Monday, November 2, 2015

Expressing a Bearish View

I know there are a lot of traders out there saying this one month rally in the SPX is way overdone, ridiculous, a setup for another dive. etc.  But there are other ways to express your bearishness without having to deal with the underlying strength of the S&P.

1.  Long bonds.  The ECB has upped the stakes and will do more QE.   There is a strong correlation between German Bund yields and Treasury yields.  If Bunds maintain a low yield, expect Treasuries to follow.  There is limited downside in Treasuries as long as Bunds remain strong.  And since the ECB is expected to make the announcement in Decemver, there should be a solid bid remaining for Bunds even as equities rally.  And if equities selloff, then you could get an explosive move higher in bonds.

2.  Short crude oil.  As I mentioned last week, crude oil is in a seasonally weak time period and has been weak relative to equities for most of the rally.  It caught up a bit last week, but still can't get close to $50, and is down today even though equities are strong.

3.  Short USD/JPY.  For the currency traders, this is the best way to express your bearishness.  With the BOJ failing to act last week, and with Fed rate hikes still uncertain, the bears have the upper hand.   My least favorite of the three ideas, but better than shorting ES.

7 comments:

Anonymous said...

I was completely right about CVX. All I had to do was hold for a little over 2 months.

I will be right about uvxy as well. But I got out because I get the feeling market is gonna grind minimally higher for the next week and in the mean time, volatility will get killed.

Market Owl said...

Big difference between CVX and UVXY is that one pays a dividend and the other decays. Very different odds.

Anonymous said...

No man, who cares about decay. I'm just talking about direction. Decay can work for you too if you're on the right side too. Market goes down about 3 or 4 %, UVXY will go to $40 easy.

Anonymous said...

Crude short like you call it. CVX 98 Dec 4 puts. Looking for 96.

Anonymous said...

Crude oil on steroids. What's the news?

Anonymous said...

We crash 1 point 5 percents tomorrow. Call it!

Market Owl said...

I am getting interested in a crude oil short. Will look for a short tomorrow.