Portfolio Journal

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.

Saturday, May 10, 2008

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:

Tacit central bank support, if not active in the future
Asian central banks (China) that were former sellers are now buyers at these levels
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.