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KDavitt
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Kevin brings a wealth of derivatives experience to RCM Asset Management. Following graduation (Marquette University – Evans Scholar 1999) Kevin started working for LETCO Trading on the CBOE floor. Between 2000 and 2007 Kevin traded a variety of Equity and Index options products as a market maker... More
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  • Is Gasoline The New Gold?

    ENERGIES | METALS

    Gasoline demand continues to wane - the levels last seen in the 1990s.

    Obviously the Great Recession plays a huge role. Fuel efficient cars. Move away from Exurbs toward more population dense areas. Exports to Europe. Yup. But.........

    (click to enlarge)

    Big picture is one thing......little picture is another. Gasoline is threatening to break out again and if it does the commodity deflation that has helped offset tax increases will quickly disappear. The old rule of thumb is each penny move higher or lower on retail gasoline equates to +/- $1.2 Billion in discretionary spending (US).

    The Dollar index made slightly higher highs this morning, which has pressured the Metals, but the Energies are NOT responding.

    Deflation is great for consumers, but it depends on where we see it.

    From a trading standpoint old highs in the June RBOB contract =

    Sept 14, 2012: 297.50 (FOMC announces QE3 and a number of risk markets make tops)

    Jan 10, 2013: 292.94

    April 9, 2013: 294.58

    Today: 292.76

    (click to enlarge)

    (click to enlarge)

    Equity Index options expire today.

    Great week thus far for Palladium.

    Now standard awesome week for the Nikkei.

    The US Dollar, Equities, and Energies performing well.

    Rough week for Gold and Silver and every Currency other than the Greenback.

    (click to enlarge)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: Gasoline, RBOB, UGA, DX
    May 17 9:49 AM | Link | Comment!
  • This Is Your Portfolio On Tuesday....

    This is your portfolio on Tuesday.

    We're off to another rip roaring start thanks in part to David Tepper's comments this morning on CNBC. S&Ps = new highs. RUT new highs and the NQ futures are SO CLOSE to 3000 again for the first time since Dec 2000 (and before that November of 1999).

    The Russell 2k is up 8.45% in the past month.

    The Russell 2k is up 5.7% since May 1st (FOMC day).

    The Precious Metals were getting hit this morning but have come all the way back.

    GC traded down to 1419.70. It's back to 1435 as I type (but it's now at a $75 discount to Platinum. The highs on the year on that spread = $98 on Feb 19th).

    Per a conversation with a friend of mine - we're a month removed from the Metals collapse and this is the longest stretch that Gold implied vols have traded over S&P vol ever. Not confirmed, but comes from a very knowledgeable source.

    Very steep Gold put skew is persistent.

    The spread between the two "Commodity Currencies" is interesting (in my opinion).

    Aussie v. Canadian visually -

    (click to enlarge)

    A considerable put skew exists in the Aussie Dollar as well.

    I know next to nothing about Lumber, but perhaps we create a Housing Crush spread - Long Lumber and Copper, Short HGX.

    Lumber:

    (click to enlarge)

    Copper:

    (click to enlarge)

    HGX:

    (click to enlarge)

    Finally, sometimes I make some ridiculous comparisons (and apologies in advance to fans) but the Fast and the Furious Series kind of reminds me of QE at this point. They are ubiquitous, appear annually and become bigger and flashier, have little or no socially redeeming value, but somebody's clearly making a lot of money off them.

    Installment: Worldwide Box Office:

    Fast and the Furious $207 million

    2 Fast 2 Furious $237 million

    Fast and Furious - Tokyo Drift $158 million

    Fast and Furious 4 $363 million

    Fast Five $210 million

    Fast and the Furious 6 $We'll find out soon

    Fast and the Furious 7 $You better believe that's slated for next summer

    From: http://www.the-numbers.com/movies/franchise/Fast-and-the-Furious

    Global QE - (Including 1, 2, Twist, Extended Twist, and Infinity......with a Newer, flashier version headed your way before long!)

    Finally, this market is about to set another all time record - for number of days without a 5% pullback.

    (click to enlarge)

    Tags: LB-OLD, SPY
    May 14 1:49 PM | Link | Comment!
  • Historically, "Taper" = "Selloff" (Be Careful What You Wish For....)

    (click to enlarge)QE Dates/Effect

    This chart is a keeper, although at this point it's somewhat dated. This is only through February of 2013, so if it were updated, that last leg of the rally (Orange) would be +17.5%. Bigger than the rally during Operation Twist and a similar time frame (about 9 months).

    Since September 21, 2011 there has been a constant Federal Open Market Committee (FOMC) program. In other words, the Fed has been injecting liquidity into the market, bolstering banks balance sheets/allowing deleveraging (whether it's going on or not) incessantly for 18 months.

    QE began in December of 2008 (after TARP/TALF) and in the 55 months since then there have only been 10 months where the Fed has NOT been actively spiking the punchbowl.

    During the two "intermissions" the S&Ps suffered considerably.

    The last purchase date for QE1 (extended) was March 31, 2010. The S&Ps were 1180. It topped out on April 19th (2.5 weeks later) at 1220. Then the S&Ps started falling.....down to 1020 by the end of June. (16.4%). Bernanke then hinted at QE2 on August 27, 2011 and the rally began again.

    March 31, 2010 - VIX = 18. May 3, 2010 - VIX = 41.

    QE2 purchases ended on June 30, 2011. The S&Ps were 1340. They topped out (patriotically) on July 4th (1 week later) @ 1345. And then they started falling again - down to 1125 or (16.4%). You can't make this stuff up. There was an almost identical percentage drop when purchases were "tapered" after QE1 and QE2.

    June 30, 2011 - VIX = 15.90. August 15, 2011 - VIX = 44.

    Operation Twist was implemented/announced on September 21, 2011 and we've had ongoing FOMC interventions ever since. The S&Ps were 1135 when Op Twist was divulged. The equity market has never looked back. There have been 2/3 broad market selloffs since Operation Twist.

    Sept - Nov 2011: European sovereign debt and US Downgrade.

    April - May 2012: European elections and terrible US macro data.

    To be clear, I really hope that the Fed "tapers" their purchases which have distorted asset prices (commodities, equities, rates, and volatility) for years, but be careful what you wish for if the past is any indication of what happens when the Fed allows Adam Smith's Invisible Hand to exert itself again.

    Tags: SPY, VXX, ESM13, SPY, VIX
    May 14 1:41 PM | Link | Comment!
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