Oil beginning to threaten SIFs

Time for a position in SPX options:

Long delta, slightly long gamma, mildly short theta, mildly short skew, mildly long kurtosis, mildly short vega.

I know I know, I have been saying vol goes higher, but the jump difussion models now say that is an odds off play. You could flip exposures to long vega and long theta and keep the rest mostly the same. Then you would basically be mildly short skew.

nitro
 
So hard to say at what point QM breaks SIFs back. I would have said $80, but SIFs and the market seemed to find a way to afford it.

Gasoline prices have stayed steady and not rising with oil. As the article above explains, that can happen.

Dollar holding somewhat steady, in spite of the fact of new record QM prices. YG has been following oil in step.

I think we are seeing market dynamics that have never existed before. Classicaly, AFAIK, none of this makes sense if you take everything into consideration. The only way to make sense of it imo, is that it is global inflation that will break [equity] markets, not local inflation numbers. That sort of makes sense. The only way the [equity] markets can stay at these levels with QM, YG, and the dollar at these levels, etc, is if the [equity] markets are no longer weighting the american economy with as much weight as it used to.

Start looking for a global inflation metric, as that will likely signal the turn in SIFs.

nitro
 
Quote from nitro:

So hard to say at what point QM breaks SIFs back. I would have said $80, but SIFs and the market seemed to find a way to afford it.
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I'd guess it happens when everyone is making a fuss about oil going above 100. When this panic will come, I don't know, but I believe back month futures will trade above front month at that time.

Until then it should be a good idea to stay long oil.
 
QM tops $90, then pulls back hard.

Bull markets climb walls of worry. Right now, I believe this sell off in SIFs is due to the continued sell off in the dollar. But you have to look carefully. Why is the dollar falling? Look at EDs and FFFs. They are predicting a .25 basis cut from the FOMC as essentially a done deal.

Now, sure that weakens the dollar, but there is always another side to the teeter totter. NQs strength the last few days has been obvious as a zit on the tip of my nose. Either, the economy is splitting, or NQ is saying no recession. I side with NQ. I believe this selloff is mostly foreign institutions exiting US market. They have a gift for selling the low and buying the high.

Trend is still intact. Strong bulls buy these dips [the only time you stop buying dips is if SPX closes below 1400], which is what I am seeing in the cash market. End of quarter nearing....

nitro
 
About $500,000,000,000 of selling.

Let's see how many more bullets these sellers have. We need to see another $1.1 Trillion of selling without a bounce to have chart damage.

nitro
 
Quote from nitro:

Time for a position in SPX options:

Long delta, slightly long gamma, mildly short theta, mildly short skew, mildly long kurtosis, mildly short vega.

I know I know, I have been saying vol goes higher, but the jump difussion models now say that is an odds off play. You could flip exposures to long vega and long theta and keep the rest mostly the same. Then you would basically be mildly short skew.

nitro
More...
Changing this position into FED.

Long delta, slightly long gamma, long theta, mildly short skew, mildly short kurtosis, mildly long vega.

Will reevaluate after announcement and language.

nitro

BTW, when I say long theta, that means I am paying premium, meaning I am net long options.
 
The ADP and GDP numbers are out and they are clearly strong. Granted those numbers are backward looking, but the rate cuts aren't felt for months after they are in effect either. So what economy exactly are we saving?

I don't know, FFFs give a 90% chance of a cut, and those things predict the FED like an atomic clock time tells time. The problem is the FED doesn't have a tool that is surgical enough for the problem it has. Cutting rates for this emergency, with everything else going on in the economy is too blunt an instrument.

I know I am wrong in terms of what actually happens, but if I were the FED I would not cut today. SIFs would lose a chunk, but I think the market would support SPX at 1400 on its own. IMO in this environment, rate cuts to the markets are like steroids are to an athlete - eventually you have to pay the piper, double. Worse, I think rate cuts here is like giving viagra to a twenty year old.

I am modyfying position above to be flat delta.

nitro
 
Modifying position above to be long delta.

The only thing stopping SPX from 1600 is the credit issues, which are still unclear. You can't see recession with this unemployment number, so full speed ahead.

Oil actually has downside risk to SPX if it goes DOWN now, since 12% of SPX is energy, and growing. So you have to sort of stand on your head a bit on QM as it relates to SPX for the moment.

Imo, it is now clear that barring any catastrophe, we are on our own as far as the FED is concerned. This market lives or dies on it's own till EOY.

Plan is simple, go flat delta on bad news, go long delta on good news. Buy dips as long as no chart damage. Tech still rules.

nitro
 
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