Blue Horseshoe Loves This Finance Blog

"We shall not cease from exploration, and the end of our exploring will be to arrive where we started and know it for the first time." Little Gidding, T.S. Elliot   EXPLORING AN UNCERTAIN LANDSCAPE While certainly not unexpected, 2016 has been a difficult year for markets; emerging economies are in a state of flux, global currencies are in gimbal lock and esoteric securities are once again raising red flags.  Prior to the current disruptions, global equities enjoyed a prolonged period of growth largely propelled by exponential advances in technology... for better or worse, we've undergone a technical revolution.  This is born out in the growth of the tech heavy Nasdaq which nearly doubled the already remarkable performance of the S&P since 2009. The tech heavy Nasdaq has almost doubled up the S&P over the past 10 years: Technology is beginning to look weak on a relative basis, however.  Over the past two weeks, broad based indices have rallied and even pushe...

FILL IN THE BLANKS In the newly-released biopic, Miles Ahead, a reporter is attempting to get some background on the life of Miles Davis (played by Don Cheadle) to which the legendary musician gives a brief and curt response.  When the reporter asks for more detail, Davis replies, 'fill in the blanks.'  The portrayal of Davis is only a misrepresentation in its altruism, even John Coltrane described him as being "kind of a prick." In that same vein (but hopefully more cordial), here's a description of the market's move for the past four days... Equity indices retraced some of their recent losses in what appears to be a technical correction. I recently wrote about the formation of a technical pattern I call the fill gap : http://tancockstradingblog.blogspot.com/2016/01/revisited-trading-in-high-volatility.html The moves of the S&P over the last four days would suggest that the index is now in this pattern. On low volume, the S&P has retraced to its 50 da...

"Perhaps there is a point at which credulity firmly and calmly and irrevocably declines..." 'The Unvanquished', William Faulkner The S&P has tested its long-term support level twice in the past two days and both times the floor has held.  The benchmark index is showing some fight at this level but as a new set of market factors emerge, the question  becomes whether they will lead to a recovery rally or be the proverbial straw that breaks the market's back. DROPPING DOLLARS, COCO BONDS AND THE MANIFESTATION OF EQUITY RISK I recently wrote a post titled 'The Death of the Dollar Rally and Why It Matters': http://tancockstradingblog.blogspot.com/2016/02/the-death-of-dollar-rally-and-why-it.html The premise of the blog is that a combination of market weakness and slowing global growth are changing expectations for future domestic interest rate policy and adversely affecting the long-mighty U.S. Dollar.  In spite of a healthy jobs report last Friday, the dol...

WHAT'S GOING ON Last week, I revisited the subject of the fill gap pattern; when the price of a stock moves into a range formed by a large gap between two respective moving averages, typically the 20 and 50 days.  What tends to happen is the stock (or index in this case) will use the respective averages as support and resistance levels and consolidate inside of the range before breaking out in its next move.  It looked as if the S&P was entering a gap last week when the index breached the falling 20 day moving average on a strong up move.  However, subsequent price action pushed prices back outside of the range and instead of consolidating, the index is now in a low basing pattern and testing its long-term support level. THE DEATH CROSS; OMEN OF THINGS TO COME OR A DAY LATE AND A DOLLAR SHORT? There's another market phenomenon that has gone overlooked recently and that was the crossing of the 50 day moving average below the 100 day... otherwise known as the death cros...

DON'T SPLASH THE POT In 'Rounders', arguably the greatest gambling movie of all time, John Malkovich plays a Russian mobster named Teddy KGB who dominates the underground world of high-stakes poker in New York.  In the final showdown between KGB and the movie's protagonist, Mike McDermott (played by Matt Damon), the mobster makes an overly aggressive play to represent a strong hand... it doesn't end well for him. In the market's current purview, our Teddy KBG could be called Janet FRC (Federal Reserve Chairwoman).  Janet Yellen is currently representing strength to the global economy by holding to a pledge to raise the Federal Funds Rate four times over the course of the year.  Today, global currency traders called her bluff and went all in against the dollar because they "don't think she's got the spades."   The US Dollar had its biggest one day drop in over two months today after ISM data continued a recent trend of disappointing economic rea...

THE WIDOWMAKER A lot has been said recently about the infamous 'widowmaker' trade; shorting Japanese Government Bonds (JGBs) with the expectation that the nation's mountain of debt will inevitably blow out JGB yields.  The thesis sounds solid but the reality is that the Bank of Japan is so hellbent on igniting inflation with the hopes of waking the long-hibernating economy that it has recently sent yields into negative territory.  Think about what that means; Japanese savers are essentially paying their banks to hold their money.  As a result, traders have gotten killed waiting for spread widening... hence, the 'widowmaker' moniker. If we think about all of the factors that make options trading so difficult (and there are plenty to chose from), there is one that often goes overlooked... liquidity.  Liquidity is most evident in the bid/ask spread of any traded instrument.  It's generally true that the more an instrument is traded, the more liquidity it will have....

THOSE WHO FORGET HISTORY ARE BOUND TO REPEAT IT Last August, markets experienced a fairly robust selloff that spiked volatility to levels not seen since 2011.  On September 7th of last year, I posted a blog titled "Trading in a High Volatility Environment..."   http://tancockstradingblog.blogspot.com/2015/09/trading-in-high-volatility-environment.html It now seems like a good time to revisit this subject. The post discussed the factors that I saw, at the time, contributing to the move; namely a China correction that still feels reminiscent of the 2001 tech bubble pop, and the prospect of rising domestic interest rates (now a quarter point reality). With the benefit of hindsight, I now add the impact that falling energy prices have had on the high yield debt market.  Larry Fink of BlackRock recently said that as many as 400 energy companies may default this year because they won't be able to meet their onerous credit obligations... to say nothing of the perpetual plun...