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Sun, 30th April 2017

Anirudh Sethi Report

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Archives of “market” Tag

Overnight US Market :Indices can’t hold onto gains. End marginally lower.

S&P down -0.05%. Nasdaq unchanged.  Dow -0.10%

The markets got the broad brush strokes of Pres. Trumps tax plan from the team of Mnuchin and Cohn.  The stock market was not all that impressed (or the 2x +200 days already had a lot priced in).
Anyway, the US stocks was able to still stay positive until the very end when the prices dipped into the red.
At the end of the day:
  • The S&P ended down -1.16 points or -0.05% to 2387.45. The high for the day toyed with the 2400 level (high reached 2398.16). The low came in at 2386.76.
  • The Dow fell by -21.03 points or -0.10%. The high extended to 21070. The low reached 20972.27. The index closed at 20975.09.
  • The Nasdaq is ending the day down -0.265 points, unchanged on the day. The high extended to 6040.89. The low 6021.719. The close 6025.227.

Bob Prechter Warns Market Correction “Larger Than The Malaise Of The ’30s” Looms

I recently interviewed Prechter, who released a ground-breaking book, “The Socionomic Theory of Finance,” at the end of December. In the 813-page book, which took 13 years to write, he proposes a cohesive model that takes into account trends in sociology, psychology, politics, economics and finance. I highly recommend the book.

As I’ve explained here, Elliott Wave theory says public sentiment and mass psychology move in five waves within a primary trend, and three waves in a counter-trend. Once a five, or V, wave move (the waves are sometimes described in Roman numerals) in public sentiment is completed, it is time for the subconscious sentiment of the public to shift in the opposite direction, which is simply a natural cause of events in the human psyche, and not the operative effect from some form of “news.”

As one reviewer on Amazon wrote about Prechter’s new book: “This [cohesive] approach allows a measure of prediction on the basis that social mood fluctuates in fractal waves, and knowledge of them allows one ‘to achieve some measure of success in forecasting the direction, extremity and character of financial, social, political, cultural and economic trends.’ ”

Here’s an edited version of the interview, in which Prechter gives his outlook for the U.S. stock market, the general theory of Elliott Wave analysis and his new projects.

Avi Gilburt: You’ve said that, once the stock market tops, you expect a major bear market and economic contraction to take hold. What is your general timing for this to occur?

Axel Merk On What’s Next For The Dollar, Gold, & Stocks?

Two rate hikes since last year have weakened the dollar. Why is that, and what’s ahead for dollar, currencies & gold? And while we are at it, we’ll chime in on what may be in store for the stock market…

Stocks…

The chart above shows the S&P 500, the price of gold and the U.S. dollar index since the beginning of 2016. The year 2016 started with a rout in the equity markets which was soon forgotten, allowing the multi-year bull market to continue. After last November’s election we have had the onset of what some refer to as the Trump rally. Volatility in the stock market has come down to what may be historic lows. Of late, many trading days appear to start on a down note, although late day rallies (possibly due to retail money flowing into index funds) are quite common.

Where do stocks go from here? Of late, we have heard outspoken money manager Jeff Gundlach suggests that bear markets only happen if the economy turns down; and that his indicators suggest that there’s no recession in sight. We agree that bear markets are more commonly associated with recessions, but with due respect to Mr. Gundlach, the October 1987 crash is a notable exception. The 1987 crash was an environment that suffered mostly from valuations that had gotten too high; an environment where nothing could possibly go wrong: the concept of “portfolio insurance” was en vogue at the time. Without going into detail of how portfolio insurance worked, let it be said that it relied on market liquidity. The market took a serious nosedive when the linkage between the S&P futures markets and their underlying stocks broke down.

There are no free rides for non-OPEC producers taking advantage of OPEC cuts

Saudi energy minister on the wires

  • Saudi output is below 10mbpd
  • There is cause for cautious optimism in the oil market recovery
  • Fundamentals are improving
  • There are concerns that worldwide investment in energy is falling behind supply development needs
  • OPEC is monitoring markets to evaluate the results of the agreement and will act later
  • Peak oil demand projections are misguided and say they threaten needed investment

He’s speaking at the CERAWeek conference.

SEBI asks brokers to liquidate all futures and options positions of Vijay Mallya

Markets regulator Sebi has directed brokers to square off all existing open positions in the equity derivatives segment they hold for Vijay Mallya and the six former officials of United Spirits who were banned from the market last week.

The fresh directive by the capital market regulator has been made through an e-mail to stock exchanges yesterday.

“The trading members are advised to square off existing open positions in the futures and options segment, if any, for the persons/entities mentioned in the above order and also ensure that no fresh positions are created for the said persons/entities,” an NSE circular said quoting the Sebi directive.

However, the regulator has not given them a time-line to do so.

Sebi had last week through an interim order, barred Mallya and six former officials of USL from entering the market, after the CBI charge-sheeted them in a money laundering case involving a loan IDBI Bank.

The CBI also charge-sheeted and arrested eight IDBI Bank officials, including its former chairman Yogesh Aggrawal in the case for their role in bypassing lending norms to extend Mallya Rs 950 crore loan in 2010.

Fifteen truths about options trading

  1. I believe that successful options trading requires a different mindset from the traditional “rules of success” for most directional traders in stocks and futures products.
  2. First and foremost, I believe you need to take profits early and often. We’ve all been hit over the head ad nausem about the old maxim “cut your losers short and let your winners run.” This is a truth I believe holds true for most directional traders, but I don’t believe it holds any currency with consistently successful options traders.
  3. Speaking of direction, I believe nobody knows the next direction the instrument you trade will move. Nobody. Plenty have ideas and hunches, and often they’ll be right. But the truth is, a coin flip has nearly identical odds. This is why I trade options positions that either don’t require me to guess a direction, or provide me with plenty of opportunity to make money even when I’m leaning in the wrong direction.
  4. Immediately contradicting the item above, I believe in fading moves (especially, violent down moves). The best traders and investors are willing to put on positions the majority of market participants find hard to put on due to fear. Since the majority of market participants are net losers, I’ve got to find more opportunities to join the minority.
  5. I believe in contradictions. I believe in breaking the rules. Rules are guidelines, nothing more. Nobody got ahead in this world by following the rulebook and not daring to make mistakes or look like an ass from time to time.
  6. I believe in getting paid to wait. Time is money. Wherever possible, I want to have positive theta on my side. The odds are with me whenever this is the case.
  7. Speaking of odds, I believe in frequent trading. Common wisdom wants you to believe that “over-trading” is the common cause of death for most retail trading accounts as commissions steadily drain your account. In many cases this is true (especially if your commission rate is obnoxious). But for me, I’m putting on trades with the probabilities in my favor. The more instances of opportunity I can get myself into, the more the law of large numbers and favorable probabilities will materialize to my bottom line.
  8. In order to trade frequently, I believe in trading incredibly small so that I can spread my opportunity across as many instruments as possible, diversifying my risk. Call me “One-lot Seany.” I’ll proudly wear that name tag.
  9. I believe that volatility retraces from spikes or reverts to the mean much quicker and predictably than most would have you believe. Thus, I believe in selling fear. Fear subsides.
  10. I don’t believe in stop losses. I believe in adjustments. Options trading gives you, um…. options. When positions go against me, all is not lost. Often times, there will be plenty of opportunity to roll strikes to collect additional credit which improves my odds of success, or roll positions out in time to in effect “buy myself more time” for the trade to play out.
  11. The reason adjustments work: I seek to enter credit spreads when volatility is elevated (see #9 above). Therefore, if my position is getting tested on the upside, volatility will likely be shrinking which further aids my short volatility position. If I’m getting tested on the downside, volatility is likely remaining high (or increasing!) which gives me more juicy premium to sell into, which then results in collecting more cash and effectively lowers my breakeven points on the downside, thus improving my odds of success.
  12. I believe in net market neutral exposure for my portfolio.
  13. To help achieve neutral exposure, I believe I should always have a short delta (but positive theta — paid to wait) position in the general indexes. Since the majority of my individual positions will be short volatility and benefit from a stable or slowly rising market, I need to have short index positions which will benefit when markets are receding and volatilities are rising.
  14. I believe in making stocks and markets work to beat me. They will win from time to time, but they will have to earn it with outsized moves. If the stock or market is too lazy to come get me, I’ll gladly collect its coin and move on to the next trade.
  15. I believe the only true edge in any marketplace is Buying Power.*

OPEC/non-OPEC monitoring committee say markets are on their way to rebalancing

the OPEC/non-OPEC deal monitoring committee met in Vienna today 22 Jan

Saudi energy minister Khalid al-Falih said earlier today after the first meeting:

“I am satisfied, I am optimistic and, as I said, the markets are on their way to rebalance and it’s happening,”

adding that compliance with the agreement, which calls for cuts to begin this month, had been “fantastic“.

“Usually non-OPEC would raise their production to compensate for voluntary cuts by OPEC. Now, we are seeing voluntary cuts by both sides,”

Some 1.5 million bpd in crude production had already been taken out of the market last week he said.

“The other 300,000 bpd, for all I know, is still happening,” saying that he hoped for 100% compliance in February.

The next meeting was scheduled for after 17 March they also announced today.

More from Reuters here

I’m heading back out now. Enjoy the rest your week-end one and all. Thanks again, as always, for your fantastic support and input.

I wish you good trading this coming week and hopefully we can help make/save you a few pips along the way.

El-Falih Oil rebalancing on its way he says

 

People’s Bank of China sets yuan reference rate at 6.9526 (vs. yesterday at 6.9498)

CNY mid rate for the day, little bit weaker for the yuan

Open  market operations (OMOs):
  • inject  10bn yuan via 7-day reverse repos
  • inject  10bn yuan via 14-day reverse repos
Small injections (which mean today is a net drain); watch for more stress in HK yuan borrowing markets today. Yesterday saw surging rates for overnight (and longer) yuan borrowing. Likely we’ll see the same again today.
By limiting injections into money markets the People’s Bank of China makes borrowing yuan more expensive and therefore shorting yuan more expensive. The PBOC is trying to discourage yuan shorts. 

Bitcoin trade volume hits record in November

A record 174.7 million bitcoins changed hands, so to speak, in November, a 50% or so increase from the previous month’s trade volume, according to Bitcoinity.org.

The spike came as Chinese jumped into the digital currency as a way to shift their assets into dollars.

 The previous monthly record, which came in March, was 148.6 million bitcoins.

The November trading volume was worth $137 billion.

The yuan has been weakening against the U.S. currency since Donald Trump’s victory in the presidential election on Nov. 8.

Many Chinese evade restrictions on directly buying dollars by taking a detour into bitcoins. This is what they were doing last month.

China Launches Case Against US & EU With WTO Tribunal Over ‘Market Economy’ Row

This picture taken on March 7, 2014 shows a man working beside a cargo ship in Qingdao port in Qingdao, east China's Shandong provinceOn Monday China followed through a warning to “take further measures” against WTO members which continue to impose tariffs on its goods 15 years after Beijing’s accession to the organization.

On Monday the Commerce Ministry said that China has launched a dispute resolution case at the WTO, demanding that all WTO members, particularly the US and EU, stop using the “surrogate country approach” to impose higher tariffs against Chinese goods, which they claim to be exported at artificially low prices. “Regretfully, the US and EU have yet to fulfil this obligation,” the ministry wrote on its website. Sunday December 11 marked the 15th anniversary of China’s WTO accession, and China expects governments which have not already done so, to lift anti-dumping tariffs against its exports and treat Beijing like a fully-fledged member of the organization. The WTO and China agreed an accession protocol when Beijing joined the organization in 2001. Article 15 of this protocol dictates the terms which importing WTO members can use to compare their prices with those of Chinese producers, to determine if that producer is competing fairly with the domestic producers in the importing country. Some WTO members including the US and EU want to reserve the right to restrict Chinese imports with higher tariffs, in order to protect their manufacturers against “dumping,” the process by which a manufacturer exports a product to another country at a price below that charged in its home market, or at a price lower than the cost of production.

In order to investigate whether China is dumping goods, for the first 15 years of WTO membership Beijing was subject to the “surrogate country approach,” as laid out in Article 15.