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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Slumdog who wrote (18636)	1/25/2017 2:55:34 PM
From: John Pitera	Read Replies (2) \| Respond to of 33421

Yes the EUR needs more time to set up for it's big positioning move.

To: Slumdog who wrote (18636)	1/30/2017 2:01:52 AM
From: John Pitera	1 Recommendation Recommended By mary-ally-smith Read Replies (2) \| Respond to of 33421

Black Swans: A Cautionary Word Or Two At The End Of Week One Jan. 27, 2017 8:52 PM ET\|91 comments\| The Heisenberg Here we go again with the confirmation bias. Increasingly, I find the morning commentary I read either from my desk at home (where the glow from three monitors is exceedingly hard on the eyes pre-dawn) or, preferably from the porch at the island condo (where the squirrels seem to be getting bolder in their efforts to see if there's anything to eat in my metal ashtray) aligns almost perfectly with the assessment of markets I've been pushing for the better part of three months. To be clear, I don't search out confirmatory evidence in sellside desk notes. I read whatever's out there. As I've said before, confirmatory "evidence" ceases to be confirmatory if you're looking for it. We can guard against confirmation bias, but at a certain point, when the balance of evidence shifts so overwhelmingly in favor of one's own point of view, the salient question becomes: "*is this bias or am I just right?"* I'm leaning toward the latter as it relates to equity market (NYSEARCA: SPY) complacency. God knows I've talked a lot about volatility (NYSEARCA: VXX) lately. Or, more appropriately, a lack thereof. As Goldman noted last week, you can't really have elevated implied volatility and option pricing when realized volatility remains suppressed. In other words: "what do you expect?" Well, I guess *I'd expect something other than a VIX 10 handle given the fact that Donald Trump is the leader of the free world and we're seeing a veritable populist insurrection in Europe* that could very well end up rivaling what we saw stateside in November. On that note I'm going to show you that damn chart that everyone is sick to death of seeing. You know the one. The economic policy uncertainty index versus the VIX: (Chart: Barclays) To be clear, the story is about *complacency in the face of overwhelming evidence that something, somewhere is bound to break over the next six months. Now the thing is, we perpetually underestimate the probability of something "breaking" and indeed it's always possible that a tail event is going to come calling. But despite the fact that it's linguistically and conceptually impossible for a black swan to become "more likely," I struggle to find a better way of expressing my outlook. Indeed, when you think about market structure (which is of course impacted by things like government regulation, the presence of high frequency traders, and the heavy hand of central banks), we are almost unquestionably more vulnerable to extreme outcomes. The path of market history (and history in general) is governed by black swans and thus our default conception of the world as conforming to the bell curve is absurd. But that absurd conception can become more or less absurd depending on the set up. That is, the idea that outcomes will generally follow a normal distribution is ridiculous on its face but I think it can become more ridiculous under certain circumstances. Circumstances like those that prevail currently in the geopolitical realm and in the structure of markets as described above. So effectively, the market always misprices the tails* (see here for instance). But that *mispricing can be more or less extreme* depending on the extent to which prevailing circumstances conspire to make our bell-curve-dependent view of the world even more absurd than it is by default. Right now, equity markets are completely oblivious to everything said above and that's reflected in rampant complacency. "We believe markets have become too complacent, given the range of outcomes," Barclays wrote on Friday morning. We might *expect FX traders to be uniquely positioned to opine* on the extent to which stocks are incorrectly assessing political risk. *After all, it's FX markets that are on the front lines when it comes to reacting to political turmoil.* Considering that, I found Friday morning's commentary from former FX trader and Bloomberg contributor Mark Cudmore to be particularly instructive. Here are some excerpts (my highlights): It seems a *weird time to suddenly turn bearish, but I'm overwhelmed by a large sense of concern* as I gaze across markets. Equity investors seem to be in *denial of the threat to the global economy from Trump's proposed protectionist policies,* and instead solely concentrated on stimulus we're not seeing yet. Stocks are ignoring the stress in other assets, with equity volatility measures plunging. *Bonds, FX and emerging markets are less convinced by the wonderful world of equities.* In recent years, I've been chided for being eternally optimistic, or a perma-bull, when it comes to markets. I've seen the ever-present fear that has pervaded markets as a positive. But now complacency abounds and it seems to hinge on not much more than hope and a prayer - I'm worried. So that's an unequivocal indictment of equity market complacency from someone who by his own *admission is "eternally optimistic." I guess "eternally" doesn't really mean "eternally."* As another Bloomberg strategist (Richard Breslow) put it earlier this week, "sometimes, when you write a daily commentary, you come in fully intending to write about one thing - and then the piece hijacks itself." I didn't set out to write a pseudo-treatise on epistemology and its applications for stocks in this post, but that's the way it turned out. And after a once-over, I'm pretty happy with it. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. -------------------------

To: Slumdog who wrote (18636)	1/30/2017 2:39:55 AM
From: John Pitera	1 Recommendation Recommended By roguedolphin Respond to of 33421

10 minute EUR March Futures Chart the currencies are crazy with the conflicting Trump initiatives.... the EUR hit resistance at the .764 retracement level and is selling off again. Wondering if Schauble bitching about "do nothing Greeks" will get attention on the euro. Germany's inflation spike while Draghi keeps buying bonds and the Greeks run out of money as they do nothing they promised to do (what" not new about that) spell a train wreck out there somewhere to me. Crash that euro and go to .95 some where in 2017. What does it cost to get a position and carry it for 6 months? Good plan in my way of thinking. an excellent question presented to me on Friday. but EUR is vulnerable......... if by some small miracle we see the EUR get above 1.08 at which point the 1.10 level will be the idealized maximum entry for shorts as it is the daily 200 dma and the downtrend line on the daily basis. JP