Over the past couple of months the one aspect of my trading that I am most disappointed with is the fact that I have been part of the crowd all too often. Like a mope I owned oil with all the other fast money hedge funds. I did own the far out years which helped keep the bleeding under control, but the long side was definitely standing room only. And then when I did have the sense to fade the crowd, like going long the short end of the yield curve, I got shaken off like a scared shaky lap dog.
Yesterday as I reflected on this fact, I realized I was in the midst of doing it again. During the past few months, I have been on and off long the US dollar. My belief is that we are about to embark on a secular US dollar bull market that will last years. But there can be no denying that I am not alone in this thinking.
I can’t seem to find the quote, but recently I was reading some market commentary from a fellow who had been visiting one of the world’s largest hedge funds. He said that the PM told him that the long US dollar trade was a “no brainer.”
This belief is evident in the speculative positioning of the Chicago currency futures. We have created a graph that sums up the net US dollar speculative exposure across the six major currencies (Euro, Yen, Pound, Australian and Canadian dollars, and the Swiss Franc).
The net long exposure by speculators is sitting at the highs where it stalled the previous two times. The idea about being long the US dollar is by no means an original one. Everyone one and their dog seems to have it on.
Even though I am hard pressed to come up with a reason that the US dollar is going to reverse its strengthening trend, I still covered my positions yesterday. I wish I had waited until this morning as the Euro has sold off on news that the ECB might expand their bond buying program into corporate bonds. But I have decided that given the crowded nature of the trade, I am going to head to the sidelines.
This might be a mistake as currencies often trend for years. If it does then I will kick myself for second guessing my fundamental views. Yet I think that this is the wise thing to do. I am fed up on being on the same side of the trade with all these hedge funds when they inevitably all head for the exit at the same time.
No such thing as triple bottoms – until now?
A couple of weeks ago I joked that there are no such things as triple bottoms. The idea being that the third time that an asset hits support, it inevitably fails as the fact that the selling is strong enough to push it down to that level means that it will eventually be overwhelmed. Well, as usual the Market Gods have decided to make me look like a complete idiot.
Gold might be trying to put in a magical triple bottom.
I bought some gold and silver yesterday. I have been avoiding the long side for fear of the US dollar bull market pushing gold down through that support level. But at this point I have to admit that it very well might hold. And if it does, then I need to be long.
Making some sales
For the past week or so I have been arguing that the world is not coming to an end and that selling stocks into the panic was a losing trade. We are now up almost 100 S&P handles from the lows. At this point I am noticing many of these so called “technicians” proclaiming that is safe to wade back into the water. Although I am not going short, I am going to be peeling off some longs into this strength. I still think that we chop around these levels for some time to come, but from a short term trading perspective, it is time to get out the pink tickets.