This can't continue indefinitely.......

Further to my previous post, the current move cannot continue forever as expectations of greater liquidity and thus inflation will indeed become self fulfilling causing central banks to begin to raise rates. Of course they will err on the side of caution then risk raising rates too early so expect a continued rise in risk assets.

Oh by the way, quant studies continue to point to higher prices, 3 months to 1 year out.

Current market thoughts & observations

As you all know the market has been trending higher and is exhibiting very bullish tape action. My thoughts are that we are going to continue to see more stimulus from central banks and continued liquidity in the form of bailouts etc etc. This is all reinforcing the risk trade and that's why we continue to see equity markets higher, oil higher, gold higher etc etc even though fundamentally something like oil really shouldn't be higher given that inventories came in yesterday well above expectations (2.9 mil versus 1.6 mil). The mentality of late that I've been seeing in the early morning futures trade has been to wait for the flush out early in the morning and then buy the lows as we have ripped every time.

Really, really tough to trade option income trades in this environment in my opinion. The best trades for the last 2 weeks have been to sell puts or buy call spreads. I will update later with a trade that I have on the SPX which is a unbalanced iron condor but I have had to keep massaging it by buying call spreads just to keep the deltas in line with my theta. At this point, we are so close to retesting the recent highs of 1344 on the SPX that it would absolutely shock me that we don't get there. I think it's a given that the market wants to go there. This might set up some interesting spec trades like long some cheap out the money call spreads as we head into the last 2 weeks of expiration.

Mass liquidation??

A bit of risk aversion all across the board. Everything that has probably been bought on leverage is starting to unwind and that includes crude, gold, silver etc etc. All market internals are solidly negative. In fact they stink and the robots (ie program buying) that have bought at low levels on each time we've had weakness lately are now where to be seen. Ticks are solidly negative and cumulatively we are down -20,000 already. Seeing a massive jump in volume today which shows that a lot of distribution is going on. I myself did go with the open but I did fade the first bounce we got on the TF for a nice winner. I don't think we will see any meaningful bounces today to be honest. Still you never know with this market. Very quiet in the pits though so not a sign that we've hit some sort of extreme just yet (normally lots of noise indicates that selling or buying is reaching an extreme). Treasuries and the dollar are up so definitely some safe haven allocation going on.

Back to regular programming soon!

Hi folks,

I've been a bit busy lately since I got back from holidays and I haven't yet gotten into the blogging mood but I will rectify this over the weekend. Current thoughts are:

• Very strong inverse correlation between crude futures and the e-minis. The fear to me at this stage seems to be that if we get a large spike in the price of crude, then this may force central bankers to start raising rates earlier than expected. Note that the comments from one of the ECB bankers a couple of days ago really spooked the Euro and it had quite a bit of a meltdown (normally you would have expected the Euro to rise but I guess traders are thinking more about the longer term effects that higher interest rates would have on the struggling PIIGS to repay their debts and what that would mean to the Euro if any one of them defaulted). Any rise in interest rates would signal an end to the flood of liquidity we've had and that would not be good for equities or the global economy as a whole as it is still recovering.
• Based on quant studies such as patterns, the odds still point to a higher market in the intermediate term 3-6 months out. ie any nice pull back or correction sell off is likely to be a good opportunity to get long.
• The short term technical picture for the S&P shows that we are forming a triangle pattern as longs and shorts keep building positions by fading the lows and highs. Watch for an eventual break of this range soon as all we need is a catalyst to make a big push in one direction and one side is forced to cover. I might make a separate post about this.
• We've had some pretty good distribution days of late as seen by cumulative tick action (there's been 3 days over the last 2 weeks where we had more than -60,000 in cumulative ticks).
• Each day that we begin with a weak opening and a bit of a sell off, I've observed program buying stepping in and pushing the market back higher again at key levels. How do I know?? Because I keep hearing alerts on my trading platform when I get spikes in NYSE tick action of +600 to +1000. How long does this last I do not know
• We are seeing large gap downs in the overnight futures right now below the low of the cash session. This presents a high probability that the gap will not fill and is suggestive of a continuation move down in the cash session. It will be interesting to see whether the low of a few days ago, 1302 in the ES, holds.