Well, September is over! For a contrarian trader, this month was a real tough one (I have more colorful words I will not share). The markets steamrolled through the 1100 level and kept on climbing. The Euro, against strong downward winds, scooted higher through the close today (I am short btw and argue that this will be the big trade of October). The shorts in the bond market had their way with things through the first part of the month but the bulls ended up on the winning side as of today. Crude quietly climbed higher but Natty gas refused to do so. And the sugar and wheat complexes took some big drubbings though the former bounced back.
As for my trading antics this month, my long term positions bailed out my short term moves with some steady alpha as they call it in the money management world. My trading on the other hand was not as successful leading to some underperformance and some very stupid looking trades (in hindsight of course). The bond refused to go with my permabearish view of bonds and fall in price. Today's gains though did make up for many of the losses. The trade of the S&P was well blah as I had few good opportunities and some minor profits. Sugar and silver turned out to be good trades but the volatility position turned out to be a problem till today when it broke to the upside (and I in turn closed out the position). The end result I can take from the month of September was this - I just had too much cash on hand!
So let's talk about a few things heading into the new month. First and foremost, I am bullish crude and stocks this month. While I could see the former correcting to the downside late next week, the former I think is seeing demand numbers improve heading into the heating season. A continued drop in distillates should push crude higher and with the money multiplier turning upward at last report, money is now coming into real assets as the CRB confirms. This should help crude break through the high 80s if we get there and into the 90s.
Speaking of commodities, we have seen a bona fide breakout now in the CRB. Sure silver looks extended but it now looks like it will just run over the bears on the way to the 2500 level. Gold looks like it is still targeted for the 1350/1400 level and copper remains explosive set to trade towards 385. Of course, this is all too perfect so I will just say this - I am bullish metals.
As for stocks, in looking through the charts of the globe, things look awfully bullish. A bunch of major indexes broke out of consolidation ranges this past month and some others traded through resistance and affirmed their upward trend (FTSE and CAC40). If you combine the globe's move with what I am seeing in the domestic indexes (my overall model is now fully bullish - supports momentum initially), stocks could be in for one heck of a fall. Further, we will be talking about the fed tightening versus QE whatever come March.
Lastly, I can say anything good about the bond bubble. UBS put out a report indicating that the last one standing, the hedge funds, have thrown in the towel and are now buying bonds. It is now official - I am the only person shorting bonds! My story remains the same. The stock market is very cheap relative to bonds so either we see a massive rally in stocks and a double in the multiple or we see bonds sell off dramatically and still see PE inflation. I am committed to riding this trade to fruition.
So on balance, my thoughts remain much the same as I have posted over the past few months. I think October will be about assets moving up and the fed pushing them up. Either that or everyone is caught on the wrong side of the trade and we have an October crash. I don't see the latter because the price action is strong.
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