So this is probably the last ‘serious’ week for financial markets of 2014. Some thoughts:
- Is oil done? The news seems more bent on $40/barrel oil, or at least $50, so another 10-15% down move from here. I’m sure many recognise that the media is generally way late to the party, so perhaps today’s slight recovery to above $58 is putting in the near-term floor. My momentum models don’t care about the debate, and are staying well-short.
- Which is right: VIX or S&P? Last week’s rise in the VIX, from about $12 to about $19, was an outlier move – similar to what happened last October. So are we due for an exciting, proper sell-off in the S&P? Or is this morning’s resilience in the index (up about 1%), combined with VIX selling off (down about 3%), the more relevant fact? On Friday I reloaded on my old favourite UVXY trade, so I’m clearly hoping the latter.
- I feel bad for being long grains. My same momentum models have me long soybeans, which has been a pretty good trade so far. However I can’t ignore the oversupply, which I hear from family in the Midwest. Another example of how the biggest enemy to a systematic trading approach is probably manual intervention.
In sum: I’d like a quiet week. My models would prefer a chaotic week – or at least a continuation of that lovely oil trend. With the remaining economic news of 2014 released this week, combined with rolls/option expiry, I’m guessing there will still be plenty of action.