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Professional Independent Trader, 15 years. Started as a equity index futures floor trader, now day and swing trade, stocks, treasury futures, index futures and commodities. Believe in correlation of markets, must undertand all markets to trade one well. (aka Jim Rogers) Self taught by... More
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  • A Secular Reason To Short Gold

    Very Busy this morning; this will be a very short post; so I will edit and re-post this later with further color.

    Gold (June Futures) have broken down below 1300, nominally on a Wall Street Journal Article highlighting slowing Chinese and Asian demand for physical gold.

    Normally I would put little stock in such articles; however for some time I have seen the gold trade as a great short setting up, in search of an obvious catalyst. This is it, and gives folks "cover" to unload their gold exposure.

    Other reasons for Shorting Gold:

    1. A steadily; if slowly to this point improving US economy;

    2. Anticipation of more pro - growth fiscal policy down the road, higher Capex spending, and associated higher real interest rates;

    3. Lack of bullish reaction -- which I define as failing to rally to the March highs near $1400 -- in spite of multiple catalysts:

    --A sharp Nasdaq and Small Cap Selloff,

    --A large risk off rally in US Treasuries (positively correlated to Gold)

    --Substantial geopolitical turmoil in the Ukraine.

    4. (most important of all) Latent popularity among average investors in Gold as a primary investment. It is my continuing sense, that Gold is simply too popular among the "crowd". Among my non - professional investor friends, it is the Only asset class, still asked about.

    Summary -- I see Gold as an extremely high risk investment; with risk to the December lows below 1200, and possibly much lower in time.

    (click to enlarge)

    GLD data by YCharts

    Short Gold.

    Disclosure: I am short GLD.

    Additional disclosure: Short Gold via Futures. This is not remotely advice. Consult your advisor.

    Tags: GLD, Gold
    Apr 15 8:50 AM | Link | 4 Comments
  • The Case For A Secular Move In Natural Gas Producers.

    Natural Gas has long been in a secular decline; primarily due to a massive rise in supply from fracking technology.

    This post will very briefly outline the bullish case both for Natural Gas itself, and the producer sector in particular.

    (click to enlarge)

    UNG data by YCharts

    I've posted (UNG) here, but will comment on Nat Gas futures pricing. Nat Gas has endured a long slide, from well over $10 in mid 2008 to a low of $3.50 mid last year. (June 2014 futures). It is currently at $4.63 and entering a sustained uptrend. This is especially impressive as April is an "injection month" for the shoulder season between the recent very cold winter and the upcoming air conditioning season.

    This past winter was exceptionally cold, the upcoming summer is forecast to be especially hot. Natural gas supplies enter the spring far below their 5 year average, and it is doubtful they will be built up to last fall's levels before the next winter hits.

    Also bullish from a longer term demand perspective, are both the current Administration's focus on Natural Gas as a primary source for electric power instead of coal, and the upcoming flood of LNG exports to Asia, where gas is up to $15.00; from both the US and Canada. The Sabine Pass export terminal is nearing completion, and exports will begin in 2015. Many other projects in the works.

    Any acceleration in the US economy, would obviously help on the industrial demand side, as well.

    On the supply side, there are some questions about the effects on fracking safety in some juristictions, a question mark which may affect some projects going forward.

    There is also some ongoing questions, about the sustainability of the 5 largest shale gas plays, and well productivity.

    On specific ideas; one consideration has to be (CHK). The company has been heavily restructured with a new management team, and has experienced heavy insider buying. Carl Ichan is a major investor, and the stock has moved up into a multi - month bullish consolidation. (see chart) A break above 27.50 would be a confirmation of this trend.

    (click to enlarge)

    CHK data by YCharts

    Another restructured stock with quailty management is (ECA). They have sold non - core assets and the stock is responding well to their corporate efforts.

    (click to enlarge)

    ECA data by YCharts

    To summarize; this is still a deeply out of favour value sector. $5 or $6.00 sustained Natural Gas prices would be a catalyst for outsized moves in these producers.

    On a future article, I will examine the Coal sector. I have long been looking for a bottom here. One day, a Combination of a more friendly regulatory environment, higher Nat Gas pricing, and an accelerating real economy with higher Capex spending, may make the coal sector an attractive investment.

    Long (CHK) (ECA)

    Note -- I do not recommend (UNG) due to the constant rebalancing erosion.

    Disclosure: I am long ECA, CHK.

    Additional disclosure: Not investment advice. Only my own thoughts. Consult a qualified advisor.

    Apr 12 6:45 PM | Link | 4 Comments
  • Why I'm Defensive -- Right Now!

    Below is why I am currently defensive on the stock market; with a net short position focused on the most speculative sectors of the market:

    Reasons to be defensive / market indicators of defensiveness:

    1. Long bonds breakout above resistance / rising ratio vs junk bonds.

    2. (XLY) (consumer discretionary) turning sharply lower vs (XLP) ( consumer staples)

    3. (IWM) and related "momentum" stocks falling outright and especially VS (SPX)

    4. Poor IPO performance/ poor quality IPO's and secondary's.

    5. Extended S&P 500 churning. Generally large, volatile sideways movements after a large advance; resolve to the downside.

    6. Poor leadership from the Financials and Retail. (XLF) (XRT)

    7. Extreme sentiment and complacency. Low levels of fear / anxiety. Bullish arrogance.

    8. High levels of insider selling / secondary's.

    9. Absolutely horrible "junk bond" debt covenants. Issuance of these "covenant lite" loans -- has spiked to the highest level in history.

    10. Record low available cash to S&P 500 market cap ratio.

    I'll add to the above that it seems simply prudent to become more defensive with the Fed pulling back on QE accommodation. It appears they will continue to taper, especially bearing in mind recent high oil and food prices as a factor. A 2011 scenario for the market, seems quite possible.

    It is also amusing as an indicator to see long term successful managers like Buffett ( who has stated there is little to buy out there), Grantham, and Seth Klarman, all of whom i have read being openly ridiculed for their current cautiousness. What does this tell us about sentiment?

    As a trader; I attempt to "listen" to the technical messages given off by the markets.

    In my listening, I see "risk off" activity in the speculative sectors, which is the focus of my net short positioning. I see long bonds trying to rally.

    So far the market has rotated while the former "momentum" leaders have cracked. However; of all the reasons above the persistent strength in the long bond is most telling. It is certainly forecasting corrective activity; and quite possibly a future recession. With the current fiscal policy and the Fed pulling back, such an event cannot be discounted.

    I would be watching for a close below SPX 1840 to confirm corrective activity. I am positioned as follows: Short (IWM) via futures and options; Long (TLT) via options; short various high - PE stocks that change frequently. Long (MBT) (AGNC) as yield plays.

    Below (SPX) 1840 I would become more aggressive. Renewed strength in (IWM) would likely invalidate my thesis. Positions are subject to change at any time.

    Disclosure: I am short IWM.

    Additional disclosure: This is not remotely advice. Positions subject to change.

    Tags: IWM, TLT, Stock Market
    Mar 29 7:55 PM | Link | Comment!
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