I'll just like to touch up on a quick post regarding sentiment in the currency markets, as there seems to be so much interest there with constant bearish news coming from both Eurozone and China. I have been reading a lot of blogs as of late to track what the markets view currently stands at. I like doing that from time to time because blogger-sphere seems to be a good barometer of consensus thinking. So it turns out some of these very poplar and quite well followed blogs are currently surprised with the current risk-on rally. Funny, these same bloggers were recommending continuation of downtrend and further selling just couple of weeks ago.
Common sense stated we were overdue for a huge short squeeze or a technical rally or whatever you want to call it. I have actually been warning of a US Dollar pullback for weeks. However, majority of these "blogger experts" disagreed, saying "No, no, no... Europe is in huge trouble... run back home and short some Euros quickly before its too late!" Now, I look at the Euro just reaching $1.38 and above today - after trading at $1.31 just recently. That is 7 handles in a week... ouch! Even the British Pound is gaining, despite so many "pundits" recommending shorting it after further QE was re-started by BoE.
Commodity currency complex is pretty much similar. As of last two weeks, speculators were net short commodity currencies for the first time since March 2009. I'll quote this for you...
"So you better be quick and short the Aussie Dollar, before Chinese property blows up! Price will never reach parity again." said one blogger, who I won't mention here, while referring to a Jim Chanos' video.
Haha. Speaking of parity, Aussie Dollar is stronger than its US counterpart again - as a matter a fact it is now close to $1.02 after trading at 93 cent handle just a week or so ago. That is almost 10 handles in a week or so - ouch! Kiwi Dollar is also back towards 80 cents, while the Loonie now trading below $1.02 and moving toward parity again. Even other less popular commodity currencies like the NOK are also gaining very rapidly, now trading back to $5.60 from $6.00 just couple of weeks ago.
I can here a lot of squealing and pain coming from the Johnny-Come-Lately's who insisted that shorting the Euro or Commodity Currencies was the priority only few weeks ago. It is not just currencies either, S&P 500 has now rallied 12% from the bear trap, while Crude Oil is edging towards $90 a barrel again. The whole thing is a bit hilarious really and the funniest thing of all is these gentleman speak at conferences for finance and investing, charging money on us citizens.
So what is my view on the currency complex?
Well, I remain optimistic on the US Dollar, so you could claim I belong in the same boat. Well maybe I hold the same view as the professional bloggers slash conference speakers, but in this business, timing is almost everything and I prefer not to get squeeze by 10 handles on the Aussie Dollar within 10 trading days. You are either a contrarian or a victim. Don't get me wrong, even being contrarian gets you into trouble from time to time, but you are still better of being wrong some of the time, then all of the time.
So understanding execution is the main part of making money, we should soon enough be looking at adding some US Dollar longs or some puts (depending on your strategy), while a lot of weak hands get squeezed. We still might have some squeezing to go first, judging by the remaining bearish talk. The whole purpose of this blog is to follow a contrarian analysis from both the short, medium as well as long term perspectives. The goal for a contrarian investor is to always try to buy low and sell high!
Tiho:
ReplyDeleteAlways be humble.
The others were all part of the crowd as you correctly pointed out. They trapped themselves.
As you say, the questions are timing and execution. Trend reversals?
Seems that everything is now flying around in trend reversals. For how long and how much? It seems that the US market is still very low versus earnings and interest rates-if the US can muster some economic growth pick up (a big if?) it could have a heck of a run.?.
Interesting to see when excessive bullishness picks up again...........
Keep up the good work.
The finance industry deserves a good laugh from all sides, not just the protesters in New York. The industry is total joke, but the joke is never uncovered during secular bull markets, because everything keeps going up. Now we got a lot of volatility and majority of these pros are struggling to make money.
ReplyDeleteYou know what is funny on top of all that? Some of these guys are claiming to be managing other peoples money with "years of experience". They also talk at conferences and charge $50 or $100 entry fees or what not. Thats ludicrous and on the border of crime. Besides, I'm not your typical finance type. I never worked in finance firm and I hope it stays like that. That way I might actually stand a chance of making a dollar or two with investing...
My business partners work in the Australian mining industry and we are now also looking at expanding into agriculture. I rather be a farmer, than charging $50 at conference to spin "you know what" to people so they go home and lose money because I gave them awful advice. That is appalling if you ask me, so I plan to have quite a few more laughs on their behalf to be honest.
The miners here in Australia, which are honest country folk, think all these Wall Street types should be arrested and jailed for life right now hehe!
haha i agree dude. fifty bucks to listen to some garbage is crazy. it is only worth listening to your inner self when laying down chips on the table. wall street is a big casino that always wins by giving you a wrong tip on the next horse race.
ReplyDeleteHi Tiho !!
ReplyDeleteFirst I looove your blog :) Please keep up the good work !!
You mentionned several times in the past that you follow some sentiment surveys in Forex market do you mind sharing what they are ? I know you use US DOLLAR PUBLIC OPINION from sentimentrader and COT reports but do you have other ?
And also, do you mind sharing some blogs you visit, to perform your blogger sphere analysis ( I know, I am very lucky to just found your one ... )
Thanks in advance !
The problem is human nature... A vast majority of all trading desk players have less than 10 years experience, they only know directional markets. And it is really easy to make money on a trending market (up or down). Moreover, all these guys have to stick to the macro view policy of their company, and their quants analysis. And the board who decide the policy have to manage risk and cover their ass, so they follow the trend.
ReplyDeleteWhen the market is trending with low volatility, one must play the breakouts and add to winning exposure. When the volat is so high, one must be contrarian and stick to the reversal or extreme situation in indicators. It is just another way to trade. But the vast majority is staying cash and try to play "high value breakouts" with small exposure. Some say that we are in a range-bound market since 2000, the other say we are in a range-bound market since august. They just miss in a range-bound market, one can play strong trends in smaller time frames. It is even more easy to play a range than a trend (imho).
On the other hand, I initially though the rally will last 2-3 months and will be easy to play. I must admit that with that volatility and this amount of bearishness all around, I begin to think the rally could stay longer than most think (fev 2012?) and will be more volatil too. On the other hand, the next bear leg (if we have one) could be far more flat than a lot of bears think.
Fred
Sam - you sound like a bit of gambler hehe! Do you bet on horses or play poker by any chance?
ReplyDeleteFred - I always enjoy reading your comments, as you cover many topics. On the last point, I am not sure how long the rally will last. I guess I will have to see how it all plays out. I wasn't sure when the initial down leg will end until I saw it coming in late September, so I started a chain of posts to make sure readers of this blog became aware of an upcoming rally.
First of all, these counter trend rallies sometimes tend to be choppy and full of surprises. Nasty pullbacks that make bears thhink another downleg is on the way are very common. So we now rallied full 12%, but another pullback can be just as swift the other way.
Second, lots of pros, who know much more than me, are quoted as saying 1250 or 200 day moving average is the target. So if they are right, we are almost there... almost no gains left to look forward to. I somehow always make sure I disagree with pros, it seems to work better.
Third, almost everyone is now expecting good seasonal rally in 3rd quarter, between October and December. Markets usually don't award everyone and there is no free lunch in this game. Remember 2010 and the bad seasonality everyone expected in September and October? Yeah well, we all got tricked didn't we. So that makes me think, a surprise might be in the cards.
But all in all, I'm just thinking out loud and to be honest with you - I don't have a clue. But at least I won't charge you $50 a ticket for my conference speech hehe!
This is an awesome blog. I'm glad I found it so keep up the good work. + Chan
ReplyDeleteMy post have been removed ? :'(
ReplyDeleteHi Mugiwara. Unless you delete your own posts, I never delete posts on the blog.
ReplyDeleteAre you sure you posted it?
History often repeat itself. Politial cycle like economcic cycle never stops. When we are in secular bull market, regulations is relaxed defintely. You can observe it from 82-00 such as Glass–Steagall Act. When the bull come to an end, regulations tend to tighten.
ReplyDeleteI expect financial sector will be hit hard by politics when public tolerance reach a critial points that is coming soon.
Mugiwara
ReplyDeleteI encounter your problem that the post disspear. but it is ok when I use another computer.
@Bo: yep...
ReplyDelete@Tiho: These guys are always funny.... They have tons of charts, access to research, high spending in quantitative analysis to try to correlate anything you can image, they move their HFT black boxes as close as possible to the exchange to increase the speed... And then they come and tell: market will pullback on H&S neckline or 200 DMA.... hahahahaha !
Time and cycles are everything. SP (and a vast majority of indexes except China) tends to make a daily cycle low every 17 to 26 days on average. MT cycles are composed by 4 daily cycles (sometimes 7 for a very extended move). 4 daily cycles from july to end-nov 2010, 7 more to 16 june 2011 low. 4 daily cycles for this corrective move: 16 june, 18 july, 9 august, 12 sept => bottom time band from 4 to 18 oct.
I think if mister market want to fool the most, he will go nowhere from here in the next months, but in a very volatil way to trap everybody. That's my idea of the "rally".
Fred
OK, it is probably my mistake. I don't mind posting it again.
ReplyDeleteFirst, I looove your blog so please keep up the good work !
You mentioned several time in the past that you are using several surveys for the forex market, I would like to know if you don't mind sharing what they are ? I know you use USD public opinion from sentimetrader and COT reports but do you use others ?
I also wanted to ask if you can share the blogs you visit to perform your bloggers sphere analysis ? I know I am very lucky to basically only know your own but I would be happy if I can see others, and understand more what you are saying.
Lot of requests ... But I love your thinking process and would like to understand it more in depth.
Thanks a lot in advance
Fred - Mr. Market is always fooling us all, all the time, isn't he?
ReplyDeleteMugiwara - Thank you for the nice comments. To answer your first question, I rather not disclose what blogs I read in regards to "consensus thinking" because these guys might personally get anger at me. However, I recommend you go to Ticker Sense Poll and see which blogs vote in that sentiment. Than from there you might find even more blogs.
In regards to sentiment, yes Public Opinion is excellent because it incorporates a few sentiment indicators in one. I also use DSI, fund flows for ETFs, put call ratios and finally I think commitment of traders is pretty much the best.
Hope that helps!
helps a lot ! thanks a lot Tiho !
ReplyDeleteHope I can soon contribute here myself :)
Nice post, man. Any new insight on the sentiment regarding silver and gold?
ReplyDeleteIt is still the same as it was few weeks ago. Sentiment still remains quite negative on both Gold and Silver. Does that mean we are at a bottom? I'd say no, because bearish sentiment can prevail for a decent amount of time during downtrends.
ReplyDeleteBesides, markets move much slower than most of us think. Everybody always wants to be doing something, buying something, selling something, keeping busy - but that is probably the wrong thing to do. Majority of the time, our job should be to do nothing. You do something when there is something to do.
Having said, if you are a day trader, that advice obviously doesn't apply to you.
Wow, man! I often tell others to learn to "sit on their hands". But when it comes to managing my own money, I found it very difficult to achieve. How do you manage to be so disciplined!
ReplyDeleteI don't. I make mistakes just like everybody else.
ReplyDeleteTiho can sit on his hands because like he said earlier he has a government that isn't printing money and denying inflation so he get 6% on cash.
ReplyDelete