2010-09-30

HOME WORKS (October 2010)

General Markets

Its time – time indeed. The hunt for red October begins!
September was another low activity month for me due to certain other commitments which kept me away from desk. This resulted in below average and below median returns but still positive return making it 16th green month in a row for the homework book. Current median return on assumed 2 contract lot basis is $2,033 and current mean return on assumed 2 contract lot basis is $4,386. Click here for HW Trades result on 2 contract lot basis so far.***
The new homework page is here. The links have been updated on the site. Please remember to post your comments on this page. Also please remember to subscribe to comments via email on this page if you have been a passive follower. Please click here for more information on email subscription. You can also subscribe to all comments on the site by adding http://feeds.feedburner.com/vs-trader-comments RSS feed to your favourite reader like Google reader. There is also a Facebook page here for those of you on Facebook. You can like it to join the page updates.
Happy trading.
VS
*** for the sake of disclosure, this performance is calculated on 2 lot basis trading my Homework and should not be used as a reflection of my trading OR my account size/position size. I take all my Homework trades but in position size consistent with my risk capital.

2010-09-14

From Tokyo With Love

Case study for deleveraging and demise of carry trade


While the equities have not achieved much as the crow flies the USDJPY pair has a good story to tell for the power of deleveraging. Now when you think of Japan, you would imagine the spectacular collapse of the Nippon star, decade long deflationary cycle and developed world govt with highest debt to GDP ratio. Not an example of something which will inspire currency confidence and hence appreciation. But look at USDJPY (look at other pairs EURJPY, GBPJPY or NZDJPY as well) and you will find that after hitting a high of 147 in 1998, JPY is been in a constant down trend and broken out of a massive flat bottom apex in a classic fashion. So what is causing the whole world to buy JPY? Not a deep desire to buy Japanese assets but simply the desire to unwind a carry trade position. On back of envelop basis, if you had borrowed 147 YEN in 1998 and sold that to buy 1 USD and invested that USD, you would still be sitting on that 1 USD asset today (+ dividends etc). However that 1 USD would only get you 83 YEN today so you are short by nearly 64 JPY. That’s a big loss you are looking at.
Japanese Central Bank has made threats of interventions but I would think that they learn from the experience of our friends at Swiss National Bank who finally threw out the policy of intervention (and failed to stop the rise of CHF). I would think intervention if any would be short lasting and opportunity to buy YEN at weaker prices. I feel the significant low of 79.70 will be broken though that level is likely to offer some support and can be used a first target. I expect once 79.70 is broken, YEN would reach mid 60s level against USD towards Q1 2011. Against other currencies like EUR and GBP the results can be further spectacular. Yen is in a well defined downward channel and an interesting play on world that is deleveraging.

2010-09-12

Not too far : As the crow flies

S&P 500

If flat tops bring market drop, we have a big one at our hands. S&P 500 is simply trading waters since March 1998. Today it stands exactly the same point it first crossed on the upside in March 1998. Nearly 12 years and nothing. And as far as current financial year go - nothing. This is the last quarter for S&P 500 to set a direction for the year as a whole and if prevailing 9 months have anything to go by, there is no clear trend still. The volatility has been grinding down progressively and the implied correlations across asset classes are slowly approaching 100%. The underlying risk in the markets is building up and severe price moves can occur to adjust for the ground realities. For a breakout trader, this is a point of extreme patience. Bigger the range, greater the breakout as they say. When it could happen, no one knows but it would certainly be a big one.

JPY has been rising steadily, even in the face of threat of interventions by BOJ. USD is also looking to breakout upwards after a recent pullback. These point to the continual deleveraging going on and corresponding destruction of outstanding debt. The US national debt may be increasing but the overall debt (govt + private) is decreasing fast and that is deflationary and constant source of worry. Commodity prices have started moving up for grains, softs and metals bur crude oil and energy sector looks poised for a correction down.

I am closely watching the foreign exchange markets for emerging signs about trend which is likely to break the range bound trades in other markets. If USD, JPY and CHF can continue to attract bids, it would be bullish for GOLD and Bonds but bearish for equities and consumption linked commodities. Meanwhile, waiting and waiting…

2010-09-03

HOME WORKS (SEPTEMBER 2010)

General Markets

Like rest of the summer, August was marked with choppiness and lack of trading due to travelling and other commitments. However August provided below average but above median returns making it 15th green month in a row for the homework book. Current median return on assumed 2 contract lot basis is $2,525 and current mean return on assumed 2 contract lot basis is $4,608. Click here for HW Trades result on 2 contract lot basis so far.***

The new homework page is here. The links have been updated on the site. Please remember to post your comments on this page. Also please remember to subscribe to comments via email on this page if you have been a passive follower. Please click here for more information on email subscription. You can also subscribe to all comments on the site by adding http://feeds.feedburner.com/vs-trader-comments RSS feed to your favourite reader like Google reader. There is also a Facebook page here for those of you on Facebook. You can like it to join the page updates.

Happy trading.

VS

*** for the sake of disclosure, this performance is calculated on 2 lot basis trading my Homework and should not be used as a reflection of my trading OR my account size/position size. I take all my Homework trades but in position size consistent with my risk capital.