to just hold nothing rather than inverse etfs?
Blue,
are you suggesting that QE by ECB will be met with a short lived rally, if at all?
All this talk about cycles is nonsense. It has 0.00 predictive power, because anybody could pull up charts and measure moves with a ruler and protractor. I don’t have an answer on how to predict the future, but if there is a consistent way, I think it’s probably a little harder than that. Also, crashes don’t occur every 20-30 years, they occur whenever. If they happened to follow such a pattern over a sample size of 3 previous time frames, that doesn’t help us scout out when the next one is coming.
Whenever evaluating a trading strategy or an ideology on how markets work, I like to apply the “Goldman Test.” Meaning, GS employees a stable of PhDs from MIT to try to exploit subtle market inefficiencies…so wouldn’t they have already thought of my awesome new trading plan and eliminated any edge?
@tm
ahhh the ever omnipotent GS argument.
pray tell why did they have to go for commercial bank status during the credit crisis if they are that good.
FXCM probably win big time going against their customer’s short CHF bets. However their customers are bankrupt!
Uh sorry nocturne but FXCM is also bankrupt!
Yes, FXC has a “no debit balance” policy. If you incur a negative acct balance, they relieve you of your debt and zero your acct out. Seems to have been a bane for them here.
Forget Alpha,
Was being sarcastic. I blew it.
Will be interesting to see where FXCM open post Jefferies bailout
the game theorist,
shorting is extremely difficult. I would step to the side and realx unless you find and inverse etf that does not have time decay.
jimmy,
That is my belief.
tm,
no system is perfect. The GS boys had PHD’s in 2007 that ran a quant hedge fund. They blew up in a spectacular fashion. They don’t call this game speculation for nothing. ;).
IW40,
You are welcome.
I am a long term investor and dual citizen. I sold some, but not all Cdn energy income positions back in July/August. We still own some Cdn energy growth names (no dividend).
I got short WTI futures Dec 9th, and re-shorted C$ about same time. The oil trade become large and with size stressful. i took everything off yesterday. I watched in horror as the machinetraders spiked oil violently about 0600 EST yesterday; b/a and size clanging faster than speed of light.
I put both back on very small today as i do not trust what’s occurred in past several days. I am not
Here’s my question: I am thinking of buying a march 190/180put spread 1:1
I do a lot intuitively any thoughts here pro or con will be helpful and appreciated. An insiget: VOO is largest position, MO (bot in 1999) 2nd largest. I never look at elther.
Thanks/
So after the tumultuous week that saw me lose 3% one day only to regain 2% the following day ,I’m feeling numb. But some thing are coming into focus .It seems the target of the Saudies are the shale guys.Their cost of ongoing production appears to be mid 50″s.So that’s the put.The oil sand guys once their initial capital is spent can produce into the 20’s.Since they only need 2mil. barrels per day of reductions wiping out the shale guys should do it. Conclusion
-do a Buffet and buy Canada.
Found this good perspective on the current state of the CBs. The Swiss move affects credibility and that could be disruptive. http://fabiusmaximus.com/2015/01/16/central-bank-monetary-currency-policy-76532/
Still feel as though the bears missed
their moment this week. Oil was nowhere, Sentiment was awful, the Swiss screwed everyone , the banks missed,the fly was pissed , Lagarde she hissed, halajuha.
And yet no panic. 401k season bears
-time for long nap.
The Swiss just stuck their dick in the potato salad. Which to the conventional wisdom of the Wall Street talking dildos is always bullish!!! Just one question. WTF is wrong with DB and every other major European bank? None of them rallied on the super bullish news of the Swiss imploding a massive carry trade last week. If some super ECB QE is coming someone needs to inform the bank stocks.
GS knows their shit, read their research. A lot better than yours frankly.
Blue,
Just curious if you follow Martin Armstrong. His prediction of the implosion of bond markets later this year is eye-opening. I’m sure equity markets would be drastically affected as well over the next couple of years.
The SNB action wasn’t the first domino to fall, but it is a significant one, in the implosion of the Euro and European sovereign debt in general.
IW40,
That MO purchase was pure genius. 9% dividend yield at the time. No one wanted to own a cigarette company compared to CSCO or Pets.com. On your question what instrument are you talking about?
Gorby,
There will be a time to buy energy stocks. We are no where near that time.
k_melancon,
Thanks
Gorby,
There are no bears. look at the sentiment and positioning indicators. Thats why this market is done. It has sucked all in except for a few stragglers and insane people like myself. Makes top from a lack of buyers and the end of the credit cycle.
Ironbird,
I am getting ready to short bank stocks in size. DB is on the list as is C and JPM
Brad,
What on earth are you talking about? GS quant hedge fund was in their GSAM division. The research side is separate. Never said anything bad about GS research. I love some of the sell side equity analysts at GS. Jim Covello is the axe on INTC. I was just pointing out that GS are not Gods at trading. Also I love when people tell me I stink. Why do people read things that they don’t like? I don’t.
Quality Control,
Love Martin Armstrong. He is not a God and gets things wrong all the time but he understands cycles. I think he is right about bonds. I don’t agree with him on equities but I am open to the possibility of an explosion higher. He had been predicting Dow 35,000 by the middle of this year sometime in the beginning of 2014. The market needs to get going higher if he is correct.
Blue,
If he is right about bonds then the equity markets will follow IMO. I think you did call the top here, but will be watching the dollar very closely after the ECB does it’s thing. If the dollar explodes higher I think we might just get that blow off top. But I think the ECB would have to really surprise beyond the upper end of expectations for that to happen.
I love the call on energy and financials. Went short MS and HAL with decent size on Friday. I think forward guidance more than anything could spell doom for those stocks on Tuesday. Looking to scale into more and more financial shorts as we go.
Anyways, thanks for the insight.
Another thing on energy….if the USD explodes higher then energy most definitely has further downside, since you know, it’s denominated in USD. I’m sticking with my prediction of the $35 area as the low. Anything below that would truly shock the conscience.
Meant to say I think your analysis of the topping process has been spot on, not necessarily that you called the top. Anyways….
Quality Control,
Yes I have been describing a topping process. We are close.
Blue,
Thank you for the compliment on MO. Luck is always a factor.
I omitted SPY. I bot March 190 puts Friday, but held off shorting the 180s. I think selling ESH5 more efficient, but felt more comfortable buying puts.
Feedback welcomed
To Clarify: I bot SPY March 190 Puts. Initially, I thought buying the 190/180 put spread a better trade but decided the one sided trade is less complicated and easier to manage. If others feel differently please comment.
Thanks
IW40,
I own March IWM’s 115 puts. Pure directional bet. I am with you less complicated and pure. More risk but that is how one makes money.
Blue, thank you. It’s very much appreciated. Assume you feel Iwm will move more than spy.
Why not put it on with futures? Or, futures options?
Thanks again
IW40,
I may look into that.
Thanks