Q2 2010 - whats your game plan?

Well i started one of these for Q1 2010 - might as well have it for Q2 2010 for some accountability through the year... well at least a good starting point for discussion.

The Dollar:

Well the QE thesis is a bit questionable, FX markets have been outta whack since Q1 and Summer correlations. We saw a rather substantial period of dollar strength, and currently the trend is wavering.

So for the USD continued up trend? or will we revert to futher dollar weakness for the rest of Q2.


Equity Indexes:

Well for me i follow the SPX the 1200+ tests we currently are having are quite vital, short term im bull, but i know a big correction is on the way, which may take up most of Q2 and towards the end probably start to recover. I expect SPX to stay in 1100+ range and on the more bullish side the 1200+.

Oil:

well haven't had much time to thik of energy or look at charts, but id play the dollar game, if USD weakness does continue for most of Q2 it will add fuel to the fire and have increased demand effects towards the end of Q2 and into Q3.



soo what are your guys thoughts?

Snapman wrote:

Well i started one of these for Q1 2010 - might as well have it for Q2 2010 for some accountability through the year... well at least a good starting point for discussion.

The Dollar:

Well the QE thesis is a bit questionable, FX markets have been outta whack since Q1 and Summer correlations. We saw a rather substantial period of dollar strength, and currently the trend is wavering.

So for the USD continued up trend? or will we revert to futher dollar weakness for the rest of Q2.


Equity Indexes:

Well for me i follow the SPX the 1200+ tests we currently are having are quite vital, short term im bull, but i know a big correction is on the way, which may take up most of Q2 and towards the end probably start to recover. I expect SPX to stay in 1100+ range and on the more bullish side the 1200+.

Oil:

well haven't had much time to thik of energy or look at charts, but id play the dollar game, if USD weakness does continue for most of Q2 it will add fuel to the fire and have increased demand effects towards the end of Q2 and into Q3.

soo what are your guys thoughts?

Well I can't remember what I said for Q1, but once again, I'm not fond of forecasts. Snapman, the day you'll get that the trading game is not about forecasts (that's analysts job) is the day you won't have anything to learn from the old Sauros

OK, a few thoughts :

Q1 2010 was definitely my best quarter on record and I ended it with a 20% or so performance in total (probably more I'm not sure...). I think the main positions I've been holding still make sense into Q2 :

- Long Asian stocks, combining both the global rise of stocks and the appreciation of the asian currencies vs the GBP.

- Long stock indices (I've been long DAX, but SPX, SX5E, DJI etc could do). At first sight, a correction is due but it shouldn't have steam as the guys who missed the rally will get in, there's room to weaken the USD and I guess you have still loads of stops from double dippers and bears to gun on the way up

- Short JPY, to date, I didn't manage to profit from this but I guess it's still a good position

- Short GBP, I initiated a short cable at 1.61 at the beginning of the year, I got stopped by the noise at around 1.63 then it fell to 1.49 without me, would have been 10-15% more ... Now, I hear so many brits telling me that whatever happens during the elections the GBP will drop, that I wonder if the money is not on the long side.

- Gold, same contrarian argument, so many guys seeing it rocketing to the sky that I may consider to drop my position started at $700 and to go short (albeit would be strange for me to be short gold after all this time...)

This is what I wrote for Q1 2010 in Dec09, some good stuffs some less. Fortunaly I've not shorted the USD

Sauros wrote:

First I'd say
I'm not a good at forecasting and generally prefer to trade after the things happen : our job as traders is not to be right or to be good forecasters, our job is to make money.

A few thoughts to start with :

- As we've found out together in our past discussions here, this year, QE and central banks support led the global markets rally, particularly the stocks (roughly freshly printed money is pouring to banks that then are purchasing stocks) . I believe the FED and other central banks will make sure a tightening of their policy won't lead to a consequent market correction before they do anything. Thus they probably won't move their policy during the first quarter 2010 but any clue on WHEN they will tighten could have an impact on the market,
albeit I guess not significantly

- What is currently happening to EUR, after ECB announced an exit not that far in time, is pretty interesting to follow up. As I write, it looks like it has been sold as the market may worry about a premature tightening rather than strenghten as the rates go up.

- This year, we saw as well a perverse relationship between economic data and markets: the worst the eco data
were the more the central banks supported, the more the participants anticipated central banks and gov action and the more the markets went up... This may come to an end some time in 2010 as one needs to give
-
In particular, if finally the economic situation prevails (nothing has fundamentally changed since last year) and the markets finally give in the anticipated "double dip" scenario. In such a scenario, my guess is the USD will initially increase, but ultimately will retreat as the focus will then be back on weak US economy. In such a case, gold as well will initially drop but I guess its safe haven role will take over the one of the dollar and it will probably head to higher highs. To summarize this point: if there's a strong correction , I'll probably
wait for the USD initial jump and gold initial slump and then respectively short the former and buy the latter as soon as I'll find good opportunities in their price.

- This said, I believe that the current situation with a market rally and USD weakness could last a
while, at least the whole Q1 2010 if there's no major change in the situation. So no change in the situation no change in the positions i currently have (long stock, short USD, long gold), just let the profits run! The only thing is to get ready for the "crash" I think will inevitably happen and be ready to get the hell out of the longs and put the shorts on as fast as possible.

- I need to have a closer look to other markets i'd like to trade next year: especially commodities
and Oil as I found out that I'm under exposed there. Any 101 on Oil or help from you guys would be highly appreciated. Thanks

That's it for now.

Quote :

Well I can't remember what I said for Q1, but
once again, I'm not fond of forecasts. Snapman, the day you'll get that
the trading game is not about forecasts (that's analysts job) is the
day you won't have anything to learn from the old Sauros"

ehh you said this Q1 as well, Im not trying to ascertain exact price targets but overall trends, obvious though the game is about managing the volatility path.

Either way, great hedge fund managers like Robert Mignone of Bridger Capital consider themselves first and foremost as analyst and do very well for trading.

Got to play to your strengths and what fits your personality with trading...

With that being said, i was just curious where people stand on markets vs. my own thoughts

I definitely appreciate the feedback, give me some time to catch up with some work and ill reply back later !

Snapman wrote:

Quote :

Well I can't remember what I said for Q1, but
once again, I'm not fond of forecasts. Snapman, the day you'll get that
the trading game is not about forecasts (that's analysts job) is the
day you won't have anything to learn from the old Sauros"

ehh you said this Q1 as well, Im not trying to ascertain exact price targets but overall trends, obvious though the game is about managing the volatility path.

Either way, great hedge fund managers like Robert Mignone of Bridger Capital consider themselves first and foremost as analyst and do very well for trading.

Got to play to your strengths and what fits your personality with trading...

With that being said, i was just curious where people stand on markets vs. my own thoughts

I definitely appreciate the feedback, give me some time to catch up with some work and ill reply back later !

I know it's an old discussion between us and it's difficult for me to explain clearly (and to understand) why there's a de-correlation between forecasting and making money. I guess that there's something to do with the fact that even if you forecast properly an event, the market reaction could be unexpected and make you lose money : depends on how much your forecast has been already discounted by the market. Forecasting the obvious is a losing game...

To finish as well with great hedge fund managers quotes, George Soros admitted in the Alchemy of Finance :
"My financial success stands in stark contrast with my ability to forecast events"

Sauros wrote:

Snapman wrote:

Quote :

Well I can't remember what I said for Q1, but
once again, I'm not fond of forecasts. Snapman, the day you'll get that
the trading game is not about forecasts (that's analysts job) is the
day you won't have anything to learn from the old Sauros"

ehh you said this Q1 as well, Im not trying to ascertain exact price targets but overall trends, obvious though the game is about managing the volatility path.

Either way, great hedge fund managers like Robert Mignone of Bridger Capital consider themselves first and foremost as analyst and do very well for trading.

Got to play to your strengths and what fits your personality with trading...

With that being said, i was just curious where people stand on markets vs. my own thoughts

I definitely appreciate the feedback, give me some time to catch up with some work and ill reply back later !

I know it's an old discussion between us and it's difficult for me to explain clearly (and to understand) why there's a de-correlation between forecasting and making money. I guess that there's something to do with the fact that even if you forecast properly an event, the market reaction could be unexpected and make you lose money : depends on how much your forecast has been already discounted by the market. Forecasting the obvious is a losing game...

To finish as well with great hedge fund managers quotes, George Soros admitted in the Alchemy of Finance :
"My financial success stands in stark contrast with my ability to forecast events"

to me if you are trading a trend, you have already forecasted, if you say you are long or short something its a forecast :p to me it sounds like you are talking about some random walk theory or strong and semi strong forms of the efficient markets hypothesis... which is poo imho . Those who do have have an knowledge/information edge can make money within a discipline, and just as easily loose money if wrong about that info.

its not like im talking about exact quant forecasting, i get your point, but it wouldn't be completely valid because tons of people forecast to different degrees and make money off it, managing probabilities, using technicals, fundamental imbalances etc... are all forecasting or w/e you wish to call what "traders" do... in the end you have to take a side (about a time series related position --> moving towards the future) or don't play the game. which inherently will make you forecast.

like you said forecasting can be a function of self fulfilling tendencies, but that is why you manage your downside risk...i think that was the whole point and a wake up call for all the easy money made pre 08.

the only time i don't see any form of forecasting is if one plays the market naively (ignoring all data)

Snapman wrote:

to me if you are trading a trend, you have already forecasted, if you say you are long or short something its a forecast :p to me it sounds like you are talking about some random walk theory or strong and semi strong forms of the efficient markets hypothesis... which is poo imho . Those who do have have an knowledge/information edge can make money within a discipline, and just as easily loose money if wrong about that info.

its not like im talking about exact quant forecasting, i get your point, but it wouldn't be completely valid because tons of people forecast to different degrees and make money off it, managing probabilities, using technicals, fundamental imbalances etc... are all forecasting or w/e you wish to call what "traders" do... in the end you have to take a side (about a time series related position --> moving towards the future) or don't play the game. which inherently will make you forecast.

like you said forecasting can be a function of self fulfilling tendencies, but that is why you manage your downside risk...i think that was the whole point and a wake up call for all the easy money made pre 08.

the only time i don't see any form of forecasting is if one plays the market naively (ignoring all data)

OK I got your point, what you call "forecasting" is what I call "trading". That's obvious that if you want to make money trading you've to be right on your bet... no discussion possible about that and that's not my point.
I referred more to the kind of predictions we can see all day long on our screens or in our email boxes, which is bread and butter of money managers MARKETING, investment newsletters and analysts but to me has nothing to do with making money from the markets, we don't have the same job, theirs is to be right in their forecast, mine is to be right on my position. My advise is if you want to be a trader, avoid the bias of trying to be right in your forecasts at all costs, you'll miss the trick.

The paradox of the forecast sellers is : if you can predict the markets accurately, why would you sell these predictions ? (same thing with the guys who sells you a method to make zillions starting from $1 while you sleep).

The other thing is forecasting the market behaviour and forecasting (economic) events are two different things. For instance today GE's announced earnings with +30% surprise (0.21 vs .016 expected), BofA a +189% surprise (0.28 vs 0.10 expected) and as I write the S&P is dropping... A good "forecaster" could have been killed here where a good trader could make money.

Sauros wrote:

Snapman wrote:

to me if you are trading a trend, you have already forecasted, if you say you are long or short something its a forecast :p to me it sounds like you are talking about some random walk theory or strong and semi strong forms of the efficient markets hypothesis... which is poo imho . Those who do have have an knowledge/information edge can make money within a discipline, and just as easily loose money if wrong about that info.

its not like im talking about exact quant forecasting, i get your point, but it wouldn't be completely valid because tons of people forecast to different degrees and make money off it, managing probabilities, using technicals, fundamental imbalances etc... are all forecasting or w/e you wish to call what "traders" do... in the end you have to take a side (about a time series related position --> moving towards the future) or don't play the game. which inherently will make you forecast.

like you said forecasting can be a function of self fulfilling tendencies, but that is why you manage your downside risk...i think that was the whole point and a wake up call for all the easy money made pre 08.

the only time i don't see any form of forecasting is if one plays the market naively (ignoring all data)

OK I got your point, what you call "forecasting" is what I call "trading". That's obvious that if you want to make money trading you've to be right on your bet... no discussion possible about that and that's not my point.
I referred more to the kind of predictions we can see all day long on our screens or in our email boxes, which is bread and butter of money managers MARKETING, investment newsletters and analysts but to me has nothing to do with making money from the markets, we don't have the same job, theirs is to be right in their forecast, mine is to be right on my position. My advise is if you want to be a trader, avoid the bias of trying to be right in your forecasts at all costs, you'll miss the trick.

The paradox of the forecast sellers is : if you can predict the markets accurately, why would you sell these predictions ? (same thing with the guys who sells you a method to make zillions starting from $1 while you sleep).

The other thing is forecasting the market behaviour and forecasting (economic) events are two different things. For instance today GE's announced earnings with +30% surprise (0.21 vs .016 expected), BofA a +189% surprise (0.28 vs 0.10 expected) and as I write the S&P is dropping... A good "forecaster" could have been killed here where a good trader could make money.

Ok we are half on the same page haha, but thats not the point at any rate.

I can give one reason why one would sell their "forecast." It makes it self fullfilling, think of long biased funds (ie big mutual funds), its definitely in their favor and benefit create beta followers. That sounds very conspiratorial but im sure it happens to some extent. Other people are obviously preying on poor noobs to make a quick buck.

About economic forecasting and market behavior, thats all within economic theory. Specifically financial economics. As i mentioned some concepts about efficient market hypothesis. There is pretty much a theortetical framework for all social things. But your point is taken that traditional macro economist have different jobs than say traders who maybe more akin to what behavioral/financial economist study. Which is very nice exemplified by your expectations example.

I have always been a big propronent when teaching about financial markets and trading that obviously economy does not = financial markets. I even commented to batman on that on our blog earlier this morning.

Though, obviously if a "forecaster" was trying to forecast on events such as earnings, of course that seems rather an impossible feat, considering the complex markov processes involved. From our earlier agreement I have never been a foreaster either, but i do like to set price targets within a technical analysis framework and trade the voalitily (higher highs higher lows etc). But as we said earlier thats just trading. I don't try to forecast economic events such as job numbers or GDP revisions, but people do and have and can be correct, its like trading event driven securities. There is a huge HF strategy revolving around this, though they tend to be big boys and do their Homework very well. so forecasting in that sense can work be it self fulfilling or just due to having more knowledge.

Sorry if I confused, you but you do make very valid points that i whole heartily agree on.