Happy New Year

It looks like everything we saw this week, last week and the entire year to a larger degree is seeing some real discounting once we got past window dressing, quad witching, year end performance, etc.

Tuesday's bet to take off the long AAPL hedge and add to the partial trading positions SPXU (3x short SPX) and FAZ 3x short financials, really is paying off, the signals seem to have been right on track.

Even though the VIX short term futures were pinned at the end of the year, 3C did a good job in picking up on the accumulation despite the pin of price.

Last night I saw most of Asia was in the red and knew that despite the VERY strong seasonal bias of the first trading day of the New Year, it looked like we were going to be fine with Tuesday's quick repositioning to shorts or at least filling them out and removing long hedges, a near perfect 1-day trade in AAPL that added to the trading portfolios gains while protecting the shorts there.

It seems that it's not the Chinese PMI (official) that came in a bit weak, it's certainly not the Eurozone unchanged print from their Flash print in Manufacturing PMI  which was in line with expectations, I think it's bigger than this. One of the themes I said to be on the lookout for was the cover of the carry trade. (The Carry Trade is a way that funds can leverage their Assets Under Management "AUM" by selling (
in this case) the Yen and buying a higher yielding currency like the EUR, but when a carry trade goes against you, it hurts as leverage is often at least 10:1, quite often 100:1, a few pips can be disastrous) The reason we have been watching the carry pairs is to see if and when the larger funds start moving out of their leveraged positions. The process usually goes something like this, sell the asset that was bought on the leveraged carry trade, then to close the carry trade sell the first currency of the carry pair, the Euro or USD in this case and buy back the second of the pair, the Yen. So a rising Yen as we have seen 3C signals suggesting and as we know BAC already covered part of their carry, most likely means the carry is being covered which typically means the assets bought (stocks) with that leverage are sold as the leverage is no longer going to be there).


Take a look at the Yen.

 15 min Yen single currency future is just one of many charts showing accumulation which is most likely the covering of the carry trade, a risk off event.

 The result, the algo ramping EUR/JPY is in free-fall as is the USD/JPY.

 This is the intraday ES/SPX futures chart with a significant gap down ion a negative divegrence, remember I said 3C divergences, unlike price, most often pick up right where they left off whether yesterday, over the weekend or on the new year.

 The longer term Index future charts were telegraphing this, such as the 60 min ES chart as these rarely see the same migration of a divergence like the averages do so this was important and pointed out numerous times over the last week or so.

Although they pinned VXX as part of the SPY arbitrage to hold year end gains, it didn't mean that there wasn't a healthy bid for protection under the surface, it's just price can't tell you that except by relative performance, 3C can tell you that and it was telling us, thus we went short the day before what has historically been one of the most consistently bullish days of the year, the first trading day of the new year.

Here the TICK chart breaks out of last week's +/- 500 range and hits an extreme of -1400 this morning.

However, this is no time for a victory lap, it's early in the day and we have pretty much a full staff back on Wall Street so we need to be paying attention to underlying trade, but so far so good, the Trading portfolio that is just under a month old since inception now has a +22.5% gain, blowing away the average hedge fund performance for the year of 6% and we're not charging a 2 to 3.5% management fee and a 20-50% performance fee before taxes meaning if the hedge fund makes $1000 for you their performance fee (depending on their high water mark) can be anywhere from $200 to $500 of that $1000 they made you and whatever you have invested with them, say $100k sees a deduction of $2000 to $3500 as a management fee no matter what their performance, but it's highly unlikely they'd even accept you as a client (even if you were qualified) with only $100k.

More soon, I hope EVERYONE had a safe and very happy New Year, now lets make it a PROSPEROUS ONE!