Front month WTI Futures plunges to negative $37 as storage costs rocket

It was a move of epic proportions in the front month WTI Crude futures, the significance of which is not really known of yet, but was incredible to watch.

In what was a relatively normal day in the stocks, spreads, held steady for S&P/Nasdaq and S&P/Dow, but in the Energy space, WTI futures which saw the expiry of the front month continued to trade under pressure. 

May WTI futures were already down 40% on the day in the morning, continued lower as positions had to be either rolled over, or closed out, or otherwise risk taking delivery. It appeared that traders were waiting for the May-June spread to narrow as the roll was a massive $7 over the past few days, but this did not pan out, and so due to lack of liquidity, and the number of contracts that had to be traded out we saw sharp decline in futures, to the point where they went below zero, and to a low of -$37 and change before rebound to trade just above $1. So in theory this meant if the futures closed around the low, you would take delivery of 1K barrels of oil as well as be paid $37K for the privilege. 

Due to the massive over supply and the lack of storage options, with the storage costs at all time highs, being left holding till expiry was the last thing anyone wanted to do, to the point it went to this extreme to get out.

Longer term, it is a real tell of the current environment. We have what would have been classified as a very low risk probability of a pandemic which has paralyzed demand, on top of which a supply war between Saudi Arabia and Russia, which has flooded the market with supply, to the point where they cannot give it away for free.

The June/July spread currently is around -$5.50, remaining in contango, infact much of the front part of the curve is in contango representing the fear of supressed demand and huge storage costs.

I wouldn't be surprised if we drop to below $10/bbl again, although I cant see the price action to be as outlandish as it was today.

Stock markets surge as the Covid cases in Europe start to flatten

US markets rallied over 7% across the board with strong gains in Europe, as Spain and Italy showed slowing growth of Covid-19 spread, whilst New York, the epicenter of the Virus in the US is also leveling.

Over the weekend the the rhetoric from the Surgeon General in the US painted a bleak picture, warning that the US will face one of the worst weeks of the Virus outbreak, while on the other hand positive numbers out of New York suggested the tide is turning. Eitherway the markets surged, and in some respects was entirely expected, going against the bleak weekend warnings, as the momentum continued to build through the day, as the short term bottom seems to be in place.

The ES/YM spread was interesting, as relative ES strength in the morning gave a good opportunity to short the spread, which then saw a nice turnaround coming into the close, as relative strength in Boeing which ended up almost 20% helped the YM outperform, and so a nice 100 tick reversal from the high in the spread.

On the energy front, Crude Oil dropped over 7% as the proposed OPEC+ meeting was delayed due to 'Technical' reasons, putting into doubt the projected oil production cuts, which saw Crude rise sharply last week.

Front month crude calendars, went offered as you would expect, with May-Jun Calendar approaching end of March lows, while Jun20Jul20 calendar appraoches the 50% fib level from the Mar 29th-April 2nd move. The Jun/Jul/Aug 1 month butterly trades back at recent lows, whilst the Jul/Aug/Sep butterfly has consolidated in the -0.40 to -0.30 range.

In general today saw most assets rise, with Gold and Silver up sharply, along with Stocks. Over the past couple of weeks has seen opposing action following a big up move, so it will be interesting to see if that pattern holds tomorrow.

Crude Oil spikes in potential production cut

It was quite the move for Crude Oil futures as a tweet from President Trump suggested potential coorperation on a production cut, as Crude futures were continuing to slide. Crude futures jumped as much as 45% before fading half the move with the crude calendars spiking on the news before fading much of the move.

 The front month calendar moved 160 ticks, and while crude futures have managed to hold on to some of its gains the front month spreads have seen retraced most of it.

Equities have had good two sided action, as we came into the US session with strong gains, a weaker IJC number saw a strong sell off before the oil comments pushed it back up again. We now trading roughly mid range as the markets chop.
The Dow-ES spread has remained steady, whilst the Nasdaq is underperforming. Overall spread action has been steady as the volatility spikes have died down, but the magnitude of the moves are still present.
Markets look weak still, and after the run up last week, seems like we going to probe lower, as businesses continue to layoff workers, and creidt lines continue to be drawn.

It was a sell everything day.. cash is king

Its been four days this week and we have had two 2K+ down days as well as one 1K+ up and down day. The volatility and velocity in the stock market is something quite unpresidented, and today, we had the crypto currencies joing the sell off, with Bitcoin trading a further 25% lower trading at around $4600. Its an asset fire sale, with the European Banking index down over 15%, major European Indices down over 10%, US Indices also sharply lower.
Overnight futures currently sharply lower once again as selling pressure continues.
The volatility has been good for the day trader, key to be flat by the end. The DOW/ES spread has held relatively well as the broad based sell off trading between 3600 and 3850 pretty much the whole session, key was keeeping small but trading often as the volailtiy allowed for multiple entries and exits.
During these times keeping small is key, its how I survived 2008/09, and its how i look to get through this. Spreads in general have worked well. containing the volatility, as well as provvide more short term opportunities.
Keep an eye out for the Itraxx crossover levels, as 5 year CDS spreads on many nations are pushing to multi month highs. If interbank lending freezes, we could see Eurodollars, Euribor and Short Sterling yields rise sharply, whilst Governemnt bonds will see the flight to safety blowing out those spreads.
As we wait for the coordinated fiscal response, whether it will calm the markets remains to be seen, but as the VIX rises above 70, at levels not seen over 10 years, the fear continues to mount.

US 10 year yield continues to decline, consolidated below 1%

As US bond yields continue to plummet, US bond yield spreads have widened as markets continue to factor in more rate cuts from the FED, following on from the 50bp 'Emergency cut', during the week. 

With Eurodollar spreads sitting at lows for many weeks, the only play was long there, and so the rise in spreads has been nice as we now approach the upper end of the recent range, looking for shorting opportunities around these levels for Dec21/Mar22 through to Dec 22.

The DOW/S&P spread has been a good play of late, has not been as skewed by the tech names like the Nasdaq. The spred ranged in a 100 point range, inside the larger range, and scalping 25 ticks at a time, around 4040 long and 4170-4200 short has been my play today, which has worked so far as the spread has remained fairly steady on this broad based sell off.

In this tricky environment, keeping it small, and quick to cut the break out.

Short Sterling spreads nudge higher on hawkish Fed; Walmart blowout

As most must know trading Short Sterling is a bit of a bore, and has been for a while. Having managed to get out of my 2 month hold before, the dip lower a couple weeks back gave me the opportunity to go long again. I'm mainly weighted to Jun18Sep18 long 4s, and it seems like I'm waiting an eternity to get out. Yesterday's FED minutes showed that the door has been left open for a possible June rate hike, which had dropped Gilts to two week lows, with Equities under pressure as a result. On top of this stronger retail sales figures added weight to the steepening argument. Yet the continued down turn in stock pushed gilts higher and hence flattened the curve a bit and now we back at square one.
EUR/USD trades back below 112, dropping over 400 pips from month highs, short of the century up there. Hind site is a wonderful thing of course. Dollar strength put Crude on the back foot, Brent and WTI down over a buck.
Walmart had blowout earnings, beating handily on the top and bottom line, guided Q2 well, helping the stock to trade 9% higher having traded at 5 month lows prior to the jump. Despite this the Dow is down in line with ES and Nasdaq. Traditional retailers in general have struggled in the quarter, with the likes of Amazon continuing to rule the roost with the retail sector. The retail ETF trading at 4 month lows.
Stock in general look to be turning, rallies are being sold off, a sell off seems to be looming, with June eyeing a potential rate rise in the US and the Brexit vote in the UK will likely bring much needed volatility.

Short Sterling Spreads Rebound

Its been a while since I did my last post, with markets much tougher to trade as a STIR spread trader. Often the lack of movement has meant you have no option but to hold positions for multiple days or weeks till you take a profit.
I currently amassed a long Short Sterling position, which isn't surprising given the big bout of flattening that first started end of January. The Spread has come off a relatively large amount, falling to a low at the beginning of Feb. It was an unprecedented move, with the curve which has been dead for the past few months dropping like an out right, with Mar17Mar18 spread dropping from the 30s to 9 on Feb 9th. Since then it has rallied a little to a high of 25 but on Friday dropped to a low print of 10.
Ive been long the spread in some form for the past 2 months, jobbing in and out, to where I'm finally break even, and hopefully a move back higher by a few ticks in the 12 month will get me a good out.
Todays inflation data is a push the right way to help dispel some of the rate cut calls from the BoE, but whilst the economy is still sluggish looks like accommodative policy will be here for the foreseeable future.
The problem arises that technological advances are making things more efficient and hence lowers costs, which in term keeps prices lower. This inevitably puts a cap on inflation, so will we really get that inflation these central banks are looking for. I doubt it, either way for the time being its sell any rally in STIR spreads.

Markets gone wild in this not so lull Summer

Its been a long time since my last update, a lot has happened since then. It was always coming a major dump in this market, and the inevitable bounce back but this move had a lot more to it then many of the other ones since 2009 I have seen. There was a serious capitulation seen in the markets Monday, liquidation throughout. Mini flash crashes occurring all over the place, with the most notable being Apple, which dropped 12 dollars to a low of $92 of the open before retracing it all. Now in hind site, there was a bucket load of opportunity then and the following days, but its hard to be subjective when a move of that intensity happens, and generally the first thought for most people is account preservation. I can't imagine there were many that were totally flat as that move happened, either they were already loaded up, or like me when you saw the market drop 3% or 5%, you started getting long, and hey why not considering in the past 4 years no meaningful pullback over 5%, and in the past every pullback was followed by a sharp snap back. Either way as I got long deltas via selling puts and some long stock positions, the expansion in Option Vol pretty much destroyed any leveraged account. Given that selling puts has been the strategy of choice over the past few years, I can imagine many were badly burned as a result. The thing is the move happens so fast that it makes it hard to get out, and as expected the market has come back but volatility is still remaining high with the VIX still in backwardation. Monday was a bad day for premium sellers, and as the saying goes, its not whether you are write or wrong in trading that counts, its whether you can stay solvent to see your view play out.

In the Bond space, as you would expect you saw a rally across the curve with Short Sterling giving some great opportunities to get long the curve on the drop down. Jun16Jun17 Short Sterling dropped to 46 on Monday for it then rebound 7 ticks to around 53 in the coming days. Its now dropped back to 50s. Using this as a guide I'll be looking to go long again with a further dip if it comes.

Next week should see the usual raft of data coming, with the looming Sep Fed meeting the focal point in the month, with a potential rate rise on the cards. Although personally I think they will bottle it.

Summer market lull, Volatility down the drain

So much for the volatility, we were trading lower with markets on tender hooks, and then in a flash the ES is trading at all time highs, Dax rallies over 10% the VIX gets smashed over 30% and its back to the new norm, which is grind up, low volumes, low interest.
Its slim pickings out there but short sterling has been livelier of late.
Short sterling has shown a steepening bias, with Jun16/17 trading around 62, with almost a 20bp move over the past few months, as comments from BoE Carney as well as other BoE officials suggesting a possible rate hike this year. I have continued to fade the red/blue month spreads on new highs, looking to nick a tick. Trying to stay away from the whites, as the back end remains more active.
Looking forward we have the BoE rate decision tomorrow which is again likely to be a non event, but other then that pretty light on the economic data front. Trading is likely to remain subdued, unless any shock events arise out of the Greek bailout negotiations.

The Greeks have brought back the volatility at least!

Whilst the Eurozone and Greece have been at loggerheads, the increase in volatility and especially the rise in the VIX has been what the market has so badly needed. Rise in volatility has given so much needed premium to some of these options helping option selling strategies.
Algos have been working overtime lately with thin markets getting manipulated by every single Greek comment, Fading any extreme move has been the play rather then to go with it. Dax has traded in 500 tick range this week although moves have been sharp, it hasn't broke out one way or the other.

Bunds have been in a 250 tick range consolidating after the big drop in May. A firm break of 150 is needed to resume the downside, but a break above 153 could see a move back to 154.50. Volume has been good, and action choppy making it decent conditions to scalp.

Short Sterling is getting its mojo back with some decent volumes coming in. The yield curve has been steepening on the back of a potential rate rise this year, although events in Europe will largely determine the rate path in my opinion.

This weekend is the Greek referendum, and although I don't think anything will be solved it will provide some good tradeable opportunities. Volatility has increased in options due to this so Monday will see big option vega contraction on a yes vote.

Fixed Income technicals

Bund futures trade up 24 ticks at 150.93 this morning after trading as high as 151.06 earlier after slightly weaker German IFO data helped underpin the slight bid tone this morning. A break above the highs should see a test of 151.36, and a break above which could see strength up to 151.79. To the downside 150.60 remains good support, with a move below this to target yesterdays lows at 150.02 and then 149.93/85.

UK Gilt futures saw earlier weakness opening at 114.66 down over 20 ticks on the back of BOE member comments stating that the BoE should be ready to raise Interest rates as early as August. It is currently trading 114.65 trading at the lows of the day. Momentum remains to the downside with support at 11.48 and 114.27. A move to the upside would target 115.36.

BTP futures trade flat this morning having been down earlier in the session trading at 131.94 up 5 ticks. The future is trading mid range currently with upside resistance seen at 132.66 which is yesterdays high with a move lower targeting 131.56 then 130.57.

Bunds trade sub 150 on a 600 tick drop in 3 days

The past week has been a explosive week for the Bund with a 600 point drop since midday Monday. June Bund traded as low as 149.70 having been at 155.70 earlier in the week. This represents an increase of more then 200% in the yield in this time. Its funny as many analysts were calling for the Bund to be negative and now its pushing 1%. Tells you how much the analysts know. The unwind has been massive, with such a one way trade over the past year its inevitable that you would get an aggressive unwind. The drop in the Bund has sharply steepened the yield curve, with the Bund Bobl spread a mere hedged outright.
European indices have felt the pressure as the fall in the Bund has given strength to the Euro. The Euro trading at 3 week highs has put the Dax under pressure as export names get smacked.
Trading wise as I've said before, its all about deep pockets. The swings in the Bond markets and equities mean getting entry precision is vital. Keeping size small and allowing a bit more room for volatility is key in trading well at this time. I have shifted my focus more to options of late, with my long term UVXY position a real dog at the moment, but I continue to roll it over against my better judgement. Volatility has been high on bond plays with some opportunities in playing TLT as well as the Bond Futures optionss, with the recent move down providing opportunities to sell some puts. Trying to catch the falling knife in the future is a bit to rich for my blood right now, so options are my best play. Despite the fall in Bonds I think this economy isn't strong, its been sluggish for years, and so will always put off the central banks from doing anything on rates, and while inflation stays subdued, despite these moves rates are not going anywhere.  

Volatility continues to contract as volumes dissapate

Equities continue their grind higher as volume wains. As I write the ES has not even traded 500k contracts which is well below the years average, but low volume generally means sideways grind to slightly higher. The lack of volume is shown in volatility products as they continue to decline despite the worst macro month for the US in April since 2011. As always the name of the game is super low rates, and due to the poor data any near term rate hike is off the table.
Given that it has been 7 years since the credit crunch and still economies not firing on all cylinders, it is totally possible that we could have Japan style monetary policy, who haven't raised rates since 1989! This is certainly true in Europe as growth remains sluggish and due to the make up of the union it is unlikely Germany's strength will be a reason for a rate hike.
Whilst equities continue to grind to the upside action in the Bond markets have been alot more volatile with the Bund dropping 800 points in the space of two weeks before recovering at around the 154 level. The fall from 160 to 151 was one of the biggest drops in such a time period that I have seen, although with 10 Year Bund yields at around 0.1% at the high left little room for further downside. So the pullback was inevitable but the speed of the pullback was one which surprised many. This is often what happens when you have such a one directional market and the unwind happens.

On the equity front, net outflows has been at some of the highest levels since 2008 and yet we continue to go up. Thus if this money returns back to the market we could continue to see more upside. Although there is many reasons why this market should go down, the low rate environment and QE continue to hold it up, and so it seems this is the way it will continue .This in turn will continue to crush volatility, with UVXY and VXX at losing more then 50% off their value in the past month. Premium in options are very low, with Facebook for example having an IV rank of 0%. With such low IVs everywhere its hard to find much opportunity, and hence being very selective is the only play right now.

My take on Navinder Sarao "Rogue Trader"

This whole week has given the media a lot to write about. The idea that a single proprietary trader from Hounslow can bring down the most actively traded futures market by Spoofing has really captured the imagination of the media and people a like. I have actually seen a lot of support for Nav as it has become totally clear that the allegations are ludicrous.
Firstly anyone who actually observes the markets can see that Spoofing is still alive and kicking today. It is a widely used strategy and the front running on those Spoof orders by the HFT algos are as quick as ever. You see that a lot of the time if you put any half decent size into the book you will get the front runners out in force, and it is so fast that manually you have no chance of mimicking the action. Often once the front runners have done their thing the size disappears. So although Nav is technically guilty for deploying the strategy he used, it is not an isolated technique and if they go after him then they need to go after everyone who deploys the strategy.
Secondly to then accuse him to be responsible for the flash crash is an insult to the financial system as a whole. The market is like a battle field, we are all trying to predict human behavior to make money. So why do support and resistance levels work well, cause you know that historically around those levels you have other traders thinking the same thing and you can use that to your advantage to make a high probability trade. So in today's markets its not much human behavior, but it is computerized behavior which drives the market.
So to try and read the Algos is the goal. Nav had found a way to do this, beat the Algos at their own game. Now there are good Algos and bad ones, and some of these Algos in the market that day weren't programmed to deal with the lack of liquidity at the time and misread the order book(most likely), which lets face it is never really real. Reading level 2 these days especially in the futures side is very unreliable. So these bad Algos were intensifying the selling which then caused the flash crash. As we know Nav's Algos were switched off two minutes before the plunge so he may have contributed to them getting into a proper mess. Now is this his fault, NO. Its like saying its Floyd Mayweathers fault for knocking out someone in a boxing match. This market is a big arena with many players, Nav was a big player who played the game well but should not be blamed for the bad players who as a result caused in my opinion the panic selling.
Nav was quoted as saying on the night of the Flash Crash that "I Beat the Algos". This is what he done, he did not bring down the market, nor did he plan to do so. These strategies have been adopted many times, and it just happened that on this occasion there was an adverse reaction.
Nav consistently did 1 to 2% of the volume on the ES, which considering the size of that contract, is huge! So clearly there was a lot of trading going on, the CME loved him just like all the exchanges love the HFTs cause they bring in a lot of business to the exchanges. But it seems Nav as a sole entity is easily dispensable, an easy target. The big firms have wealthy clients, and much more influential people behind their funds. So messing with them is messing with the wealthy elite.
Now of course this is just conspiracy, but its totally plausible. The only way prosecutors can have credibility with this claim is to go after all the firms which engage regularly in similar practices, and this way there is genuine legitimacy to what they are trying to do.
However this is incredibly unlikely since HFTs provide alot of the trading volumes on all the exchanges.
The whole saga in parts is comical, I was reading a piece in the paper claiming Nav traded in Hounslow so he can have a faster connection to those in the city and have an edge on them. When I read that I didn't know whether to laugh or cry. As most traders know, when trading US products on US exchanges, independent traders are always at a disadvantage cause you are at least 60 to 70 ms behind in speed (which is light years in HFT world), purely because of location. Most of the sophisticated Algos running in the ES have co located servers at the exchange giving them almost zero latency. So at best if he had his orders running on a co-lo server he would be on a level playing field. Second the big players in the city dont have normal internet, they have high bandwidth unshared lines, so it seems like the papers are just coming up with anything for a story.

I sincerely hope he is exonerated of the charges, but one thing is for sure, his life will be totally different after this. He is likely to be a hero in the trading world, it will be interesting to see whether he will be able to trade again, but either way lets hope common sense prevails.

They Bought the Dip...No Surprise

After what has seemed like a never ending sequence of up days the market has come down with a bang on Friday only for it to make it all back over the past two days. Volatility products continue to struggle to contain any move higher as the market rally continues. Taking UVXY for example, it has lost over 50% of its value in the last month and a bit, as the roll cost are quite high as the futures are in contango, meaning that near term there is little fear , with expectation for more volatility later on in the year.
In Europe the DAX has taken a big hit the past few days, after hitting highs at 12400. Since then it has come off over 5% trading to a low of 11700 before bouncing back above 12000 two days later. Such a move isn't surprising given that QE still underpins the market. I have maintained my short for the past 3 months rolling up and extending duration, waiting for the inevitable correction. I initially had a 10500/10350 put spread in Feb which I rolled to 10550/10400, and now today I rolled my May Options over to June with a 11000/10850 put spread whilst selling a put at 9000 to cover the roll cost. With IV relatively low, playing the debit spread worked out to be the better play in my opinion.
I continue to be long Volatility as well, and this is the biggest drag on my portfolio as drag has pushed this contract down further, as the effect of the roll is embedded in the ETF. UVXY is trading around 11.50 right now however it was trading at 37 earlier in the year. I'm hoping for at least a 50% retracement in this ETF.
I'm currently looking into shorting Oil if strength continues as it looks like there is not much more room to go and as for Equities, I don't see no reason why the buy the dip mentality will change so expecting more upside after every pullback.

Swiss issues negative Yielding as 10 Year Bond

As volatility continues to drag, and volumes subside, the market clearly is well supported as any downside action is just met with buy the dippers as worse economic data and easy money continue to support the markets.
Last Fridays NFP number was a bit of a shocker coming in at 126000 against an expectation of 200K plus, the initial reaction was a sell of in Equities and Bond Yields dropping, however we have seen time and time again that bad news is good news and this resulted in a massive reversal on Monday as all was ok again.  The move up has also pushed up European stocks to highs.
Bunds are above 159 again as Yields near negative territory and the Swiss Bank just issued the first negative Yielding 10 Year Bond which was over subscribed.
What is this world coming to, investing in an asset which they are charged to borrow to the government. In my opinion any fund manager buying this debt isn't doing his job correctly. However this is becoming normal as negative yielding bonds have become the worlds fastest growing asset class accounting for a quarter of the Euro Government Debt Market.
We now live in a world where people are happy to pay the government to lend them money, and one where Equities cannot go down cause we have low inflation and a sub standard economy. Yield curve plays are non existent, which leaves most of the opportunity in Energy related products.
With Oil and Nat Gas moving and providing opportunities. I'm looking to short any rally in Oil as we remain oversupplied, and we remain in a 45  to 53 trading range for the past few weeks, and until this breaks one way or the other, I will continue to play this range.
In Agriculture, the dip below 400 has got me interested in Corn again. looking to the July Future, I would be looking to go long on another pullback, but buying a put against it as a hedge.

VIX suggests little Fear as Markets Fall

Wednesday saw quite a substantial sell off in the US markets with the Dow down almost 300 points and the ES and Nasdaq down similar percentages. Thursday saw some further selling pressure pre cash open, with the Nasdaq printing down over 50 dollars and the ES down 20 points. At that moment you begin to think will the buy the dip pattern hold, or is this the time when it is just going to go.
One clue was the VIX, with the move up in the UVXY only 8% which isn't much considering it has lost 60% plus of its value in the past month or so. It was interesting watching the VXX and UVXY trade as it would reluctantly go up as the market was going down, but on any up tick it would be smashed back down.
All the VIX futures are trading in Contango meaning there is less near term fear in the markets, and hence the bounce was to be expected as the 20 point pre market down move was made back up by the end of the session.
It seems buy the dip is here to stay for a while, as long as easy money is available.

My long VIX plays are not playing out as I hoped so I have just continued to roll them in order to give me duration, however I have lightened my deltas slightly so not to leave me too exposed. Next week is a short week for many of us, although NFP will still be traded on the Friday with most of Europe shut. This is likely to mean the markets will likely be far more illiquid around the time of the release. However the number will likely have a greater impact on the markets as the FED is indicating raising rates at some point this year.

Worsening Macro Environment Lifts Stocks

The FED downgraded the Economic Outlook yesterday despite removing the "Patient" wording.

For the past few months, worsening outlook and worse data is stock market positive.

SPX regained 2100. Bonds rallied over a point, and as expected there was a dollar sell off. One of the more notable moves was in the Eur/Usd, which moved up over 400 pips on the announcement only for it to pare the whole move by today.

Euro fundamentals haven’t changed, so the big move up was exaggerated by stops before coming back to pre-announced levels.

This is the type of move which has made it harder to keep a position on. Since the swings are very big , deep pockets are required to withstand the moves.

As far as the FED decision goes, it wasn't surprising. Like I've been tweeting, they don't have the conviction to move forward with monetary policy. Since there is such a divergence with Europe in terms of economic progress.  Given the strong Dollar, it is unlikely they will pull the trigger, which is going to leave easy money stimulus on the table for even longer, which may or may not have big repercussions in the future, with the main threat  being the inflated stock market.

As far as interest rate Spreads go, shorting Short Sterling was the play as the Spreads have all come back down after a 10 tick move up. I was short 11s in the Mar17Jun17 to take a tick. It is close to trading 9s now, I will look to initiate a long position at 8s if it gets there. I prefer playing the back months as the range is much tighter, so makes picking the levels much more predictable.

 I'm still a buyer of volatility, although I’m feeling the heat on those positions. There seems to be no fear, and at this rate it looks like volatility ETFs will go to zero as drag weighs on the products, but I still believe there will be a meaningful sell off some point soon, which will push volatility up.

Volatility dragging despite Sell off

In the past few weeks the rampant upside in the market has understandably left those thinking that markets never go down. The VIX is representing this as it is trading back into the 13s last week and despite the big sell off on Friday the Volatility indexes still seem to be under pressure on every up tick in the market.

The DAX is experiencing the biggest gains on the back of the ECB QE programme. There seems to be such strong support despite the lofty price rises over the past month, its as if the ECB are buying DAX futures as part of the programme. The consequence of this programme is likely to be the same as it is in the US. Companies will borrow at ultra-low rates and instead of feeding it back into the economy through investment and jobs it will just repurchase stock  (which will prop up earnings per share), which are already at record highs continuing the buy at any price strategy.

But we can see how this can go wrong as was the case with Oil companies who repurchased alot of stock when Oil was in the 80s and 90s, and now with the fall in Oil prices stock buy backs have been suspended.

However as it stands, it seems there is no follow through to any downward move so you assume the market will continue its current pattern which is to buy into any dip.

Strategy wise I have been accumulating long Vol Positions,  as I'm looking for that contrarian play. I'm also looking to short the Short Sterling curve on the back of the big rise in the past week, with Dec15Mar16 trading 10 ticks above where it was a couple of weeks back, a short here seems like a good risk/reward play. I continue to hold my Dax short option play, and have rolled it onto April Expiry now, so hoping for a 5% correction at least in this index. Finally I have gone long some Gold in small size on the back of the big drop after Non Farm Payrolls.  

Is nothing priced in anymore?

The rampant up moves in Equities beggars the question whether any news is priced in anymore. In the past month, with markets and Stocks being at all time highs, any news that's slightly positive is met with the type of buying you would expect when stocks are at lows. You would have thought the DAX move from 9600 to 11200 would be pricing in something, but German acceptance of the Greek bailout extension for example propels the market up like there is no tomorrow and without sucking out all the volatility in this market. You know things are bad when the markets rally close to all time highs today on the back of a rumor denial of a Greek Bank running out of cash. I mean there was no real sell off on the rumor in the first place, which just shows the Algos wired into trade headlines are pushing this thin markets to more stretched valuations on a daily basis.

The words sluggish, tough, tepid are the words of choice for this market to continue its march higher. As long as the market remains this way rates will stay low and that's all it takes. A massive miss in Chicago PMI data, briefly lead to a dip in this market, for it then to rally all the way back up, because it was probably a buy the dip opportunity. There is no such things as fundamentals mattering to this market any more, its just demand and supply. Too much cash and no where else for it to go. Eventually there has to be some kind of re balance and when that will be who knows, but when it does happen, its going to be a wild ride.