Jonathan A Parker's  Instablog

Uncertainty is beginning to saturate the market as people are pulling out of equities and into safer investments. The catalyst which has sparked this moderate reversal is mainly due in part by the less than stellar jobs number which came in at a little more than half of the analyst expectations last Friday. Spain is also getting some attention with their financial issues. With such a strong and rather quick advance in the major indexes so far this year will keep investors cautious as the "too much, too soon" mentality begins to sink in. In this issue of Under the hEDGE, we will list some proactive trades to profit from this impending downturn and maintain proper risk management if our predictions are wrong and the market continues forward on track.

Commodity Chatter

Commodities as a whole have been hit hard this week and might continue this run as the markets retrace a bit. There will always however be a couple diamonds in the rough, or should I say, gold. Gold is looking to be an attractive buy this week at its current level of 1657 with an imposed downside risk of 37 to 1620 with an upside potential of about 100 before any reconciliation at previous resistance levels. Gold has tumbled over previous weeks because the Fed hinted at not advancing QE3. Now, because of overall market retracements, gold is a looking to be a safe place to store your money and there are always hopes of more easing talks when things look sour. Nat gas has defied most logical fallacies and continues towards its 10 year low, and key support level of $2.00. We believe that it will maintain its historical footing and not sink any lower than that. To us, it is clear that the downside is protected while the upside has much more headroom to grow. Oil has trenched its way close to $100 and see a buy at the $100.50 mark. Despite the resolves and media disconnect from Iran, we feel that the oil cartel, OPEC will begin reducing production if prices decline further.

Fed Fun in Fixed Finance

Last week Dr.Bernanke put the hush hush on QE3, but has the last nail really been hammered into the coffin? Speculation is no and that he has basically pre-determined that he will, the unknown factor is when and what he believes will be the right time to unleash that weapon. Continuing from last week, we see that the yield curve between the US10YR and the US2YR is flattening which makes shorting the 10 and buying the 2 an attractive trade.

Currency Corner

Foreign Exchange has been modestly impacted throughout on the notes of missed job growth from the US, China's trade surplus in March and the seemingly slow decline in industrial metals, further suppressing the AUD to its lowest level in 12 weeks due to metal exports making up majority of their GDP. The Swiss USDCHF currency pair is showing a bit of strength as gold perks up on the lingering hopes of more cash injection through monetary easing policy. To us, the EURCHF is a buy at 1.2015 because of the imposed 1.20 floor set by the Swiss bank limits the downside while the upside, albeit minimal is targeted. The AUDUSD is a hold at the moment with the possibility of it catching a bounce at the support of 1.03. If we see positive numbers in earnings, we expect possible USD declines, if numbers are bad, we expect strength in the USD.

Equities Evolution

This coming week sparks the beginning of the much awaited and rather exciting, quarter 2 earnings reports. These numbers will either support the elevated prices with a truly outstanding comeback, or bring valuation to reality and knock things back a bit. We believe in the latter. Because of the anticipation of misses and a downtrend of unknown proportions, it is time to play defensively. Our defensive strategy is to buy equities in sectors which will often outperform in a down market, particularly, technology, retail and healthcare. Healthcare is a high cash dividend play that shines in a down market, technology is a rampant growth story which will likely be minimally affected by any wide-area declines and retail is a strong staple that can hold its footings in a bear market. HPQ is still a buy in our book and a double bounce at $23 supports it from continued declines. Bottom line though, we are sitting patiently until the right trade becomes apparent.

Action Alley

Commodities

Currencies

Fixed Income

We wish you a great trading week and we always value any thoughts of future updates. Please remember to only trade what you can afford to lose, and always think different.

The Dow, S&P and NASDAQ finished the week with the worse loss of 2012, which leads us to a strong point in Market Psychology. What do we do from here and what should I do with the profits we have already made for 2012? In this, the very first weekly update letter, we will aim to give you some strategies to prepare for the upcoming trading days and some ideas on profiting from this rise in volatility. The markets are ALWAYS right, and it is true that they have a mind of their own. However, using certain strategies and history as a guide, we believe that we can profit in any environment. The structure of this weekly update will change, the instruments we examine will change, but our dedication to the pursuit of the perfect strategy will never stop.

Commodity Chatter

There is a lot moving in the pits of the Merck, but there is an overwhelming theme coming out: Oil prices want to move higher. The Brent chart is setting up for a full bull pattern and The WTI chart is looking neutral. We will call this the tail of two trades, but we think that there is a winner here. We are looking at shorting WTI in the short term, and hedging with a long term LONG trade in Brent. Brent, with a little help from Iran and its friends, may push up to the 140 range in the next couple of weeks. This trade is a weighted strategy by 2:1, so for every one WTI contract you place, make sure that you have two long Brent contracts on to hedge. Also as a side note, Corn trades with oil, so I would be buying some July contracts in Corn and looking to exit around 780 for the yellow lighting. There is always talk about Gold and Silver, and I will be honest, I like them both long. If you are a trader that has limited funds or time horizons, I would purchase one Silver contract for December 2012. But for the more beefy investors and traders, I would back the truck up all over the GLD and SLV. These are the buys I recommend here at this point. Our call on Gold is simple, 2200 and oz. and Silver will touch 50 this year, so go rent a truck, and get ready to profit from the precious metals if you want to make some serious profit. In next week's open letter, we will address owning commodities in different currencies to maximize out your profit and mitigate your risk.

Fed Fun in Fixed Finance

It was a strange week last week, with Bernanke and Geithner both testifying before congress, but what did they really say? The Bernanke has single handedly killed the gold rally for the minute; however, the fed cannot control the true inflation so it is a buying opportunity for the precious metals. What the Bernanke said that is more important is that they are taking notice of the rise in treasuries. The Fed cannot loan money at almost zero, but allow the 10 year to hit 3%. This would be a disaster for Ben, but would be nice and juicy for the banks that thrive on a steep yield curve. I am NOT a fan of the FED policy, but I believe there is a way to make money on this failed approach, which is to sell the 2 year notes (please be advised, this is an in your face, anti-American and fed trade) and buy the 10 year notes right here at 2.25%. This can give you some real upside in the short term and especially next week with the possibility of Spain begging for some Greek like bailout. Next week we will dive into some very interesting European trades that could make your portfolio come alive with massive profits.

Currency Corner

The past 18 months have been some of the best and most exciting EURUSD trading we have ever seen, but brace yourself, this ride isn't over yet. Enter what we are calling, "The Spanish Twist" to the party. Next week Spain is set to pass, or try to pass a budget and the likelihood of that passing is slim. Also, we believe on Friday that Spain will be forced to request a 'Greek Styled' bailout which should set the Euro sellers back out to hunt longs. Here is the trade as we see it, SHORT EUR against everything except the CHF. We are short Euro, with a stop at 1.3324 and are targeting 1.3085. We are Long the EURCHF, as the floor is in at 1.20 and its current level is 1.2050. China kind of kicked me over the past couple of weeks and I am seeking a rebound in short term data to cause the AUDUSD to raise back to the 1.06 level. We have a stop at 1.0310 and are looking for a rise of 130 pips from its current level. China will be around 7.5% GDP growth and this is far from a hard landing. Also as OIL rises the AUD benefits, which is synchronized with our long Brent position.

Equities Evolution

We are bearish on the short term equities markets and we are ready to raise cash from some of our outperformers, such as KORS, SIRI, LIZ and PNC. I believe that in this period of the market, the fourth year of a recovery and this time horizon before earnings, that every portfolio should rebalance and have no more than a 50% equity stake. I like upwards of 75% cash, because there are a lot of headwinds for this market. If you have to trade something for booking value, I would buy the VXX on close every day and hold till 9:45am and sell it hard into strength, but other than that, I am not a fan of equities here at the SP500 around 1390's. Also it is not a bad idea to short SPY at 140 if you really want to play something. Again we are BEARISH on the market currently, so look for dividend stocks, defensive stocks (healthcare and utilities) or short parts of the markets using ETF or ETN's.

Commodities

WTI Crude	106.87	SELL WTI and long Brent
Brent Oil	125.13	Sell WTI and LONG Brent
Nat. Gas	2.275	Nat Gas is a BUY at 2.00 to 2.10
Copper	380.85	No Position
Gold	1662.80	We are long term LONG in GLD to 2200
Silver	32.272	We are long term LONG in SLV to 42
Wheat	654.25	No position
Corn	646.50	LONG Corn to 780 as long as energy moves higher

Currencies

EUR/USD	1.3270	SHORT EURO to 1.3165 and STOP at 1.34
AUD/USD	1.0463	LONG AUD to 1.06 and STOP at 1.0365
USD/JPY	82.35	LONG JPY and SHORT USD (Also look for JPY in Commodity space)
EUR/CHF	1.2050	Floor is 1.20, So long EUR versus Swiss
USD/CAD	1.0022	No Position
USD/CHF	.9081	No Position

Fixed Income

3 Month	.07%	No Position
2 Year	.35%	SELL 30's and 10's and buy 2's
10 Year	2.23%	SELL 30's and 10's and buy 2's
30 Year	3.31%	SELL 30's and 10's and buy 2's
Germany	1.86%	No Position
Spain	5.33%	No Position
Italy	5.02%	BUY Italian Bonds and sell French Bonds
France	2.93%	We are SELLERS of French Debt w/ BUYERS of ITALIAN Debt
Greece	19.02%	Our positions are SELLERS of Greek Debt

We wish you a great trading week and we always value any thoughts of future updates. Please remember to only trade what you can afford to lose, and always think different.

This week wraps up a very good quarter for the Dow, S&P and NASDAQ and sets us up for Quarter 2. We believe that company earnings expectations are set too high for the coming earnings season, so there is potential for downside. We do not focus on praise for past performance, because there is always another trading day tomorrow and that is the one that counts. What do you do with the profits from Q1, what about OIL and will the AUDUSD slow down due to China's either hard or soft landing? We will lay out a hedged strategy for this shortened trading week and we will give you some real opportunities to make some good trades.

Commodity Chatter

Here is the play for the week from the pits. BUY WTI and Brent Crude. We are oil bulls for the upcoming week based on increased demand, potential supply shock and a technical bounce is due. Here are the levels we see in this trade; WTI 1.04 as a good starting point for the trade, limit set and 1.08 and stop at 99 / Brent 123 as our start, with a limit set at 126 and our stop set at 119. Again, I must say, we are big BUYERS of OIL. Also, this looks like an interesting place to get back into Gold if you have been on the sidelines for a while. Silver is our metal of choice, but Gold is equally as good. I would look to get into silver here at 32.50 and ride it up to 35, with a stop at 29.80. We DO NOT like Copper at all in any way. If you believe this is a bad idea from us, just look at the chart of FCX over the past two months. We are also seeing opportunities in CORN this week and looks like it could hit 675 this week, if we can get a good oil rally going. Corn is not one of our favorite trades, but if you believe that oil is heading higher than CORN should head up as well. As a side note, Nat Gas is looking at our target in the face around 2.10, but only buy these contracts if you have time for a rebound. We will be heavy buyers around 2.00 to 2.10, but only in the leaps. This is not a short term trade in any way, and there is limited risk, but again, IT NEEDS TIME TO WORK.

Fed Fun in Fixed Finance

There will be several Fed Governors speaking this week, which always holds the potential to send the markets running lower, but I would worry more about the Fed's all-out assault on Gold. We saw a little bit of flattening of the yield curve towards the end of the week, and we see more upside in the US10YR, if the earnings come in weak this month. My strategy is shorting US20YR notes and going long US10YR notes. I would also look to trade the TLT as an ETF that follows the long end of the BOND market, for those people that are shaky on trading fixed income.

Currency Corner

In the FX world, we are a bit stunned by the AUD weakness versus the dollar. We are still net long the AUDUSD to the 1.06 level and if the markets are moving higher, we should easily hit this level by Thursday. I would place my stop still at 1.01 and be ready to run if there is a problem in China. We are going to talk about one of our favorite crosses that usually gets zero respect, and that is the EURCHF. This is a good, straight forward trade based on the Swiss Bank's previous position of defending the 1.20 level. It is currently around 1.2040 and we see a 100 pip upside by buying Euros and selling Swiss Francs. I would set the stop at 1.19 and set my limit at 1.2150. These are the two trades we will be focusing on for this week.

Equities Evolution

As earnings season is fast approaching, it is important to pick our spots and look for some value opportunity. We are fans of retail, financials and tech. I have run the numbers and I believe that HPQ is a strong buy at the 23 to 24 range. I would look for HPQ to surprise on the upside this quarter, and we see a price target of 31 for 2012. In the financials we are backing MS, PNC and C. MS is fast becoming one of the best investment banks on Wall Street, PNC is a strong regional bank with a good balance sheet and C has tremendous upside. In 2013 we believe C can earn 8 to 10 bucks a share with an 8X multiple. Two year target on C is 80 and we believe that is a conservative estimate. We are avoiding any insurers!!! In retail, we have found success in LF, KORS and LIZ, and I believe of the three KORS and LF are still buys, even at the current levels. Also look to FDO and JWN to play both sides of the spectrum. We are shorts names that are associated with teens, such as ANF. Get ready for a strong earnings season, but our belief is expectations are FAR too high, so this shoe could fall. My advice is to take profits off the table from the first quarter and prepare to play defensively.

Action Alley

Commodities

Currencies

Fixed Income

We wish you a great trading week and we always value any thoughts of future updates. Please remember to only trade what you can afford to lose, and always think different.