Global Macro Trading Journal
- Thread starter Daal
- Start date
You know what would really fuck with people's heads here?
If Europe actually came out with something halfway plausible / credible next week, investors decided that the future promise of QE3 was enough and that things would be okay, and U.S. equities resumed their grinding uptrend (with help from low-cost commodity arguments, CRB now back to avg-since-2000 levels) after headfaking the hell out of everyone on Thursday.
Facebook is up 4% today, +23% in past two weeks... bonds slumping, "fear trade" looking deflated...
This market loves to juke people. Wouldn't be surprised at all to see such happen.
If Europe actually came out with something halfway plausible / credible next week, investors decided that the future promise of QE3 was enough and that things would be okay, and U.S. equities resumed their grinding uptrend (with help from low-cost commodity arguments, CRB now back to avg-since-2000 levels) after headfaking the hell out of everyone on Thursday.
Facebook is up 4% today, +23% in past two weeks... bonds slumping, "fear trade" looking deflated...
This market loves to juke people. Wouldn't be surprised at all to see such happen.
Did you see the Philly Fed survey yesterday? Europe barely scratches the surface of the headwinds facing this market. Hopium is powerful but has not been sufficient in past years absent some concrete (as far as it gets...) divine intervention folks could point to. My impression is that the sort of scenario painted by Daal earlier is far more plausible. In particular there remains an obsessive focus on Europe and very little talk of a recession, growth scare etc. here despite many smart people making good arguments that a recession may have already begun, in May or June. This could easily blindside a market that is already extremely fragile. God only knows what SPX value might see major support from value investors and powder-dry smart money if the selling picks up.
Either way I think the key levels are in now on equities. Pretty clear now what the possibilities are in terms of risk and reward, all that remains is to decide how much you want to bet. Tactically I am heavily short here with stops on everything above May 10th-11th highs. Mental stop in around breakeven (approx 22.8) on EWA.
I'm not nearly as committed, in either direction. Don't disagree w/ you on Philly Fed etc... it's just been a characteristic of this market the past few years to extract "max frustration" whenever possible. A new push to intermediate term highs -- followed by a hope-dashing collapse just when bulls thought they'd won -- would fit that bill, and if folks were genuinely freaked out about yesterday's macro data, I'm skeptical TLT would be down 130 bips today.
p.s. Plus it would be a chance to "wash and rinse" all the guys who thought the key levels were in
Can't make money if you don't sit at the table bro.
If you aren't short now, it actually begs the question of what additional information or market developments you could possibly be waiting for. If your main fear is of some kind of intervention-inspired rocket-rally, it would seem that right now we're about as far from that as you're ever going to get. The last Fed meeting just two days ago was a complete brick, and while a further market selloff would imply confirmation of the bearish view, it also dramatically increases the odds of the authorities making some surprise move in a bid to support the market (not just printing, but short-sale bans etc., and nothing breaks Euro-deadlock quite like a market selloff).
Ditto for the overall macro situation. We're presently at a sweet spot for bears where the macro environment (including possibilities for monetary or fiscal stimulus) is almost uniformly grim, the current to lagging data is actually beginning to reflect this reality, yet the market does not seem to have priced it in to any significant degree. One can of course wait endlessly for "more confirmation" or for yet another washout to provide the ideal heaven-sent entry, but in order to make money it's usually necessary to anticipate things to some extent and just take the plunge.
Next week's European Council Meeting 6/28 to 6/29 where the Roadmap to Banking Union is introduced and Germany voting on the permanent rescue mechanism could be a point where bulls put a fight, but I'm expecting prices to decline to near that date before another BS rally.
Today's up move had to do with improved sentiment from ECB's move to ease collateral requirements, perhaps inspired by yesterday's sell-off.
Oh, I'm at the table.
We're actually 20-30% net short equities right now, plus the latest Aussie short (AUDUSD) from 1.0133.
I don't see this as a high conviction juncture though. The risk points on nearly all our positions have locked-in profits, and the handful that aren't are very tight.
Depending on how the next few weeks play out, it would be a very easy thing to flip from net short to +50% net long (or more).
But that wouldn't be a high conviction adjustment either, just a fulcrum pivot. Truth be told, I have no idea what our exposure will be a month or two out. It could be 150% net long... or 150% net short... or anywhere in between.
A lot of people like to have conviction, and welcome the feeling of having a strong opinion on something.
I don't like doing that. I prefer to resist my convictions -- to stress test them, really push back on them. That way, if I still have strong conviction after going through that process, I know it really means something.
This mindset, of course, requires the ability to make money even when conviction is not present -- which we can do -- and to "float like a jellyfish" (Stuart Walton, SMW) when clarity is not present (which we also do well).
Tightly managing risk, and entering trades with high precision -- trades being classified wholly separate from long-term investments, mind you -- is what allows us to do this.
It is further a hallmark of our style that, as a general rule, the biggest money need not be made at the beginning of a major move. It can be made halfway through, or even in the euphoria / panic blowoff phase.
This is a function of being able to dial exposure up or down very, very quickly, by way of tightly managed risk at key inflection points. And as Scott Bessent has observed, sometimes a long is even more compelling after the first leg up, or a short after the first leg down, because the fundamental dynamics have evolved as such to create even more value and momentum relative to price than when the move first started. (This is the idea of a stock being cheaper at $20 than $10, or more expensive at $50 than $100.)
As such, there is never any concern on my part, re, making the party on time.
Fashionably late is fine -- though the ability to catch a move early is certainly present (given the right set of circumstances).
Ha! Goes to show how important the minor details are. If high conviction was present, we might be 5 or 10x that in terms of leverage equivalents...
Reminds me of a story Peter Brandt tells. Paraphrase as I remember it: As a young guy Peter has a friend and mentor who is an excellent trader in the soybean pits. This friend gets extremely excited, telling Peter he sees a "major move" coming.
Peter gets excited, checks his charts, and positions for the big move. Soybeans run up a couple cents, then turn around and crap out. Peter takes a not-too-large but fairly disappointing loss.
He checks with his friend: "Hey, what happened to that move in soybeans?"
Friend's response: "Yeah, wasn't it spectacular? I made a killing!"
It turns out that, from the perspective of his floor trader friend, the "big move" was a high probability setup for a move of something like 3 to 5 cents. As a chart / position trader, to Peter this was useless...
Lesson: Don't ever wholesale adopt someone else's views or opinions, without 1) vetting the details and 2) properly integrating and tailoring the raw information / theory to fit your own context.