What I'm Thinking

My holiday is coming to an end. I should be back to the normal routine starting Tuesday after the long weekend.

I'm a bit frustrated at my recent trading. I was stopped out of my EUR/USD short as well as my long SLV trade. Both have since retraced a bit. At this point I'm looking forward to getting back to the old routine and finding some compelling opportunities. I have been poor thus far at waiting for a good entry price on my trades. I'll have to keep this in mind in the future.

What I'm Thinking

As I previously mentioned, I put on a short EUR/USD trade. This is of moderate size relative to my portfolio value, but I'm fairly optimistic about its potential to add to my P/L.

The preceding chart of spot EUR/USD for the last 10 days is not much to write home about, but when you consider this recent item of news, I'm fairly optimistic. I entered the trade mid-day on May 7th at basically the same level we are currently trading. Initial resistance is at 1.53 with support at 1.5530. I suspect that if negative news in the U.S. propels EUR/USD back to the 1.60 level, it's very possible that there will be a coordinated central bank intervention. I see this is a reasonable floor on my downside. If we can break through the initial resistance of 1.53, sub 1.50 would not be out of the question. I'd likely take profits in the 1.48-49 area. The chart looks a little better when you zoom out:

I'm not expecting EUR/USD to be trading sub 1.40 anytime soon. I'm still a dollar bear. But I feel like the following are coming together to make a short EUR/USD trade compelling:

1. Tacit central bank support, if not active in the future
2. Asian central banks (China) that were former sellers are now buyers at these levels
3. Declining economic picture in Europe (although I don't see any ECB rate cuts anytime soon)
   

The longer we are able to stay below this 1.5530 level the more likely I feel we'll be able to take out the 1.53 lows. I am going to Greece tomorrow for 2 weeks so I won't be able to actively watch (this might be a good thing), but even so I have not put any stops in. This move has largely been motivated to put a lid on oil's recent surge. I'm not putting any money into play but I think it's possible oil could be the next trade that has solid investor support to capitulate and pull back. We saw that with the front end of the curve across the world recently. If oil actually does have a pullback this would be extremely USD bullish.

On a different note, I put in some limit sell-short orders on SPY, pyramiding up from 141 to 144. I'm not ready to say that this little counter-trend rally is over but I'm not intent on selling at current levels, especially after the trading of the past couple days. So that's the reason for the pyramiding up. Frankly, I'm hoping they all get triggered because I think it would mean more upside in the long run.

Some other ideas have continued to nag at me. I think the large-cap small cap trade is still looking good, and a consumer cyclical / S&P spread trade seems about right too. If the bulls can take us up past 1420 again I'd be much more likely to put those ideas to work. I'm also assuming any increase to those levels would be driven by discretionary and financials. If that were the case buying a small amount of puts on some of the more unsavory financial names wouldn't be a bad idea.

In the meantime, my risk level is relatively small. I still have my long term rate trades, and those are showing nice gains. This past week was quite a good one for the ol' P/L. But I can't concentrate too much on that in the short term. What matters is that I hold conviction in my ideas and I don't overtrade.

What I'm Reading

Is the Commodities Boom Driven by Speculation?

U.S. Leads Effort to Prop Up Dollar

Global Imbalances

Asian Bond Markets



That's about it for today. Did a lot of reading but nothing much that piqued my interest.

What I'm Reading

All about the dollar

Recession Probabilities for the U.S.

All of Inflation's Little Charts

Worldwide Growth in Fertilizer Usage

Misleading Growth Statistics Give False Comfort

No silver lining as prices take a tumble

Global Long Term Interest Rates

Desperate Measures: India Closes Soybean Oil, Potatoes Exchanges to Fight Inflation

Sucker's Rally? - I think so..

Scale-up sells in the 1420-1440 range - I like this approach

A Rally with Serious Muscle

What I'm Thinking

Well now. It appears many things are coming together for my EUR/USD short. I check out FT for one last bit of reading before I call it a day and I come across this.

Now that is certainly something. The highlights:

"Senior eurozone officials believe that the dollar-euro rate had reached levels unhelpful to both the US and Europe."

"The US is still a long way from agreeing to intervene in currency markets or identifying desired exchange rates. But both sides believe fundamentals and central bank policies are turning in the direction of relative dollar strength. After cutting interest rates aggressively, the Federal Reserve has indicated its desire to pause. Meanwhile, the ECB is softening its hawkish tone, and could shift further if weaker growth reduced inflation risk."

"The central banks have not ­co-ordinated their policies to manage the exchange rate. But policymakers feel communicating the change in relative fundamentals and monetary policies may be effective"

I'm curious if officials agreed to come out like this in hopes of sidetracking oil. Macro Man and Brad Setser both have been writing about how central banks that were dollar sellers have turned dollar buyers in the past couple of weeks. And we also have a recent string of negative economic data coming out of the Eurozone. I'm thinking EUR/USD can see sub 1.50 in the next month. And I'm positioned accordingly to take advantage of that.

What I'm Reading & Thinking

Bond Investors Play a Waiting Game

Hoenig Says Inflation 'Serious' and may prompt rate rise

Vallejo, CA officials vote to file for bankruptcy

The short view: Crunchy Credit

Yield of 4% Beckons in Treasurys

Seeing Inflation Only in the Prices that Go Up

Some Inflation Charts

Win Some, Lose Some - How to Come Out On Top

Cyclicals are Still Overpriced

Soros Says Impact of Crisis on Economy Just Starting

Home Improvement Investment has a Significant Downside Potential (Short HD?)

U.S. Consumer Debt Surges in March

Silver: Still dependent on gold for upside

Peruvian Miners set to strike May 12th. Silver should see benefits

World Silver Survey authors say silver outlook is still positive

Current Thoughts:

*Home Improvement Stocks look like good short candidates

* I really like how I'm positioned right now (short EUR/USD, long my FF future spread trade, and long Dec ED futures). I'm feeling a little less bullish on my SLV holding. Gold is tracking pretty closely to USD movements, especially EUR/USD.

What I'm Reading

Medvedev Boxed In by Oil as Putin Bequeaths Economic "Dead End"

Fed Survey Shows More U.S. Banks Tighten Loan Terms

Updated Year-End S&P 500 Price Targets

Sales Tax Collections Decline in Most States

Jitters in the Eurozone

Will BofA-Countrywide Deal Get Done?

Economists Look for ECB Signal on Rates - I'm short EUR/USD but I doubt anything new will come out of this meeting

Shorting Puts - Interesting...

Commodity Prices in Historical Perspective

A little Yield Analysis

YoY NFP - A little different take

More on Earnings Expectations

Bulltrap: ABCP and Level 3 Bombs

Time for money market funds to help - Good article from FT that explains why "banks afraid to lend to other banks" is wrong

NYSE April Month End Short Interest

Some Signs of an Upturn for the Dollar

Disconnect

TED Spread is Improving

Housing Burst Duration

What's behind the Slide in Gold and Silver?

May 4th Got Gold Report - Money flows are increasing into SLV (current holding) as the price has declined

Dollar Demand is Strong Among European Banks

Brics offer investors a varied harvest

Wrong time to enter vulture business

What I'm Reading

Hussman Weekly Market Comment

NYFR

Indicator Review for May 5th

Mark Kiesel: Slimming Down - I strongly agree with what this article has to say

What Uncle Sam Gives in Rebates, OPEC Takes

Economy May Face Prolonged Pain, History Suggests

Departures May Change More Than the Look of ECB

Economists React: Jobs Report

Economists React: Fed Statement

Economists React: GDP

Non-Residential Investment: Still the Key

Q1 Sector EPS Growth vs. Estimates - Estimates were right on for the S&P according to BIG, but I'm not sure the date they used for the start of earnings season. Their figure is different from the one I cited in my inital post on earnings.

Caroline Baum: Wall Street CEO Chorus is Singing Out of Tune

What are corporate bonds worth in a recession? (Spreads Have Further to Tighten)

Slow German Growth Sounds Poverty Alert

Weyerhaeuser's Loss - WY is on my value watch list

Tentacles of Recession and the Great Unwind

John Authers: Uncertainty in markets

What I'm Thinking

CFC is down about 15% today on an FBR analyst call that BofA will renegotiate their deal. He has a price target of $0 to $2 and cites BofA's May 1st filing that states there is no assurance that any of CFC's debt will be assumed. I agree with the analyst's call that this is a first step in a renegotiation process over the acquisition of Countrywide. I actually think there is a strong possibility that CFC will just go bankrupt. A quote from the report:


"Countrywide's loan portfolio has deteriorated so rapidly that it currently has negative equity and the proposed takeover of the company will be a drag on Bank of America's earnings due to the elevated credit expenses at Countrywide, analyst Paul Miller wrote in a note to clients...
If mark-downs on Countrywide's loan portfolio are less than $22 billion, then Bank of America can likely offset the adjustments with fair value debt adjustments and the difference between tangible equity and its purchase price of Countrywide, he estimated."

It's really tough to estimate book value for these financial companies now, but I certainly am in the camp that believes mortgage resets will lead to greater financial losses than the market currently expects. I think what we have going on here is a case of BofA looking under the hood of CFC and finding that they don't really like what they see. I think that CFC doesn't go any higher than $6.20, which was the high of its recent trading range. The original BofA acquisition price was for $7.16 a share. So with an upside of $3-5 and a downside of $1, I think we have a pretty good case here for a short of CFC. I'll be looking to get in at a better price later in the week.

What I'm Thinking

A quick update:

Since we broke through the psychological barriers of 13,000 for the DOW and 1400-06 for the S&P 500 along with breaking through and closing above 200 dma's, I have closed out all of my short positions in U.S. equities.

I have kept my long Silver position. It is close to my review point and this time of the year is considered seasonally weak so I may close out this position as well. I haven't put down my thoughts yet on silver but long term I am extremely bullish on this play. I'll get to it in time.

Last week I put on a Fed Funds spread trade that basically makes money as long as the Fed doesn't raise rates by November. More on it later...

Tech stocks have been extremely strong lately. The chart looks bullish, money managers are optimistic, etc. etc. I have added some low-delta calls on the QQQQ. Will probably sell during this week.

I remain of the opinion that this is a sucker's rally. The VIX is signaling extreme complacency and I'm looking to setup a VIX trade in the near future to go long vol.