All Dressed Up...
FXA Plants Corner
4/13/2005 - 7:15 AM New York time
fxa.com
We got some interesting information yesterday and some very interesting price action to go along with it. I was out visiting FXA customers, so I caught prices intermittently throughout the day. I did manage to hear the Trade number release along with the knee-jerk price reaction, but went out of touch shortly thereafter. No, I’m not one of those people who carry a pocket-quote so I can keep tabs every few minutes. While traveling, I confirmed my visits, but declined to ask where dollar/euro was. I had a sneaking suspicion it wasn't good. Sure enough the first topic of the day was the Euro’s reversal post release. THE number of the month for currencies, complete with negative surprise, and the dollar manages to post gains within minutes of the release. I could understand the reaction if the number was a climax to a big overbought move. But the Euro has been trading lower since the second week of March, and is only a touch above recent lows. If there was REAL interest in selling dollars, this would have been a spot to make a move from. Instead… as one customer put it… the market opted for the f**k you trade. Take the path that generates the greatest pain to the most possible participants.
I have conditioned myself to be very concerned when the market makes a counter-intuitive move off significant information. Yesterday’s move was about as counter-intuitive as you get. Yesterday demands one ask… does the market really care about the Trade or CA deficits? In my second sound bite quote from a customer… “If I hear one more person talk about the twin deficit problem, I’m going to puke.” Graphic... but he has a point. You can’t have a significant portion of the participant base banking on the importance of the Trade Deficit to move the dollar lower, then have the market reverse on confirmation that the trend of that dataset is intact and expanding. Something is very wrong when that happens. Given the reversal, I half expected more dollar strength this morning. Nope. The dollar is quietly lower. No follow-through… either way! Counter intuitive market reaction along with directionless, stop and go price action, drive longer-term players from the market. Volume shrinks as these participants leave the table. If the longer-term, macro specs are not playing, then there is no way the real money crowd is playing. With these two groups out of the market, it is virtually impossible to sustain a trend. It leaves a whole bunch of people out there just like me… confused and frustrated. I’m still long my Aussie and my gold, but after yesterday, I’m not very excited about either trade. I am leaving them on but I am certainly not inclined to add.
And now for bonds… OK… maybe one could make the case that bonds were oversold, so yesterday’s hawkish FOMC minutes could be justifiably viewed in a buy the rumor, sell the news sort of way. But oil was lower again, and I thought that was supposed to be bearish! If you can’t keep up with what’s good or bad for the bond market, then you and I are on the same page. It’s the same problem as with the currencies. The more the market trades counter-intuitively to news and data, the more players give up trying to hold to a view and build positions. As another customer put it… “I’ve been in the market twenty years and I can’t ever remember trading like this”. One of his longer-term accounts has been reduced to trading FX for 50 pips. The Model Portfolio has a short bond position, but after what I saw yesterday, I have zero faith in it’s prospects for success. Perhaps like currencies, there are just too many players focused on bond market negatives. Domestic participants are all looking at the same set of problematic issues while the savers and Central Bankers of the world continue to buy Treasuries. Yesterday’s damage is done. Prices for the 10-year future are bumping up against that low 110 level again. I’m not going to bail after what I have already sat through. But after yesterday, there’s no way I’m going to add. The more players move to the sidelines in disgust, the less fuel the market will have to go EITHER direction. Someday, the market will again pick a theme; carving out a trend on it’s back. That day is not today and the theme is certainly not the one I’ve been focusing on.
The Model Portfolio… is long two August Gold from $431 (Apr 4). It is also long two Dec Corn, one from $2.34 (Mar 28), and one from $2.36 (Feb 23). It is short one June 10-year note at 108-17 (Mar 14). It is long one June Aussie Dollar at .7875 (Mar 9). The portfolio is long Smithfield Foods (SFD) at $33.75 (Feb 25, 05). It is long Pilgrims Pride (PPC) from $37.40 (Feb 14, 05). It is long Petro Canada (PCZ) at $43.60 (May 11, 04), long Bunge (BG) at $34.20 (May 11, 04). It is long Tyson Foods (TSN) from $17.70 (March 23, 04) and a second unit from $19.15 (July 28, 04). It has a $2.85 cent loss on December Cotton (May 20, 04). It is now carrying a 103 1/4 cent loss on four attempts to be long Corn (May 25, 04; June 22, 04, a series from the Aug-Sep 04 period, and Oct 19, 04), a net 4 1/4 cent gain on long December gasoline (June 9, 04), a net 5-20/32 point loss on nine separate bond shorts (Jan 7, 04; Feb 5, 04; Feb 20, 04; Apr 2, 04; April 26, 04; June 7, 04; July 14, 04; Oct 1, 04 and Nov 29, 04). Some of those were contract rolls. The model portfolio also has a 2.3-cent loss on two long Live Cattle futures (Jan 5 and 15, 04), a 16.85 point loss on one E-Mini S&P (March 12, 04), a $3 loss on the Lennar (LEN) short (Jan 6, 04). It has a gain of $27.20 on nine long COMEX Gold trades (Jan 23, 04; Mar 31, 04; Apr 26, 04; May 11, 04; June 7, 04; Oct 1, 04; Dec 8, 04; Jan 21, 05, April 4, 05), most of them being contract rolls. The portfolio also has a $3 loss on an earlier long trade (March 23, 04) in Bunge (BG). It has a $3 gain of a short sale of Reuters (April 7 to Oct 27, 04). It also has a gain of 925 points on three long Aussie dollar trades (Dec 8, 04, Mar 2, 05 and Mar 9, 05).
Steve Plant
FXA |
