Monday, March 27, 2006

Back From Slumber

The first week of April expiration cycle gave us the deadest market ever. Of course now that there are only four weeks left the market is antsy to make a move. Only problem: tomorrow is the big "Bernarke unknown". Granted, we all know a hike is coming but given a 100% probability of a quarter raise, the question becomes:
  1. What if it's a half?
  2. What will the Fed have to say about the future raises?
While I don't have the competence to answer the above, the important observation is that the market doesn't either, so again, we wait.

BTW, on a sidebar, the compulsive speculator inside me (I ignore him most of the time) thinks that rate hikes are far from over. There are lots of reasons for this (and we all know them), but besides the obvious I just get the uncanny feeling that it would be far too "easy" to end them now. Funny that - given the emerging problems in the housing sector and other interest-rate sensitive industries.

So, the bottom line is, whatever happens, it's going to happen tomorrow, not today. Regardless of the outcome here is our stance going into this:
  • Gold has become a major long candidate. We are buying stock right here. I like GLD as the vehicle and I am advising our fund to sell put verticals on individual issues.
  • Oil is at a major inflection point. While I am still an Oil bear a break out higher from this consolidation (over 66 on June contract) will turn me into a cautious bull. I do believe the breakout is going to happen very soon now, so owning vol here is OK. BTW, I am talking about the spot, not the stock sector. Stocks are more difficult here as I see both bullish and bearish action, depending on the issues.
  • Housing turned higher as I expected. The irony here is that while selling call verticals is the right strategy I do feel that this sector is capable of climbing the "wall of worry", given all the negative press it has received. So, don't go "all in" here and scale in slowly. Regardless, on the longer term scale I am definitely a bear.
Given the lack of action last week, I'll stop short of talking about any other sectors. We are not doing much in them here (this means that we have only minor commitments with short term prop strategies), but we are expecting to see action at least in Biotech, Semiconductors and Retailers this week.

Cheers,
/Dmitry

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