Relative etf's (buy something with something else)

eurusdzn

eurusdzn

EEM-FXA_RAW.gif EEM-FXA_NEUTRAL.gif I read on ET and elsewhere of the virtues of spread trading.
This example (see charts) is trend trading a spread of emerging market vs. Aus. dollar.
It is not at all mean reversion trading on cointergrtated and correlated legs.
It is generating performance ( Alpha? ) by trading continued divergence. One leg will continue
to significantly outperform the other leg and the continued widening of the spread is the trend.
Just maybe, one could select a few of these that are not closely correlated and have some real
diversification of positions as opposed to selecting 5 or ten stocks.
This is not about exchange traded spreads and curve trading or MR. Sure, when a spread chops/ranges for
a while consistently it would be nice to see that and realize for whatever reason the legs are
temporarily moving together and to have a strategy to fade the extremes and close on the other side.
i would like to use this space to "deposit" for later viewing and analysis, spreads that i am tracking.
I have a limitation for many reasons of 200 such spreads. All are of liquid ETF's. No stocks.
of course single leg etf charts are in play as well.
Any comments are welcome. The main time consuming issue in "amateur land" where i come from is organizing this data.
In fact a major issue i struggle with is NEUTRAL or NOT NEUTRAL. it makes no sense to spread the 2 year bond with nat gas
for reasons other than 11x 2year = nat gas for neutral so thats not what i mean.
In the example charts however, selling 2.5ish the amount of Aus dollar to neutralize EEM produces a very nice trend
with 30% outperformance of a non neutral spread which is the type of chart produced by most software packages. (chart is approx. 750 trading days)
This makes sense to neutralize but i wonder what traders in the world trade off of ....the neutral chart or non neutral chart.
Both present unique opportunities. Most of the above verbage was a setup for that question.
Comments?

Ps. The right chart is the neutral chart. Being short more Aus. Dollar to neutralize the more volatile EEM etf has paid.
 
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SPY,FEZ,EWJ
EEM,FXI,RSX,EWZ
TLT,TLH,IEI
FXA,FXE,FXY,UUP
GLD,USL,UNG

IYR,IYT,QQQ,XLE,ITA,XLV,XLF,XLU

SHV(cash)

Spreading all of these against one another. This is a macro theme here and
I will be posting a lot of with trend pullback observations along with breakout
observations. These are not trades, they are observations. Been here , done that but maybe
I can get some value from this as i am somewhat better organized now.

If trading , I would have to use an etf vs. an inverse etf, futures contract,or lastly, an option.
Trader13 smartly suggested a market order contigent on a limit fill to not leave you single legged for stocks or etfs.
Options though. To enter i would use a limit order on the option and market on etf.
Exiting would have to be reversed, but a market order on a DITM option 4 or so weeks out
sounds bad. Possibly , for longer term holds, say in the 10% or more P/L the spread on the
option market order would not be so relatively bad.
Options are last resort. Cant short because its an IRA.
 
Yeasterday, 4/30 Fomc meeting. Money is leaving the US assets. 20 year Treasuries and USD have sold lately and seem to end up in Europe, Russia, Brazil, oil, emergimg market equities from my limited viewpoint.
The FOMC statement was interpretted hawkishly despite recent .2 Gdp and last NFP and some weak winter Q1 data. Stocks major indices are relatively stronger. Note weakness in IWM now with weaker dollar and that the dollar trend did not destroy multinats earnings. Sets up a hedged UPRO-TNA hedged position that would still work(even better?) in a steep selloff.
After the huge trends in USD and treasuries over months maybe similar to whack a mole,
the momey pops up elsewhere( euro,oil, distressed EM) and does not mean new trends.
The 2014 twenty year treasury run proved to me finally that i wont find or understand the reasons for such moves(personally i thought oil would be 30 now) , so enjoy the puzzle but
Do what Soros said in His books. Invest first and investigate second.
 
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eurusdzn said:
Yeasterday, 4/30 Fomc meeting. Money is leaving the US assets. 20 year Treasuries and USD have sold lately and seem to end up in Europe, Russia, Brazil, oil, emergimg market equities from my limited viewpoint.
The FOMC statement was interpretted hawkishly despite recent .2 Gdp and last NFP and some weak winter Q1 data. Stocks major indices are relatively stronger. Note weakness in IWM now with weaker dollar and that the dollar trend did not destroy multinats earnings. Sets up a hedged UPRO-TNA hedged position that would still work(even better?) in a steep selloff.
After the huge trends in USD and treasuries over months maybe similar to whack a mole,
the momey pops up elsewhere( euro,oil, distressed EM) and does not mean new trends.
The 2014 twenty year treasury run proved to me finally that i wont find or understand the reasons for such moves(personally i thought oil would be 30 now) , so enjoy the puzzle but
Do what Soros said in His books. Invest first and investigate second.
More...
It' will be informative that you are exploring these relationships with this type of potential strategy. It also requires having that sense of social, political, economic - understanding why X will move in one direction and Y in another, and potentially capturing that move as profit- .I look forward to learning more about this- I find my attempted interpretation of what "should" occur following some event is not necessarily how the market reacts .
OR- I like what Gartman says- " I got the direction right- but was early- which is the same as being wrong"
 
5/1

Yeah, absolutely, you cant get what should happen correct so follow price. When push comes to shove a simple outright directional position is all i can handle most of the time. For me its more of a relative choice between one or another.
I as well am biased long for Monday and am looking at US vs. Europe indices. This is not a spread trading attempt or method.
Somethings up with treasuries. Its beyond my scope but there are some pretty dramatic movements in EUR.USD and rate differentials between Bunds and treasuries. Germany(EWG) is lagging EWQ,EWI,EWS and hence FEZ. Maybe a long DAX, long Bund, short eur/usd was too complacent with ongoing ECB qe. Those trades are squeezing hard and Bund yeilds are rising fast but 10Treasury/Bund differentials are holding pretty square at 175bp. Treasuries are selling off hard maintaining differentials. Maybe treasury liquidity and of course Sep. rate hike Fear are factors as well.
So, a weekend reset for EUR.USD at significant 112 level and a bounce in FEZ point to a
HEDJ long mext week. EUO long here as well a possibility. Of course US Buy the dip has never
failed and maybe the most obvious and best. This is all a correlated risk on , one and the same big trade.
The PA in longer treasuries does seem suspicious and a little much.
 
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Using these for tracking but often use other etfs for liquidity / volatility etc..

SPY,FEZ,FXI,EWJ. developed markets
HEDJ,DXJ. Currency hedged europe and japan
EEM,EWZ,RSX Emerging market
PJP,IYR,XLF,XLU,QQQ Sectors
TBF,TLT,IEI. 20 year treasury and rates, 2-3 year note
FXA,FXE,FXY,UUP. currencies. Euo,ycs,udn are innverse
USL,GLD,JJC,AKS. Oil,gold,copper,steel company
AAPL
 
5/5

SPY after 3 down days last week and a hawkish tone to FOMC only pulled back to midpoint of
Standard BB20. Up a couple days now with new highs an issue again. Seems best dog in show.
Big money has not budged the SEP2015 eurodollar futures contract. It is 16 bp above the current libor 29bp implying about a 16/25 , 65%chance of a 25bp hike by the fed in September.
The December contract is 34bp above current so 25bp is fully price in and this has risen 3bp
since FOMC somewaht comfirming hawkish expectations. Evans was ignored but not by stocks.
So , very, very little reaction to FOMC last week. Treasury yield curve has steepened mostly due to big jump in yields in the 20+ bonds bit 2 and 5 note yields have risen a bit as well.
UUP and FXE have at backing up a bit. Hard to front run Fridays (will prior ADP be ignored)NFP in this "stong dollar direction" . Also, any short FXE here expressed as EUO would be counter
trend in the euro and a weak NFP ( < 225k per briefing.com) will resume trend in EUR.USD.
This seems the most important NFP in a while after the last dog. The markets want to put June and maybe even September rate hikes to rest. There is no question that bad is good for risk and Euro and SP500, will rally on a bad NFP.
Elsewhere existing trends in Brazil, Russia, China and oil are intact.
Us treasuries, the 20a+, TLT sold hard on 11am Europe close. Core Europe sovereign yields have rebounded furiously on a "deflation is over, the economy is improving" 0% CPI number
and somehow US treasuries are coupled to this.? Its not a US inflation expectation story.
Looking at Europe and US mostly at this time.
 
Rate sensitive IYR sellimg off hard here. The treasury market is tightening , doing feds work,
following a bond blood bath in Europe. Just today 10 year yields in Italy and Spain up more than 30 bp. Greece is an issue IMO despite complacency.
And yet SPY down only 150 points or so AND treasury yields UP ! China raised equity margins today as well.
Exited rates up trade TMV after market today .IB close key in TWS mobile app works.
Looking for reversal , squeeze, on. 20+ bonds and dont know if ADP report 815 Wednesday AM
Will cause bond volatility. This is way out of ordinary, bonds doing what they are doing.
Watching EEM and SPY approaching bottom of ranges for Friday NFP.
Euro and USD no follow thrôugh on counter trend moves. To bearish here tonight.
 
Poor trade management. Trailing stop on bullish rates position would have allowed market to take me out if trade as opposed to fear of a little pullback in MFE. No telling how far something will go. Timimg to do this could not have been worse with Yellins supportive comments to
Bond markets route and the global rate hikes happening here.
Yellin said today that people are not getting enough time premium to hold lomg term debt and that these longer term rates can increase fast when she begins to normalize rates.She also said equities are highly valued and may be somewhat risky here. These comments go with hand in hand with recent current market sentiment and action and are not dovish.
Crowded trade. Get in front of ECB and buy bonds to sell them to ECB at a profit later.
Borrow(short) the euro at ECB rate of -20bp as the comsensus for euro parity builds. The euro
Is the funding currency euro area bonds , German equities, and who knows what else risk as QE
is in motion and european yields turn neagative up to 7 to 10 years.
Then, suddenly, QE is working, green shoots, European data points to inflation and growth numbers and forcasts improving and the big unwind begins. To close , sell the collapsing bonds and cover the sirging euro. Big money traders behaving badly.
Also, again , if you recently opened any any positon in US assets (stocks, bonds, DOLLAR) with borrowed euros you are selling those assets, and exchanging those USD for euros to
End the bleeding. Any wonder US assets are weak? Euro is i believe 57% of the dollar basket
(UUP). Recent US data is not bullish for dollar as well.
 
Trading signals come well before pundits attach a story to the PA. "THE" best trading signal/catalyst of the year thus far( present catalysts possibly excluded), was March 19.
No way anyone could gauge or measure an appropriate of linear expected PA response
to this story. So, going forward, i want to try to recognize possible catalysts and the actual PA
(Possibly bery unexpectd) that occurs. Some perspective and chronology helps me as i tend to forget things.

http://www.zacks.com/stock/news/168276/stock-market-news-for-march-19-2015

UUP,FXE,USL,GLD, strongly signalled somethings up that day.
 
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