ECB as the European Lender of Last Resort?
In Favor of Silvio Berlusconi Resigning? Be careful what you wish for.
Monday, November 14, 2011
Wednesday, November 9, 2011
Somethingness
Two weeks ago there was nothingness, and tonight there is somethingness. Back then I did not like the setups in FAS or in FAZ. Tonight I do.
Last Friday, I began to feel that the headline risk out of Europe was going to increase, so I took a very small position in the FAZ. The daily chart had bounced off support around 37, but there was really nothing else going on. I want the market/stock to confirm my fundamental or macro view, and since it didn't I exited that small position on Monday for a slight loss of 0.1% to my account. Sometimes, I get in because my head tells me to, but the market had not given me enough information to confirm my view. This is something that I have become more aware of, and I am glad that I realized this had occurred again, so I got out.
With the Italian sovereign debt issues increasing today, the markets got smashed. FAZ has recently put in a higher low, and if it can break above 45.24 then it will make a higher high, which is one definition of an uptrend. Today's upward move also generated a solid green bar. If you were to draw today's bar from yesterday's close instead of today's open, then the bar would be even bigger and could be considered an Elephant bar in Oliver Velez's world. The FAS put in a big red bar today, and the shorter term moving averages are on the verge of rolling over.
The Italian sovereign debt issue is more serious than the Portugal, Ireland, Spain and Greece issues, primarily because Italy is considered by many experts to be 'to big to bail'. Since the charts are starting to confirm my bearish longer term view, tonight I have put on a very small position in the FAZ (1 lot out of a possible 10). As long as the negative news flow out of Europe continues, and the chart responds positively, I will trade the FAZ. If things begin to get too pessimistic and FAZ roars back to recent resistance around $80, then I will consider lightening up on the FAZ, and getting long FAS. The FAS would have to get into the $3-7 range though for me to really get interested in it. I do not believe that the financial system is going to collapse, but I believe the odds are increasingly that the market is going to fear that, and take the financials out to the proverbial woodshed. Ultimately, I want to be a buyer of that deep pessimism.
Disclosure: Long FAZ.
***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***
Last Friday, I began to feel that the headline risk out of Europe was going to increase, so I took a very small position in the FAZ. The daily chart had bounced off support around 37, but there was really nothing else going on. I want the market/stock to confirm my fundamental or macro view, and since it didn't I exited that small position on Monday for a slight loss of 0.1% to my account. Sometimes, I get in because my head tells me to, but the market had not given me enough information to confirm my view. This is something that I have become more aware of, and I am glad that I realized this had occurred again, so I got out.
With the Italian sovereign debt issues increasing today, the markets got smashed. FAZ has recently put in a higher low, and if it can break above 45.24 then it will make a higher high, which is one definition of an uptrend. Today's upward move also generated a solid green bar. If you were to draw today's bar from yesterday's close instead of today's open, then the bar would be even bigger and could be considered an Elephant bar in Oliver Velez's world. The FAS put in a big red bar today, and the shorter term moving averages are on the verge of rolling over.
The Italian sovereign debt issue is more serious than the Portugal, Ireland, Spain and Greece issues, primarily because Italy is considered by many experts to be 'to big to bail'. Since the charts are starting to confirm my bearish longer term view, tonight I have put on a very small position in the FAZ (1 lot out of a possible 10). As long as the negative news flow out of Europe continues, and the chart responds positively, I will trade the FAZ. If things begin to get too pessimistic and FAZ roars back to recent resistance around $80, then I will consider lightening up on the FAZ, and getting long FAS. The FAS would have to get into the $3-7 range though for me to really get interested in it. I do not believe that the financial system is going to collapse, but I believe the odds are increasingly that the market is going to fear that, and take the financials out to the proverbial woodshed. Ultimately, I want to be a buyer of that deep pessimism.
Disclosure: Long FAZ.
***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***
Labels:
Emotions,
European Sovereign Debt,
FAS,
FAZ,
Financials,
Greece,
iFundTraders,
Ireland,
Italy,
Oliver Velez,
Portugal,
Spain,
To Big To Bail
Tuesday, October 25, 2011
Nothingness
Sometimes doing nothing is just as important as doing something.
Right now, I am doing nothing.
Disclosure: No positions in any of the securities mentioned.
***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***
Right now, I am doing nothing.
Disclosure: No positions in any of the securities mentioned.
***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***
Wednesday, October 19, 2011
Adios FAS!
I just sold all of my FAS and cancelled all of my FAS buy orders.
The more I read about the fundamentals of the financial sector going forward, the more I am convinced that the FAS will not return to its post crash high of 40ish even if the SP500 gets back to 1500 over the next few years (which I don't see happening either).
After the SP500 and the FAS bottomed in March 2009, the FAS ran up to around 40. Now banks have to discontinue their proprietary trading activity, which historically has been a large profit center. Additionaly, they will have to increase their capital reserves, which will ultimately decrease their return on capital. For the overall health of the financial system, these are probably prudent things to do. However, market players will probably no longer pay higher premiums for this sector, and it will be much harder for the FAS to return to its spring 2010 highs (when market participants were not factoring these fundamental issues in).
I am still interested in buying the FAS if the fear of the financial system collapsing returns to the forefront of investor psychology. If the financial system does collapse, in my view it does not matter what paper assets anyone owns, they will be worth significantly less if not worthless. Based on this idea then, buying the financials into a market panic about the financial system crashing, is almost a risk-less trade.
With the FAS currently trading in the 12's, I do not find it a compelling value. There is always the chance that the Europeans create a multi-trillion dollar fund to backstop sovereign debt issuers and holders, which could send the FAS soaring in the intermediate term. But I also think there is just as good a chance that in the longer term, this fund will not solve the fundamental issue of too much debt held by nations, corporations and consumers. Buying the FAZ right now does not make a lot of sense either, because if the European fund materializes, then the FAZ could take a huge hit.
In any case, I think that at some point in time within the next few years, the FAS will retest its 2009 lows (around 4). When it starts trading in the mid single digits, I will get more interested in it.
Trading the FAS and the FAZ over the past 3 months has helped increase my IRA by 26%, a pretty good return for a short period of time. I am going to keep watching how things play out and keep my powder dry. I will also start identifying other sectors that have 3x leveraged long and short ETFs, and see if I can spot some intermediate to long term opportunities in them.
According to ECRI, the US is probably in a recession right now, and I believe the 2012 US Presidential election is going to decrease investor confidence that the US can get its budget and debt situation in order.
The next 12-30 months are going to be very interesting from a social, financial and political standpoint. Paying attention to what is going on will be important.
Disclosure: No positions in any of the securities mentioned.
***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***
The more I read about the fundamentals of the financial sector going forward, the more I am convinced that the FAS will not return to its post crash high of 40ish even if the SP500 gets back to 1500 over the next few years (which I don't see happening either).
After the SP500 and the FAS bottomed in March 2009, the FAS ran up to around 40. Now banks have to discontinue their proprietary trading activity, which historically has been a large profit center. Additionaly, they will have to increase their capital reserves, which will ultimately decrease their return on capital. For the overall health of the financial system, these are probably prudent things to do. However, market players will probably no longer pay higher premiums for this sector, and it will be much harder for the FAS to return to its spring 2010 highs (when market participants were not factoring these fundamental issues in).
I am still interested in buying the FAS if the fear of the financial system collapsing returns to the forefront of investor psychology. If the financial system does collapse, in my view it does not matter what paper assets anyone owns, they will be worth significantly less if not worthless. Based on this idea then, buying the financials into a market panic about the financial system crashing, is almost a risk-less trade.
With the FAS currently trading in the 12's, I do not find it a compelling value. There is always the chance that the Europeans create a multi-trillion dollar fund to backstop sovereign debt issuers and holders, which could send the FAS soaring in the intermediate term. But I also think there is just as good a chance that in the longer term, this fund will not solve the fundamental issue of too much debt held by nations, corporations and consumers. Buying the FAZ right now does not make a lot of sense either, because if the European fund materializes, then the FAZ could take a huge hit.
In any case, I think that at some point in time within the next few years, the FAS will retest its 2009 lows (around 4). When it starts trading in the mid single digits, I will get more interested in it.
Trading the FAS and the FAZ over the past 3 months has helped increase my IRA by 26%, a pretty good return for a short period of time. I am going to keep watching how things play out and keep my powder dry. I will also start identifying other sectors that have 3x leveraged long and short ETFs, and see if I can spot some intermediate to long term opportunities in them.
According to ECRI, the US is probably in a recession right now, and I believe the 2012 US Presidential election is going to decrease investor confidence that the US can get its budget and debt situation in order.
The next 12-30 months are going to be very interesting from a social, financial and political standpoint. Paying attention to what is going on will be important.
Disclosure: No positions in any of the securities mentioned.
***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***
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