In the current state of unlimited market liquidity and Private Equity funds which have tricked public companies that re-financial engineering is more viable than re-mortgaging your house, but nonetheless the PE guys have their pitch straight. Could you image a Fortune 500 CEO turning this down “more time for the topline, less travel, no quarterly share holder meetings, guidance reports, and the total abolishment of defending shareholder value even if your topline revenue has grown but your stock has fallen out of favour with the street…”
No wonder the PE guys are cleaning up as I can picture a more favourable objective for today’s executive decision makers.
With this said, the question(s) lies with where is this mountain of liquidity and market break-out taking us…If you look at the macro side it doesn’t paint the prettiest of pictures as Crude has a good chance of breaking through the USD 67.00 level for which the black gold has been capitulating between USD 61- 66.50 since late March ‘07. Gold has tanked, but so has the dollar at least in EUR terms, but to our bewilderment is continuing to climb in relation to the JPY. All while interest rates are slowly creeping up in the treasury market and even the Fed Funds Futures have priced in a nice chance of a 25 basis point hike between now and summer. So why is the market continuing to mark new highs in China, Germany, and the US with every new moon…
Lets just put it this way, when I see Chinese students in NYU post-grad programs opening up trading accounts in China through their parents it just seems that maybe we have approached that level that every contrarian lives for. And when you bring this euphoria back to U.S. soil and see the DJX hitting new highs for the 7th consecutive week and an RSI well over 70, you begin to wonder if you are clever enough to go against the masses, and if so how much heat are you willing to take on the trade…
As you have seen I have started to get my feet wet within the options market as it is the cheapest and most transparent way to gain short market exposure. Therefore, the trades I like for the next few weeks are:
USO (Crude ETF) - Buying dips at 48.50 and currently long the NYMEX Crude Future at 64.50.
JPY at 123.10 is a buy (or 81.25 in the JPY June Future) and if you look at the US Dolloar Index Future you can see the dollar will make one last push up before failing apart and most likely the push up will come with the inflation risks which will hit the market in the weeks’ numbers ahead until Memorial Day.
SPX has room until 1550 but we are not waiting that long and looking to fade the market on relatively healthy pushes. SPX June 1500 Puts we picked up 2 more lots at 7.50 on May 22nd.
Buying the VIX June Future at any level below 13.00 and own the June 14 Calls which are simply not moving as the tug-a-war between new liquidity and capital preservation continues.
Looking for retailers to fall apart over the next year and the RTH chart is still the best way to place a handle on the entire sector. Although there are some great retailers doing well, such as Nordstroms and JC Penny’s, we Bought June Puts on WMT on May 10th and have closed 10 lots (half of the position) on May 22nd as reported.
Technology. The Contrarian side got the best of me yesterday and as we have had an absolute heyday with RVBD since early last year yesterday we closed the entire position at 39.20 and actually went against the momentum by Buying the June 40 Puts at 2.15 when the stock was at 39.30 on May 22nd as reported.
My two cents,
James
