It’s Month End…Don’t Fight The Flow…
Typically going into end of month instruments tend to go in the direction they have been traveling. This month it’s Equity Indices up,Dollar down,Metals up & Commodities up. These movements are even more pronounced at the end of qtr’s. Capital Flow 101….
At Whitewave we strive to identify these flows and help you hop on for a low risk directional ride. We do this by either getting involved in the bigger instruments, or by a surrogate play with a lower risk profile.
I.E. I totally missed this swing up in the precious metals, so I bought some low risk miners instead. We conceptually like Oil, so we are Long the XLE, which is made up of what I like to call ” Evil Empire Stocks”. ( Drillers, Oil Service Business, Refiners ect. who have been raping and pillaging for decades and make nothing but money!)
What does this mean for you as a trader? Trading involves making some wrong decisions. Mitigating those mistakes with definable stops is critical for success. Not stepping in front of the train when it’s mid station is another.
The Today Show
Spu’s..1317-19 is going to be a tough area to overcome. Expect some 2 way trade early off the level.
Currencies..Euro and AUD/USD both look like they have temporarily run out of steam to the upside.
General Comments…
The later it gets in the day the more likely the direction of the month follows through.
In the case of the Equity indices this is up. This means that contra-trend trading should be just that. Short term trades at key levels.
One really good reason is that the smart trader will be looking for follow through flow into today’s close and early tomorrow morning from Fund flows. Many Funds typically cost average the first of every month, which equals more potential buying in the early NYSE session tomorrow. So if you’re looking for a sustainable contra trend move, odds are you’ll have better luck after the order flow dries up tomorrow.
Model Trading Portfolio…Current Holdings
………………Stop Close Profit Points
Long TLT 116.50 121.70
Long MCP 29.80 33.50
Long XLE 70.40 80
Long NEM 59.80 65.50
Long SLW 34.40 37.40
Short Term View
Location ,Location,Location….if you have a good trad able pattern “Good Risk reward!” You just have to seize the opportunity and see what develops!
Trade to Make Money!
Medium Term View…
30 Yr. Bonds …147 is the all time high in the front month futures. We will watch price action off this level for any potential surrogate moves in the currencies or stock indices. 144.20 ish now becomes our macro pivot. All new closing strength over 145.20 would have us looking for more upside in the Bonds. Closing above this level would be short term positive the Bonds and negative the Equities.
Equities…We will continue to strategically buy hard breaks in Etf’s and individual instruments we feel have the best risk profiles going into the end of the first qtr.
Currencies…Our view is the Aussie Dollar remains a most attractive investment. The Bonds are high yielding making this currency desirable on breaks. It also has the benefit of the underlying commodity and Asian growth story to support buying the dips.
The Aussie typically mirrors the S&P 500 which also makes it an easy surrogate to trade, whether Risk On or Risk off. It’s liquidity makes it easy to hedge currency risk if you’ve the underlying Bonds, which makes you Long Aussie by default.