Daily Archives: February 6, 2017

Watch the USD/JPY

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Just a quick post before I head to bed – – the USD/JPY is key to watch. Weakness here will continue to be of aid to equity bears. I’ve also got a short on DXJ, which obviously also needs the Yen to play along. This has nothing to do with any of that, but I’ll just say in passing energy is increasingly my favorite sector, with more of my shorts concentrated in that zone. Anyway, here’s the USD/JPY:


Building Blocks V: Volatility (by The Director)

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Before we discuss the basic of options parameters for trading, we need to understand the concept of volatility. This is not simply an observational number, thought it can be used as such. In general stock investors want to avoid volatility. They want to minimize the standard deviation of their investments, as large drawdowns can be petrifying to some. This is a reaction that encompasses more than trader psychology; when the broker taps you on the shoulder with his margin call, it really is game over for you. This can be unfair, but those with the gold set the rules.

Probability Spectra

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This is an important week on equities with likely highs coming on SPX, NDX & maybe RUT too. This high will likely last several months. There are couple of questions that I am still getting regularly that I’d like to address at the start of this week.

How certain are we (Stan & I) that our scenario will deliver here? We are not certain at all, because there is precious little certainty in the universe and none at all in the markets. We have a high level of confidence, within the obvious constraint of the reality that we are forecasting with math rather than magic. Our working assumption is that certainty in market forecasting is less common than unicorns, and that analysts offering certainty are either charlatans or delusional. On planet Earth everything is on a spectrum of possibilities.


The Loss of Verve

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For a person who has almost zero interest in sports, I sure have been lucky lately. I sorta-kinda watched the World Series last October, just for the final portion, and it turned out to be one of the most amazing games of all time. And then yesterday we sorta-kinda had the Super Bowl on, and we all know how that went. (Just to give you an idea of how intently we were watching, I walked into the room and asked my family: “Has the game started yet?” and none of them had any idea; every single person was on their respective laptop).

Anyway, the Patriots’ victory last night just goes to show, no matter how down you may be, there’s always hope. And having said that, I must again point out that the bold breakout in equities (tinted in green on the ES below) fizzled swiftly (see red arrow), and the market has been unable to get its old verve back. My fervent plea to the market gods, of course, is that we slip below last week’s lows, and the Trump trauma can really start to sink its teeth in.