Trading recap Friday 29th of July

see full trading log here

Wow, what a day, big swings in both directions and lots of news.
It is amazing how the politicians are once again able to mess things up. Instead of getting things done in time, they wait to the last minutes and play their games, so actually things fall out of hand. Seems like they like the drama and attention that they just cannot miss that by doing things uncomplicated.
It is not strange the approval rating of Obama is at an all time low.
http://www.businessinsider.com/barack-obamas-approval-rating-just-hit-an-all-time-low-2011-7

Back to the markets. We gapped lower by 13 point at the open in the S&P 500 futures, but we saw a solid reversal after breaking below 1280 support to a low of 1278,50.
Buyers stepped in and we saw a rally to 1300,75. One thing I like to point out, we often see reversals when the daily bar reaches more than 500k contracts traded in the S&P500 Emini futures (ES) and the 2nd hourly bar of the day had 580k traded contracts. We should now have potential for a bounce up to 1311 or so at least at the start of next week. All the short calls for expiration today expired out of the money and I kept the premium received, very nice!!!!

I did buy EURCHF as we are at the bottom of the playing field and should see support down here. Another point is that the CHF has outperformed vs ES, see chart below and there is a clear disconnect, something has to give. My bet is that CHF is overvalued at this point and should drift back towards 1.20 where we have the 55 day exponential moving average. Another point is that I am short ES at the moment with the negative delta, meaning it also serves as a hedge trade.

Added a small VIX trade, sold 20 Aug puts and bot 22,50 Sep puts. My thinking is that VIX will drift back below 20 in a few weeks, meaning that we want to be around 20 level when it expires 16th of August. Then the 22,50 would be in solid profit.

Closed the gold futures and sold some more puts and only short 1550 puts, will keep that bias unless we break below 1580.

Also sold October 600 puts in the Corn (ZC) contract at 11 per contractm meaning break even is 589. That means we have to break that key low of 602 to lose money. Good volume down there, so expect that to hold well.

Have a nice weekend

Trading recap Thursday 28th of July

See full trading log here

Another weak session by S&P500 futures and it could not hold above 1311 resistance and closed once again at the very low end of the daily range.
Volume was at 1,9m contracts in the S&P500 emini futures (ES), which is much higher than we have seen on recent up bars. So there is clearly some serious selling going on in the S&P. Today's down bar also confirms the wide down day on very high volume yesterday as selling. The reason for that is if it had been buying in yesterday's bar, today should have been up.

Chart image of S&P 500 emini below:

Trading wise it was more selling of calls for expiration tomorrow, both in the 1310 strike and 1300 strike. As I mentioned yesterday, the next stop is for a test of 1290 I reckon. US deficit deal is the major focus of the markets now. Time for the people in Washington to get moving, only 101 hours left to default.

I bought some EURCHF (1 lot) at 1,1494, because the CHF looks very expensive here and I think we will be back at 1,18 fairly soon as the US debt plan is passed.
This should also send Gold lower, key support in gold at 1580 at the moment.

I closed the crude structure for a loss of 3650 and opened a new one, strangle ratio position where I sold 5 x Sep 95 puts and sold 3 x Sep 99 calls.
Reason was that 101 strike is getting a bit far away from current price 97 and it is rangebounde. This structure leaves me with a slightly bullish bias and we need to see some decent directional moves before I lose money. The zig zag up and down the recent range has been dificult to trade, so wanted to get out of that situation.

Good Luck

Trading recap Wednesday 27th of July

See full trading log here

Nothing but down for the S&P 500 futures and it closed the day down 26.75 points. VIX spiked through the key 22 resistance level and Crude broke lower through the 97.50 key support (recent range low).
All risk off basically.
Trading wise I kept on selling ES calls throughout the day and trading mostly S&P500 Emini futures. I was expecting lower prices when it gapped below the key level of 1325 and I was looking for move to at least 1315 and possibly 1311. But not 1299, wow the people that were buying on dips just got whacked as the rebounds were mostly just 1 to 2 points. The high volume and strong sell off into the close signals we have more to come.
I also did some adjustments in Crude, but the volatility has dropped in the short calls at 99.50 and 101 strikes that I have on. Will probably change the structure in the next few sessions.

I also added a bearish bet on the JPY, bought December put in the futures options and it corresponds to basically buying 79,36 calls for 234 pips. Will likely add something more to this spread as we go, but at the moment the volatility is rather low at 10%, so not too keen to sell too much until that at least go above 13%

Good luck

Market report 28th of July

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Markets are now looking at a downgrade of the US and evaluating the impact. Risk off was the big theme yesterday as the market is getting nervous about a possible US default as we still have no solution on the US deficit plan. What will happen if indeed a deficit plan is not agreed upon by the 2nd of August deadline? A week back everybody seemed to be taking for granted that a plan would be reached and we were testing the upper end of the recent range in the S&P500 futures at 1343. One week later we are at the opposite side of the table, testing the lower end of the last weeks’ range. This has pretty much been the story the last few months, swinging rapidly between hope and disaster. I just reiterate the comments I have made many times over the last months, the debt crisis will be with us for a long time, there is no quick fix. Even though we might solve the problem today, we are likely to have more problems down the road as countries like Greece, Portugal, Ireland and possibly more have to restructure their debt down the road as they cannot get funded in the regular market. It seems like the next on the list of failed states will be Cyprus, where the government resigned and seems like they need a bailout in the next weeks. Of course Cyprus is such a small state that the market impact will be very little I reckon.
S&P500 futures took a big hit and closing down by 26.75 points yesterday. The fact that we closed at the very lows on high volume indicates that we had a lot of selling yesterday and I think we go lower and at least test the 1290 now and a big risk that we will break even lower. Yesterday’s move lower confirms that we had another failure in the 1340 to 1362 resistance zone. That also indicates that we are likely to have more work to do on the downside. I mentioned last week that I was a bit concerned for more potential upside because of the lack of volume on the approach towards that 1340 to 1362 resistance zone. I said we need increasing volume on the up bars to be able to push through the resistance. In an up move, declining volume is bearish, in down move, is declining volume bullish.

Euro back down below 1.43 today after trading up to 1.4536 high yesterday. Aussie continues to do well as the market is looking for a possible rate hike in the RBA meeting next week, following high inflation data this week. I don’t think RBA will hike rates next week, but rather wait a bit. However it seems pretty certain the next move will be up and that is enough to support AUD as most other G-10 counterparts are not doing much on the interest rate side for the foreseeable future. That upside idea in NZD that I mentioned last week going into the RBNZ meeting worked out rather well as we have moved about 164 pips higher since I publish the idea on the 19th of July.

Crude broke below that 98.50 support yesterday following the DOE data, confirming a likely reversal lower. Indeed a bit later in the day, we took out the 97.50 support as well. That means the interim rising support from the June lows have now been broken. Next target to the down side is now 94.74, which is a key support level.

VIX broke above that key 22 resistance level and closing at 22.85, +2.62 points. That is a new 1 month high and also interim down trend from the March high is broken, which opens for a move to 25 level and higher. I view this is another confirmation that we are likely to continue the risk off mode.
My comment on the VIX from Tuesday: “Looking at the VIX index chart, we have a clear range last 3 months and it has worked very well to buy below 15.50 and sell towards 22. I still favor buying dips and I think we will see another spike towards 25 to 30 in the next 4 to 6 weeks. See chart below.”

However, I will keep a close eye on the news ticker as positive news out of US deficit negotiations can swing things around rather quickly. Especially given that we probably have quite a bit of shorts in the S&P 500 futures following yesterday’s heavy selling, meaning a short squeeze could make a rally even stronger.

Today’s calendar:
14.30 US initial jobless claims
16.00 US pending home sales
00.45 NZ building consents
01.01 UK GfK survey
01.15 Japan Manufacturing PMI
01.30 Japan CPI, unemployment
01.50 Japan industrial production

Looking at a few interesting points in the markets trading wise:
- S&P500 futures, I am looking for a test of 1290 support and likely break lower, following strong selling yesterday and another failure up in that 1340 to 1362.
- Corn bouncing higher after reaching my downside 670 target. Also hearing some traders buying bunch of puts for December with 500 strikes as cheap downside protection. I expect the upside to be limited for now and bearish below 696.
- Crude false break higher earlier in the week and breaking lower yesterday, looking for a test of 94.74
- Yen continues to be strong across the board no matter what the equity markets are doing, seems like the correlation between equities and JPY is out of the window for the time being. I still have a bias that JPY should sell off, but at the moment not happening. I think we could see BoJ on the bid if it goes towards 77, so keep an eye on that. The best way to play potential JPY I reckon is to buy some calls, I see that 9th Sep at the money options are only at 10.07% volatility. That looks interesting in my opinion as I think the volatility will rise from that level.
- Comment from earlier this week, spot on: GBPUSD has broken the recent downtrend and looking for a test of the key resistance at 1.6444 next, as long as 1.62 holds.


Technical’s and comments

Euro: Could not really get up to the 1.4577 resistance and stopped short at 1.4536 yesterday and back down below 1.43 at the time of writing (1.4290). Very choppy price action as the two currencies compete for the “least wanted spot among G-10”. Next key support is 1.4140.

Cable: It tested my upside target of 1.6440 to the pip basically reaching a high of 1.6440. Still bullish potential above 1.62 support holds.

USDJPY: JPY is performing strongly no matter what the equity markets are doing at the moment and no sell off of the JPY to really spot at the moment. I still think

JPY is very overvalued, but maybe not so much against EUR and USD. Alternative plays are AUD, CAD and NOK I think.

Swissy: Big down trend in this pair and no telling when it will end. My guess is that we will not seen any major reversal until the Fed starts tightening monetary policy. Risk off mode again this morning benefitting CHF and trading down to 0.7992 low so far. Minor resistance at 0.8092 that can be used to sell. Otherwise difficult to outline any levels other than the 0.80 as a key level in the current price region.

AUDUSD: Up and away, trading higher on CPI data yesterday and testing the 1.11 resistance, reaching high of 1.1080. Buy on dips for now, but would like to see a test of 1.08 before going long.

USDCAD: CAD performing strongly on the prospects of rising rates in Canada. However it has moved a fair deal to the downside and at this point I would like to see a pullback before looking to buy CAD.

S&P Future (ES): Big volume sell off yesterday, closing on the lows = bearish and I expect the bounces to be short lived until we have a solution on the US deficit negotiations. I mentioned last week and this week that a another failure in that 1340-1362 region should send us much lower. Next support is 1290.
Gold: 1628 high so far, the sky is the limit. The most important I reckon is the US 10 year rate, so keep an eye on that. Looks like buy on dips above 1580 for now. The big risk is if we get a debt ceiling deal in the US, could see strong profit taking.

Crude oil: False break above 100 level followed by a break down through the recent support at 97.50=bearish. Looking for a move lower towards 94.74 key support. Minor support at 96.96 and resistance at 98.98

________________________________________
Risk Warning: Any information in this report is based on data considered to be reliable, but no representations or guarantees are made by Avantage Financial GmbH with regard to the accuracy of the data. This information is provided on condition that we accept no responsibility, legal or other for its contents. We, including our directors, officers, employees or publishers, disclaim all liabilities. Any statement constitutes only current opinions, which are subject to change. Neither the information nor any opinion expressed shall be construed to be, or constitute an offer to sell or a solicitation of an offer to buy any investments mentioned herein. Regardless of the account type you choose, there are risks inherent in trading, including the risk of loss greater than the original investment. The opportunity for profit creates a corresponding risk of loss. Anyone wishing to invest in any of the products mentioned should seek their own financial or professional advice. Prices can go down as well as up. Past performance is no guarantee of future results.

Trading recap Tuesday 26th of July

See full trading log here

The S&P 500 futures failed to make any recovery above the 1335 resistance level and closed in the lower end of the range on slighly increasing volume compared to previous session. Volume was 1.406m contracts traded in the S&P 500 Emini futures, fairly low volume I would say.
See chart below:

What's next? Below 1335 the bias is down. I see this 1325 support as a key level near term and basically above 1325 there is still recovery potential, below 1325 we target 1315, which has been a pivot level over the last months. Minor resistance is at 1335 now.
The feelling is that we will drift lower to 1315, but things can change very quickly in this market, so probably best to just follow the technicals.

Trading wise I sold more 1330 calls for expiration on Friday (29 Jul), so total short of 7 contracts now. Reason for selling these is that I have expect prices to drift down and since I have short a bunch of calls and long 6x futures, I actually wanted to be more negative delta as we go lower.

On the crude side I bought futures, looking for a move higher, but that once again stopped short of 101 and fell back late in the sessions as the API inventory data showed a larger than expected build.
Crude is trading inside this 97.50 to 101.70 range and contiunes to making false break outs and returns back into the range. Tricky to trade at the moment. I still think the upside is somewhat limited near term due to the release of the strategic oil reserves, but longer term demand looks decent, so I don't expect and big move down. I expect the 90 level to hold for quite some time. Crude daily chart below:

Good luck

Market report 26th of July

Daily Market Report for Tuesday 26th of July 2011

see full pdf version here

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Still no solution on the US deficit talks and this is keeping the pressure on S&P 500 futures and we continues to see safe heaven flows into gold, CHF and JPY. The main focus is definitely on the US deficit talks and I would not be surprised to see a reversal of the last days movement if such an agreement it reached. The recent delays by Washington seem to be a political game and my feeling is that the markets still assume everything will work out in the end. So I see the biggest risk is for sure a no solution outcome. I see this as quite unlikely. However the US deficit problem will not go away overnight and the market might look for more problems down the line, which might make the rally short-lived.
S&P 500 futures have a gap open at 1344.25 and key resistance at 1352.75 and 1361.75. I think it will be very important technically what happens this week. We have failed in this region (1340 to 1362) three times already this year. We want to see increasing volume towards the key levels to be able to push through. An approach on decline volume is bearish in an up move and bullish in a down move.
Euro has broken through the falling resistance at 1.4462 and next key resistance is 1.4578, the July high. We have minor resistance at 1.4520. Looks like the market prefers to sell USD for now, at least until any US deficit plan has been agreed upon. EURGBP is also helping Euro higher at the moment, which week UK data putting a bid into the EUR.
Aussie higher on less than expected comments from the RBA Governor and more talk about players adding AUD to their reserves is certainly supportive as well. We do have key CPI data out overnight at 03:30 CET, which is a major event risk. Market consensus is 0.7% and any upside surprise will have people looking for a rate hike at the August 2nd meeting. Biggest potential in price movement I reckon is a lower than expected reading.
Crude is looking interesting as we are trapped inside the 97.50 to 100.20 and we need to see a daily close outside of this range to get something directional going. Next big levels are 104 to the upside and 94.76 support.
Today’s calendar:
16.00 US S&P/CaseShiller home price index
16.00 US new home sales
16.00 US consumer confidence
03.00 NZ busines confidence
03.30 Aussie CPI




Looking at the VIX index chart, we have a clear range last 3 months and it has worked very well to buy below 15.50 and sell towards 22. I still favor buying dips and I think we will see another spike towards 25 to 30 in the next 4 to 6 weeks. See chart below.

Looking at a few interesting points in the markets trading wise:
- Next key resistance levels in the S&P 500 Emini futures are 1344.25 gap from 8/7 and the 7/7 high at 1352.75. We failed at 1352 last up run and we really need to see increased volume and a break higher this time. Another failure would be very bearish in my view.
- Corn bouncing higher after the test of the 670 target. Also hearing some traders buying bunch of puts for December with 500 strikes as cheap downside protection. I expect the upside to be limited for now.
- Crude key levels for a break out are 100.20 and 97.50, but we have seen plenty of false breaks, so might be sensible to wait until we close outside of this range before we get really excited about a break out?
- Yen continues to be strong across the board no matter what the equity markets are doing, seems like the correlation between equities and JPY is out of the window for the time being. I still have a bias that JPY should sell off, but at the moment not happening. I think we could see BoJ on the bid it goes towards 77, so keep an eye on that. The best way to play potential JPY I reckon is to buy some calls, I see that 9th Sep at the money options are only at 10.07% volatility. That looks interesting in my opinion as I think the volatility will rise from that level.
- GBPUSD has broken the recent downtrend and looking for a test of the key resistance at 1.6444 next, as long as 1.62 holds.

Interesting articles:
Obama Warns U.S. Debt Threatens ‘Serious’ Damage - Bloomberg -
http://www.bloomberg.com/news/2011-07-26/obama-urges-compromise-as-debt-may-cause-serious-damage-to-u-s-economy.html

Obama Warns of Default Risk - The WSJ -
http://online.wsj.com/article/SB10001424053111903999904576468012930792134.html?mod=WSJEUROPE_hps_MIDDLETopNews

Greece Says It’s Working With IMF, Hasn’t Requested for More Financial Aid - Bloomberg -
http://www.bloomberg.com/news/2011-07-26/greece-says-it-s-working-with-imf-hasn-t-requested-for-more-financial-aid.html
US parties no closer to debt deal as default fears grow - The Telegraph -
http://www.telegraph.co.uk/finance/financialcrisis/8660880/US-parties-no-closer-to-debt-deal-as-default-fears-grow.html
Eurozone bonds 'creep' upwards over bailout uncertainty - The Telegraph -
http://www.telegraph.co.uk/finance/financialcrisis/8659207/Eurozone-bonds-creep-upwards-over-bailout-uncertainty.html
Europe Rates Resume Climb - The WSJ -
http://online.wsj.com/article/SB10001424053111904772304576468263801544734.html?mod=WSJEurope_hpp_LEFTTopStories
Business as Usual For Bond Markets? - The WSJ-
http://online.wsj.com/article/SB10001424053111903591104576467840104475006.html?mod=WSJEurope_hpp_LEFTTopStories
U.S. Debt Negotiators Should Look to Britain - The WSJ -
http://online.wsj.com/article/SB10001424053111903999904576467943082839426.html?mod=WSJEUROPE_hps_MIDDLESixthNews
Swiss Franc Gives Shelter in Storm - The WSJ -
http://online.wsj.com/article/SB10001424053111904772304576468370366953928.html?mod=WSJEUROPE_hps_sections_markets
Irish Finance Minister Is Right to Cheer, But Banks Continue to Struggle - The WSJ -
http://blogs.wsj.com/source/2011/07/25/irish-finance-minister-is-right-to-cheer-but-banks-continue-to-struggle/
Greece needs a new political culture - The FT -
http://www.ft.com/intl/cms/s/0/12eed040-b6f0-11e0-a8b8-00144feabdc0.html#axzz1T4MyiD1P
How to move beyond a short-term fix - The FT -
http://www.ft.com/intl/cms/s/0/11b94aac-b6f0-11e0-a8b8-00144feabdc0.html#axzz1T4MyiD1P
No money left to boost growth, says PM - The Times -
http://www.thetimes.co.uk/tto/business/economics/article3105071.ece
Obama ready to go to the wire in showdown over debt - The Times -
http://www.thetimes.co.uk/tto/business/economics/article3105129.ece
Aussie Joining Reserve Currencies as Central Bankers Seek Commodity Havens - Bloomberg -
http://www.bloomberg.com/news/2011-07-25/aussie-joining-reserve-currencies-as-central-bankers-seek-commodity-havens.html


Technical’s and comments

Euro: Break above 1.4462 falling resistance and next key resistance is July high at 1.4578. We have minor resistance at 1.4520
Cable: Next big resistance level is 1.64, followed by 1.6441. The interim falling resistance has now been taken out and buy on dips is my favorite as long as 1.62 support holds.
USDJPY: JPY is performing strongly no matter what the equity markets are doing at the moment and no sell off of the JPY to really spot at the moment. I still think JPY is very overvalued, but maybe not so much against EUR and USD. Alternative plays are AUD, CAD and NOK I think.
Swissy: Big down trend in this pair and no telling when it will end. My guess is that we will not seen any major reversal until the Fed starts tightening monetary policy. Risk off mode again this morning benefitting CHF and trading down to 0.8025 low so far. Minor resistance at 0.8092 that can be used to sell. Otherwise difficult to outline any levels other than the 0.80 as a key level in the current price region.
AUDUSD: Above 1.09 and 1.10 is the next resistance level now. CPI data out in Asian session can be a major market mover.
USDCAD: CAD performing strongly on the prospects of rising rates in Canada. However it has moved a fair deal to the downside and at this point I would like to see a pullback before looking to buy CAD.
S&P Future (ES): Tested the upper end of the recent range end of last week. Key resistance levels are 1344.25 and 1352.75. The volume on the approach is a bit low, but still better than the last few times we have failed in this area. Still a bit worrying in regards to potential upside. If we fail in this region once more I think we have a deeper down leg coming up.
Gold: 1620 high so far, the sky is the limit. The most important I reckon is the US 10 year rate, so keep an eye on that. Looks like buy on dips above 1580 for now. The big risk is if we get a debt ceiling deal in the US, could see strong profit taking.
Crude oil: Struggling to get above 100 level. I thought we would see a clean break higher if 99.50 was taken out. Another failure up in the 99.50 to 100 resistance zone would be big trouble for bulls I think. Need to hold key support at 97.50 today to avoid a move lower.



________________________________________
Risk Warning: Any information in this report is based on data considered to be reliable, but no representations or guarantees are made by Avantage Financial GmbH with regard to the accuracy of the data. This information is provided on condition that we accept no responsibility, legal or other for its contents. We, including our directors, officers, employees or publishers, disclaim all liabilities. Any statement constitutes only current opinions, which are subject to change. Neither the information nor any opinion expressed shall be construed to be, or constitute an offer to sell or a solicitation of an offer to buy any investments mentioned herein. Regardless of the account type you choose, there are risks inherent in trading, including the risk of loss greater than the original investment. The opportunity for profit creates a corresponding risk of loss. Anyone wishing to invest in any of the products mentioned should seek their own financial or professional advice. Prices can go down as well as up. Past performance is no guarantee of future results.

Trading recap Monday 25th of July

See the full trading log here

Lower open in the S&P500 futures following the inability to reach an agreement on US deficit plan, but recovered a bit during the session to close at 1333, 7.5 points lower than Friday's close. We did however hold the key support at 1325, which is key support for now. Closing below 1335 is bearish in my opinion and I see risk for a move back down to 1317 support this week.

Made only one trade, sold 2x1335 29 Jul calls in the S&P500 futures.
My feeling is that we will go lower in the S&P500 until any agreement on the US deficit is reached.

Good luck