Category: Your Money

When elephants fight…

Morgan Stanley says go short:

Today we entered a short EUR/USD trade at 1.3750. While Italian 10-year bond yields have tightened from the highs reached earlier this week, we believe yields still well above 6% are unsustainable for a debt market of 1.9tr EUR (third largest in the world). This means that Italy will need to spend nearly 10% of its annual GDP on interest payments alone. Meanwhile, political uncertainties add to concerns in the Eurozone, with new regimes in Greece and Italy. We remain fundamentally bearish on EUR, and believe it will retest 1.30 as Italy runs the risk of being “too big to save.”

Goldman Sachs says go long:

The nomination of Lucas Papademos as Greek PM governing with support from all key parties reduces the risks of escalating confrontation between other Eurozone countries and Greece. Indeed, the chance of more structural reforms being implemented in

Greece has risen as well. In Italy the high likelihood of a unity technocrat-led government being put in place over the weekend, led by Mario Monti, is also encouraging.

These two developments suggest that Eurozone fiscal tensions could continue to decline, at least for a period of time. FX markets had started to price extremely negative scenarios again in recent days as visible in risk reversals for example. Given the policy news described above, we think the fiscal risk premium can decline again in the near future and hence we see the potential for a quick EUR/$ move back towards 1.40.

We would go long EUR/$ with a narrow stop at 1.35 for an initial target of 1.40 (currently at 1.3715).

A day later, the EUR is buying $1.3532. I guess Morgan is winning this one!

Technical Analysis of the Financial Markets: Ch 3

This is a review of the third chapter of John J. Murphy’s Technical Analysis of the Financial Markets.

Chart Construction

The daily bar chart is the most commonly used chart amongst technical analysts. It’s called a bar chart because each each day’s range is represented as a vertical bar. image

StockViz uses a variation of the bar chart called the candlesticks. These charts can be constructed for any time period. For example, one line can represent an entire week’s action with the High Low Open Close representing the week’s price movements instead of a day’s.

We have covered candlesticks before, it would be worth the effort to have a brief look at it before proceeding to the next chapter.


Up next: Trend Spotting

Sunder’s List

Must reads this morning

Investors are losing confidence in the euro and it has all the earmarks of turning into a run – Warren Buffett

Our generation is autonomous. It is impatient. We refuse to pay our dues: Generation Make

Anthony Bolton, one of Britain’s best known fund managers, has been forced to issue a humiliating apology after his fund lost 29% investing in China: Telegraph

Thus, when confronted with someone who has a fervent belief based not on evidence or reason or data or logic, do not waste your time convincing them the earth is not flat; their cognitive facilities simply will not allow them to recognize the world is round. The Cognitive Dissidents

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Sunder’s List

Essential reading to start your day

While the world waits for Europe to make up its mind, catastrophe is in the air. Staring into the abyss

An interesting technical treatment of Apple: Apple: Relative to the S&P 500, It Looks Even Worse

ROMER: Europe Is A Train-Wreck And Leaders Are Still In Denial

How Silvio Berlusconi fcuked Italy: Ciao 

France is drawing up plans to create a breakaway organisation of eurozone countries with its own treaty, parliament and headquarters: Telegraph

Cogs of China’s credit machine are grinding more slowly

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Sunder’s List

TGIF! Here’s today’s must reads:

Sell in May and go away till November? Rotate in May, redux

Greece and Commodities: What Are the Right Questions?

Natural gas epitomized the “widow maker” trade of the 2000s after a series of big bets went wrong in the notoriously volatile commodity. Cotton seems to have taken its place:

China’s imports of raw materials leveled off in October, underlining a slight slowdown in growth for the world’s second-largest economy:

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