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Trading Newsletter
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OSOK Trading Newsletter
Find the latest featured newsletters here! We post new articles every day, and they can be found right here. Click on any headline below to find the full article. And be sure to click the 'view more articles' link at the bottom of the page to read articles you may have missed.
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Markets Stage Midday Reversal to Close at Highs, Yen comes under Pressure
John Netto
9:32 PM ET -- With the S and P 500 testing key technical support near the 815 area in the middle of the trading day, and the market not responding well to the ECB's rate decision and subsequent comments by Trichet, one couldn't be blamed for sensing the ominous palatable feeling of a big down day. However, selling pressure abated across a number of investment complexes and saw the metals, energies, agricultures, Dollar-Bloc currencies, and equities. The risk aversion trades, in particular Yen-based crosses and fixed income products felt the pressure as money flows and short covering buoyed things higher. The real question for tomorrow in front of a three-day holiday weekend, is how do we as traders play the next move. During our Netto's Number market commentary on Sunday night where we previewed the week's action, the focus was the key inflection points on the Euro and ES. I have updated numbers that will follow in subsequent paragraphs traders should use as a short term guide to playing this rally, as well as keeping in mind the bigger picture. Keeping in mind how well the currencies are trading, it will be this section I focus my key inflection points on as harmony of a market is one of the three key points I look at when evaluating a trading opportunity. . . . click here to view
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Deflation/Risk Aversion Start to Tighten the Noose…
John Netto - President
Monday, January 12, 11:31 PM ET - The weakness seen in Ags, metals, energies, equities, commodity currencies, and strength in the dollar brought back vivid memories of the financial malaise seen throughout Q3-Q4 of 2008. The question as traders going forward is how to play the reinitiating of a pro risk-averse sentiment in the market. In our weekly preview of Netto's Numbers, we outlined the metrics setting up the equity sell down and what key technical levels would give us a nice proxy of taking profits. As noted last night, the March 900 puts served today's price action extremely nicely as not only did we get a nice directional move in favor the puts, but implied volatility crept up across the volatility structure. This move was corroborated by the move in the USDJPY, which had decoupled from its close correlation until recently. The British pound was the one bastard child currency today as GBPUSD, EURGBP, GBPJPY all got crushed. I am looking for any morning strength tomorrow in these crosses to get sold into by the end of the US Equity close. I am hosting a webinar on trading options to capitalize on these markets and how to create some of the most dynamic exposure strategies out there…please visit http://www.tradebondfutures.com/products/item9.cfm to learn more about the January 24 webinar… Tomorrow's updated pivot points are as follows… . . . click here to view
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Sell Copper, Nickel Before Index Rebalancing Ends
Mon Jan12 (NY) - by Anatoly Veltman - Chief Global Analyst - My good friend Bayram Dincer, a commodity analyst for Dresdner Bank AG, pointed out that LME combined stockpiles advanced a 27th consecutive week!! Expanding stockpiles suggest slumping demand, and investors should sell copper, nickel and other industrial metals that rallied this week because the rebalancing of commodity funds that caused it - will end! Copper, zinc and nickel gained this year on speculation that funds tracking gauges such as the Dow Jones-AIG Commodity Index and the SP's GSCI Index would buy more of the metals to reflect changes in the indexes' weightings. But at a point, you have to look at rising inventories: the rebalancing didn't change anything fundamental. From the economic data, there's still a lot of bad, bad news. Europe, Japan and the U.S. are in their first simultaneous recession since World War II, prompting the Fed to cut interest rates to as low as zero for the first time. The Reuters/Jefferies CRB Index of 19 raw materials fell 36% in 2008, the worst year in a half-century. The re-weighting of the DJ-AIG index runs Jan9-15, while the S&P GSCI rebalances Jan8-14 . . . click here to view
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Preview of Jan 12-16: Risk Aversion Back En Vogue
John Netto - President
Sunday January 11 - John Netto - The combination of the sell off in USDJPY (Dollar/Yen Cross), S and P 500 closing on its weekly lows, small caps underperforming large caps, and the wide spread between short term implied volatility and the 3 month realized volatility all suggests this could be an ugly week for the equity markets. We will be paying particular attention to the EURUSD, AUDUSD, and GBPUSD cross and see if the currency markets use these as a proxy for a resumption of the downtrend that became the prevalent driver in Q3-Q4. Last week's Netto's Numbers blogs pointed out 133.90 as a key inflection point in the EURUSD along with 94.08 as a key turning point in the USDJPY. This week those are the points of control and if we stay below them, maintain a short posture in your positions until we hit 130.80 on EURUSD and 8820 on USDJPY. The prospects for the ES look equally soft, with 898 being the point of control and a downside target of 850 that can be realized within the first half of the week. We'll be looking at the March 900 puts as a nice way to play a prospective move down. Agriculture futures continue to pound the upside with the March Soy Bean contract closing at 10444, March Wheat at 6330, and March Corn at 4122. These aforementioned themes will dominate my trading perspective this week… . . . click here to view
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Year-Opener: The Watershed Week
Fri Jan9 (NY) - by Anatoly Veltman - Chief Global Analyst - This was the first full trading week of 2009. In years previous: the trends marked in Year-Opener would provide direction for a number of months(!) Of course, 2009 is getting the most uneasy start across most markets in recent memory - as credit has been severely constrained, fund net inflows are non-existent and the entire financial service industry undergoes austerity. In this extremely emotional environment, we are doubly reminded of just how important objective measures of market commitments can be. 1. SP flows continued somewhat Bearish within their make-up. I was pointing in recent weeks, that Commercials have flipped back into Net-Shorting mode - erasing their Net-Longs accumulated near decade's lows. Also, that sentiment surveys went Bullish 1/6/09 - for the first time since 8/20/08! Current report showed Large Specs shedding their recent Longs into 100-point pop; while Small Specs assuming new Longs, under the drum of "rally over 900". Another interesting tid-bit was substantial migration of Open Positions from bigSP to E-mini (except, remarkably, in Small Specs!!) I venture guess: Small Specs, convinced that "bottom may be in", took some Longs earmarked for "longer-term hold". Larger Traders, in contrast, preferred greater flexibility of E-mini to scale in-and-out of price spurts and "play the range". Other than this little distinction: I must note that 2009-opener week was decisively DOWN! 2. C.O.T. showed Commercials rolling significantly out of 30y and 10y Longs and into 5y, 2y and Eurodollar Longs! (again, a tiny indication that big boys are reaching for flexibility - as opposed to committing to obvious yield differentials.) Two very important notes: a) the week was decisively UP for shorter-term paper; b) O.I. pattern in 30y favors one more Bullish attempt - before they commence "long-term Bear Market". Why? The 142->132 pullback was all due to aggressive Commercial Long-liquidation in light trade: hallmark of wave1 DOWN. Wave2 UP to follow is usually emotional and scary. Only then wave3 DOWN should emerge with aggressive NEW SHORTING and voluminous price action DOWN. 3. EUR and SF marked strong DOWN-week; BP, CD, JY UP-week! My opinion remains that EUR and SF will eventually go to new records in 2009; however, as pointed out last week - Specs had to first abort their ill-timed Longs. For those two currencies: this is a classic false start, liable to confuse many a trend-follower. BP has enjoyed solid Commercial support in recent weeks; it should develop into star currency of 2009! Yen is interesting: where its early-week's dump attracted no Commercial support to speak of! I stay of the opinion that Yen lacks its own fundamental bright future - and that it will stay strong in spots on default basis; ready to embark onto multi-year Bear market before most Specs realize it. 4. Gold keeps piling up COT problems: this time Commercials even Shorted it on slight decline. Funds now hold 8 Longs for every 1 Short! Platinum strung basically 11 straight UP-days since I pointed "O.I.-accumulation signal" going into Xmas. Copper's O.I. behavior remains constructive; but it also has already jumped 25% of off Xmas lows. All-in-all, metals are likely to still shadow the currency trade right here. 5. Energies remain extremely interesting: most contracts appear in wave2 pull-back; thus potential of explosive wave3 run remains attractive - despite obviously weak 2009 opening week. CL went up on rising O.I., then down on declining one. Gasoline sports 13:1 Fund long:short ratio. This ordinarely could be viewed a Bear trap - but energy contracts are not undergoing any particular margin stress, plus there is a lot of spread trading among contracts. NG's drop here is very intriguing - as Jan seasonals are, in fact, Bullish. Daily chart is near bottom of yet another price accumulation: five preceding ones resolved down in continuation pattern. This should attract speculative Shorting into the lows - and potential for big Bullish surprise to follow! . . . click here to view
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Bulls outnumber Bears for first time since Aug20...
Anatoly Veltman - Wed Jan7
Wed Jan7 (NY) - by Anatoly Veltman - Chief Global Analyst -...according to "Investor Intelligence" release today. Of note: August chart pattern looked very similar to current. Following vertical SP futures decline to eventual 1201 low, chart then commenced slow consolidating upward creep in shape of potential Bear flag. Caveat for blind chartist: November low was 739, a value so significantly different... In front of Friday's jobs data: mind EUR/USD 1.3850 monumental chart area. This would be 38.2% retracement of 1.4717->1.3314 recent decline, to coincide with pull-back to Jan5 sell-stop trigger point, which was based on cluster of 12/19, 12/31, 1/2 lows . . . click here to view
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EUR/USD & USD/JPY Reversal at Key Inflection Points... Ags Continue Torrid Up Move
John Netto - President
Tues Jan 6 - John Netto - President The currencies and commodities once again took center stage in the trading world as equities continued to exhibit a lackluster and lifeless trading range. A whole host of currencies bucked this trend and provided great two way action as dollar strength in the European session gave way to the dollar pairing its gains against EUR, CHF, JPY, and GBP. This included EURUSD holding onto the key 13390 level we pointed out in last night's Netto's Numbers. The cross managed to combat early weakness in it before ultimately moving higher. The same dynamic applied with the USDJPY as 9408 became a natural fade spot and using CME Group options to trade these products has been a way I have managed clients accounts. I am putting a webinar on January 24 of this month going over specific strategies. For tomorrow stay tuned to the agriculture section, which saw wheat, soy, and corn all scream higher. This is a short blog tonight but wanted to stay in the loop… . . . click here to view
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Reversals to be ready for by Wed 1/7
Anatoly Veltman - Tue Jan6
Tue Jan6 (NY) - by Anatoly Veltman - Chief Global Analyst - Monday's delayed CFTC Report covered the festive 12/23-12/30 markets. It did confirm: 1. Commercial propensity toward Shorting indexes. 2. Commercial propensity to start rolling out of Treasury Longs. 3. Commercial Shorting of currencies. 4. Commercial offer into Gold rally and bid for Copper. 5. Commercial buying in liquid energies, while lightening up record Commercial Longs into NG rally. Transition and reversal in short-term price moves should be completed by Wednesday Jan.6 in the following important contracts: 1. EUR/USD will likely sharply reverse from 1.32 area, just like it did from 1.47 area on 12/18 (both 62% retracement targets). 2. Corresponding move in DXC up to 84.50 (62%) area. 3. EUR/GBP has dropped quickly from 0.98 toward 0.90 buy (38%) area. 4. 30y USH aggressive profit-taking from near-142 record (Open Interest fell during each of the three big down-days!!!) has max. target near 130 (38%) area. 5. In SP: offers are lining up in 950 area; once penetrated, scale-up sellers on the way to 1000 . . . click here to view
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NOB Spread Comes Back to Earth, EURO Comes Under Pressure
John Netto - President - Monday, January 5 - 8:30 PM Pacific Time - The first Monday of the New Year saw a late Christmas gift for dollar bulls as the EUR/USD came under pressure early and often. EUR/AUD (highlighted as a short trade in our 2009 Preview) took a 600 pip haircut. This coincided with a nice sell off in the long end of the curve as 30 year bond futures and 10 year note futures caught some heat as well. The equities had a pretty docile session as one of the things we chart at www.netblackcapital.com is 3-month realized volatility compared with 10 day realized volatility. As of today's close, 3 month realized volatility sits at about 65% and 10 day now sits at around 20%. This stark difference should regress over the course of this week as I anticipate seeing the range in the equity markets open up shortly... . . . click here to view
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Netto's Numbers 2009 Preview : Structuring and Spreading
John Netto
John Netto - President - One Shot - One Kill Trading - 6 PM ET Sunday, January 4 - In the wake of the bloodiest and most volatile year in decades, much of the trading and investment public is confronted with two prominent ideologies. The first being this record sell off is creating lifetime buying opportunities and those positioned properly will reap huge rewards at purchasing investments at bargain prices. The second being the financial system is materially altered and equity/emerging market/carry trade currency returns will languish as a result of the world heading into a protracted recession/depression with cash being king. The previous paragraph only addresses what impact 2008 has on future investment perspective. However there exists a larger and greater structural issue from this financial fallout. This being how investors view their investments and the "framework" they are managed under. The framework for how one customizes their portfolio in gauging what return they are seeking, the framework for greater transparency. And inevitably, how will investors adjust their framework in terms of liquidity and the ease of gaining access to their capital. The days of multiple layers of fees, long lockups, and passive management are in our rear-view mirror. This past year not only leaves us with questions about what is the next best sector, but more importantly, what is the next best structure. Firms that offer products addressing this will reap huge rewards and position themselves to grab the reigns of leadership in the financial services marketplace. I'll expound more on these products and firms in coming weeks and months along with ideas on how to make a play in this space… As the Chief Investment Strategist for NetBlack Capital, LLC, (www.netblackcapital.com) we're advising our clients and managing positions in a way that takes advantage of the opportunities created by what's discussed in the aforementioned paragraphs. No doubt the precipitous sell off in currencies, commodities, real estate, and equities witnessed in Q3-Q4 has created volatility we will likely never experience again (VIX spiking to 90 intraday). The subsequent market action should create a distinct bifurcation of haves and have nots in 2009… The haves will be those sectors within the equity, commodity, and currency space that shake the dust off of this wealth retrenchment and began to build traction in 2009. These investment vehicles will continue to decouple during the next round of selling that invariably hits, thereby distinguishing themselves from the group that have been shackled with the overriding issues that plagued the markets in 2008. The below trade ideas are not all inclusive of the current portfolio I manage, as the market is in a constant state of flux. The point behind the below ideas is to provide insight into the process of what I am doing in an attempt to be profitable for 2009 and continue to deliver a great return per unit-of-risk invested… Trade Ideas... . . . click here to view
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Open Interest and C.O.T. filters into New Year's
Anatoly Veltman - Mon Dec29
Mon Dec29 (NY) - by Anatoly Veltman - Chief Global Analyst - We are in the midst of "silly season", when price moves have to be taken with a grain of salt. A speculator, who has strategic framework of what he wants to do through the holidays - and more important beginning Monday, January 5 - can try to filter out some of the price noise via combination of Open Interest (O.I.) and Commitments of Traders (C.O.T.) data, overlaid upon the price moves. 1. My intermediate view of SP is squeezed between two usual suspect forces: reconcile downtrend vs. degree of oversold. I ask myself: what may be the catalyst for reversal? The environment is awful: not enough that there is usual dark economic background - there is also a possibility that civilization may revert to the stone age: substantial stock values are simply impossible, if the financial infrastructure collapses - and it is teetering on the brink! The 2008 lows conveniently fell into 2002-2003 low territory - which ordinarily would satisfy FLAT CORRECTION pattern. Tragically, a collapsed individual Ponzi scheme is now shaking confidence about remaining capitalist foundation - it dawns onto the masses that Wall Street, shamelessly taking in taxpayers money - is in fact the ultimate pyramid itself; and so is the government! So I hypothesize that any conventional oversold to-date is temporary; it will lead to consolidation/bounce to relieve it, before the final down-wave. Today's C.O.T. had Commercials net-shorting again, during price down-tick no less! Funds were going Net-Long - my suspicion is that they'll reverse to selling into any nice bounce from here... 2. Treasuries of all durations hit what one famed market observer termed "unconscionable" levels. I agree - but there is a little hitch: Commercials have bought into recent record highs, putting pressure on Spec shorts! I'm anticipating the last little squeeze right here, coinciding with another silly Bullish headline - and only then Commercials would begin reversing into the ultimate value! I'm not sure it will be as high as 147 on the 30y future, to rhyme with Oil's record tick; but I think at least the impression will be given - that's the target! 3. EU and SF are certainly on their way to eventual new records against the Dollar. It may be because they're currencies more diligently guarded against inflation; or it may be because the Dollar traditionally depreciated over time (except during brief historical German and Japanese tragedies). There is slight problem right now - C.O.T. showed funds jumping onto this idea a little too fast last couple of weeks. So I expect them to consolidate their profits for a little while... Spec sentiment against BP is nearing very oversold: it appears that Specs are pushing toward EUR/GBP parity; I will be very interested in picking up some pounds around there - before Specs eventually go the other way... Yen is fundamentally very flawed currency; Japan demographics are irreversibly weak. It's only a matter of time before Yen strength reverses for good - but so far we're not getting any strong indications. Clearly: it is because Yen has been trading not on its own fundamentals - but rather as the default beneficiary on crosses... 4. Metals have been captives to currency moves; also industrial metals have suffered disproportionately sharp physical demand void and investor cross-margin liquidation. But Platinum's price has consolidated in Q4, while O.I. has much improved. Copper is even more intriguing: Q4 dip from 3.25 to 1.25 came on increased O.I. and uncharacteristic record Fund Shorting(!) I have to conclude that metals are very near cyclical bottom - but timing of any major rally would still be tied to currencies. Gold may still have to spend another Quarter or so in roughly 750-950 range, before breaking out to records with currencies; so range is what I will trade, siding with Commercials... 5. Energies are very interesting, as they are nearing very important bottom. Sentiment swings are most prolific here - as they are true strategic commodities. In the world that appears to come apart at the seams - there will eventually occur government hoarding "Mad Max" style! Both Crude and NatGas hit nice natural bottoms last week. WTI managed symmetric equality drop, you can't make this stuff up: $57 slide to $90 by Fall Equinox; then another $57 below $90 by Winter Solstice! NatGas completed 100.0% Lobagola $5.20 to 13.70 back to $5.21 - price, which equals precisely 38% of $13.70! So all of this is nice; except Crude is currently sporting C.O.T. Bearish divergence, and NatGas is sporting O.I. Bearish divergence. My conclusion is that both will struggle a little in Bearish wave2 - before Bullish wave3 rockets them in January... . . . click here to view
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Markets often turn in first week of the NEW year
Anatoly Veltman - Mon Dec29
Mon Dec29 (NY) - by Anatoly Veltman - Chief Global Analyst - Over a decade of pro checkers training, followed by two decades of value-hunting in markets taught me but one lesson: "Trojan horses" should ring alarm-bells! Just like when your checker opponent suddenly offers a sacrifice - one should be cautioned against too obvious a market bargain. I view the thoroughly obvious Bond Shorting bargain as one of the ominous signs that will keep me away from TimesSq for the Ball-Drop. The connection: see, a friend of mine canceled his long-planned Mumbai biz-trip - just because of what happened there the month before. People tend to be reactive; not pro-active... But with what Israel is currently doing, Hamas is all but paralyzed. What people are not thinking about: when you corner someone, it may become more complicated than meets the eye. Cynics will think that outgoing Administration, who is still in charge of counter-terrorism - will not be losing all of their sleep trying to prevent N-Y-E Al Qaeda episode. After all, something as terrible as that would put the outgoing's past policies in much more favorable historical retrospective... Market reaction would be spike up in foreign currencies and Treasuries, down in stocks and industrial commodities; precisely a continuation and possible extreme of recent trends! So, whether it happens or not - fresh positions against old trends will only tend to be placed post-New Year's . . . click here to view
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Newly Emerging Trends
Anatoly Veltman - Thu Dec25
Thu Dec25 (NY) - by Anatoly Veltman - Chief Global Analyst - Holiday markets may be deceiving in their lack of volume and volatility. They may still punctuate emerging trends. This is what I see: 1. The Yen is on the verge of the first losing week in eight. I see Yen giving up its leadership position for good. 2. EUR is gathering strength to eventually appreciate to new record vs USD. GBP deserves watching, as it may eventually turn around from record lows vs.EUR and develop into world's biggest currency Bull. Rouble is undergoing controlled devaluation. 3. SP may well survive year-end and start of New Year; I see that as Bull trap, allowing Short entry closer to 1000. 4. Treasuries will teeter at their top until they teeter no more - this will be the Bear market to behold in 2009. 5. Energies will pop strongly out of grossly oversold, just as sentiment grew most pessimistic. 6. Gold's balance of evidence is Bullish; while Platinum's O.I. accummulation is most impressive. 7. Grains, on the other hand, are just short-covering . . . click here to view
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First half of January: looking to be Long NatGas
Anatoly Veltman - Tue Dec23
Tue Dec23 (NY) - by Anatoly Veltman - Chief Global Analyst - 1. This commodity rallied in first half of Jan in 2000, 2001, 2003, 2004, 2005, 2007 and 2008. (The exception year 2002 was digesting Enron manipulations, and did rally only by the end of January. The exception year of 2006 was just continuation of collapse from all-time high print of 250% price bubble of 2005.) 2. Price has just completed 100.0% Lobagola from $5.20->$13.70 and back to $5.21. 3. Both Open Interest and Commitment of Traders data have displayed non-Bearish profile during recent months' non-stop price decline: O.I. has been contracting, indicating that substantial part of Long-liquidation is already out-of-the-way; C.O.T. shows Commercials at record Net Long commitment, while Funds at record Net Short commitment. 4. There may well arise speculative commitment to Long nearing Obama's inaugural; logic has it that his policies will prioritize conversion to cleaner-burning NG significantly more than Bush's. 5. The pattern of large expiration gap in Crude, as I recall over the years: the new contract hardly ever follows to close the expiry gap entirely. This may be counter-intuitive to most, who look for Feb Crude to not just keep sliding to the tune of at least the entire $8.50 premium that it sported when Jan expired; but more indeed, all the way to $25. Historical patterns do not support such speculation. 6. We are liking the little fact that NG deflated exactly 2.62 times from this year's $13.69 top; i.e. this year's new $5.21 low is exactly 38% of that top price! . . . click here to view
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Dear Jack,
I really want to say thanks for everything that I have learned from You and The Marlin Letter. Prior to taking your course, I was trading about 75 contracts per month. Today, I traded 48 Dow contracts with 40 of the trades lasting less than 2 minutes! I CAN NOT BELIEVE HOW MUCH I HAVE IMPROVED! Thanks Jack. My Wife thanks you also.
Sincerely
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Colorado
10/15/07
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