Friday, March 13, 2015

Short the Weak, Not the Strong

If you want to take a bearish view of this market, which I do, you have to give yourself the most room for error.  For example, if you want to short the S&P, you can go ahead and do that, but you expose yourself to face-ripoff potential as seen yesterday, when the market shot up on bad retail sales, which confused a lot of rookie traders, but made sense if you thought about what the market has been anxious about.  The market's number one worry is not slowing earnings, or bad retail sales, it is the strong dollar.  Anything to weaken the dollar was a welcome sign, even if it came with bad data.

Well, today, we are giving up almost all of yesterday's gains, which makes sense if you look at the EURUSD.  Taking a long on the SPX is almost the same as going long euros.  It won't be like this for long, but that is the current meme of this market.  That is what short term trading is all about.  You have to know what the big boys are worried about, not what you are worried about.  I am worried about overvaluation, and slowing US growth, not the strong dollar.  But it doesn't matter what I'm worried about, its the trillions of dollars being shoved around by hedge fund managers who are herd animals.

Crude oil is getting crushed, and it now looks like the move up in February was a dead cat bounce.  These commodity bear markets don't scare you out, they wear you out.  You don't see many V bottoms in commodity bear markets like in stocks.  They are U bottoms, and scraping along the bottom is slow, constant pain for bulls.

EURUSD is setting up for making a bottom ahead of next Wednesday's FOMC meeeting.  I have a strong feeling EURUSD will make a bounce after the news comes out.  Janet Yellen will be dovish, and I am sure she will try her best to make the dollar a bit weaker in the short term.  Expect stocks, bonds, and euros to rally off that meeting.


Anonymous said...

And gold too

Anonymous said...

Almost feels like the market is bidding up dollar and bidding down stocks to tell the fed hey dont fuck with me.

Market Owl said...

Market always has a temper tantrum when the Fed takes away the punch bowl. This market is addicted to easy money. It will have a fit if the Fed talks tough. I would be shocked if Yellen talked tough and hawkish. Everything would plunge in that scenario, and EURUSD would instantly go to parity, which is why I don't think they would do it.