Brief brainstorming…..

Posted on 08/03/2011

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The Equities MAY have staved off disaster with today’s afternoon rally, but I doubt it. It was slightly reassuring to see the S&P close above 1250 (and futures remain firm in the overnight), but I have a feeling the technical damage has been done and a poor Non-Farm Payroll/Unemployment rate on Friday will seal the deal.

On a semi-related side note, I find it interesting that vol (as measured by the VIX) was soft (lower) pretty much all day long  (even when we broke 1250/1240 support early in the session).  I’m going to keep my eye on “Dr. Copper” because it has “a PhD in Economics” and I don’t – and if it finally breaks, I think it’s lights out on this 2 plus year rally.

If you believe the selloff is overdone and we’re in a domestic “soft patch”, then take a look at being LONG (two) Platinum futures (50 oz. each) v. SHORT (one) Gold future (100 oz). Platinum tends to outperform when market volatility contracts and vice versa.

To illustrate, early this year (mid Jan), when the VIX was selling around 16, near term Platinum traded at a $475/ounce premium to Gold. (Jan Gold was ~1400 and Jan Platinum was ~1875). The spread as I write is $110 with PL ~1775 and GC ~1665. Historically, that’s very narrow. I think this is worth a shot, with a short leash ($10 on spread = $1000) in this neighborhood.

It’s a HIGHLY volatile spread.

Translation: RISKY and NOT for everyone. If there were a Scoville Scale for risk, this spread is a Red Savina Habenero.

Industrial Metals have a tendency to outperform in lower volatility (growth) environments and Gold (precious metals) sets the pace in a more fearful enviroment. Every $1 move on this spread = $100 and of late this spread has been moving between 10 – 25 bucks a day.

Forewarned is forearmed.

Expectations for Friday’s NFP number are +90,000 and an unemployment rate unchanged @ 9.2%. The ADP number has been a poor precursor for months now. I think it’s possible we could see something like a +25,000 number and another uptick in the unemployment rate which could freak the market………and fuel the QE3 conversation.

The next FOMC meeting (next week) will likely provide some more fireworks, particularly in the Q&A session for Bernanke afterward.

Into the blue again/after the money’s gone
Once in a lifetime/water flowing underground.

Same as it ever was…Same as it ever was…Same as it ever was…
Same as it ever was…Same as it ever was…Same as it ever was…
Same as it ever was…Same as it ever was…

 

****10 a.m. update on the PL v. GC spread****

This spread EXPLODED again today. Platinum is now trading at only a $60 premium per ounce to Gold. Keep in mind this spread was nearly $500/ounce a few months ago. It’s VERY DIFFICULT to sell GOLD @ an all time high (even as part of a spread), and I would prefer to see this spread close in PL favor at least ONE day before getting in, but at some point soon this is a decent risk v. reward. Last week I said if the VIX gets to 30 – this spread is a do (as a short VIX proxy) and it’s almost 27 right now

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