WHAT’S A FEW “SIGMAS” AMONG FRIENDS?

“Long USDCAD into an employment report? What could possibly go wrong?”

Why should today be any different than the others this week, stuck in the “bizarro” world of George Costanza? Granted, at the start of the day, it wasn’t as bad as yesterday; nonetheless, the “Chuckleheads ”in Asia just had to goose it up on the Asian open to the highs of the day, and then right before the European open goose it “good & hard” up 40 PIPS to let everybody know that they’re bullish as hell … “go get ‘em Mrs. Wantanabe … you show ‘em who’s boss and what’s what … we’ll put that sell stop way down cuz there’s nooooooooooo possible chance it gets hit, and then liquidate later above 1.75000 … wait … what? … WTF do you mean 14 sigma bullish, and why are you handing me my stop 100 lower than where I put it in? … excuse me while I puke”?

Before the Canadian employment report, I had it pegged pretty good early this morning … USDCAD in a coma cuz of the impending report, and some “profit taking” [thank you CNBC’s Bob Pisani] into the weekend in GBPUSD. We saw GBPCAD “stair-step” down, and once again … and folks, you got to be situationally aware or they carry you out in a stretcher … the interim low at 1.7335-ish gets put in literally within a couple of minutes of the U.K. PMI report … well natch, the scumbag LP’s widen the spread to over 30 PIPS, so if you decided to play this long or short it doesn’t matter, you got 50 PIP risk built into the cake on your position … should it miss, your “toast” in a nanosecond. Well, that reports beats estimates, and it’s a quick pop to the upside about 30 PIPS … now, the only question that remains is, what’s left to the 8:30 EST Canadian employment report … does the market fiddlefart around here and chop, do shorts cover, or do we move marginally lower? Well, shorts panicked like they’ve done all week, and we saw a pretty brisk move back up to 1.74000 before again sliding some into the report.

“But hey … it’s just a stupid Canadian employment report … does anybody pay attention to this “bat guano” from the land of ice & cold? Surely, I can remain long into this thing … I mean, what’s the worse that can happen, a few PIPS to the downside”? [Note: Please define a “few PIPS”.]

Maybe now some of you will come to understand why I don’t play “report roulette”, cuz in case you were on Mars today and didn’t know until just now, not only was the report Loonie bullish, it beat by 14 sigma [14 standard deviations from consensus expectations], and in the process absolutely crushed GBPCAD by approximately 150 PIPS in a nanosecond, and has continued to erode as I write. And if you think I’m selling a market “in the hole” that’s down over 300 PIPS on the day, think again … ain’t gonna happen … you didn’t see my buying it yesterday when it was up 200 did you?

I said the other day I’d be looking to buy “quick spikes down” … yes, but not on major defining market news that now sets the tone for the rest of this Friday. Add to that the fact that there was very little bounce … a “dead cat” bounce if you will … off the first and second bottoms … since when does the market give everybody a shot at buying the lows of the day for 10 – 15 minutes, so it can then go higher? How about never. Sure, there will be some “short covering” at some point today … it’s Friday, and the market has done the “bizzaro” once again, putting in a 300+ PIP range on the least likely of days … considering all the extremely low probability events that have happened every day this week, are new highs for the day out of the question? [If that happens, I’m gonna go be a “dynamite tester” for a construction company … I hear they need help for some reason.]

Quite frankly, this entire week has been “nuts”, and I don’t mean that in a good way … way, way, way too much strange shit happening … you name the unlikely event, and this week has seen it, on both sides of the probability bell curve … truth be revealed, unless you left this stuff alone for most of the week, I don’t see how you come out of it unscathed … right now, I got no desire to test the laws of physics in George Costanza’s world; there’s no way I’m selling it, and any buy signals are likely to be “sucker plays” into dealer LP offers. Coming into this report, everything was GBPCAD’s way from a bullish standpoint … everything … and now, in a nanosecond, a full 50% of the recent GBPCAD move up is gone, and USDCAD has seen almost 80% gone … poof! … trust me, some big money people are still caught long in the trade … the real $64,000 question is, “does this change the dynamic of USDCAD in the days and maybe weeks ahead? Are further rate increases on the docket? Or, is this a “one-off” that caught the trade overly extended to the long side. Let me put it in perspective for you … directly below, the 4HR in USDCAD.

I think one glance at this chart, and it makes you want to say to yourself, “ouch”! And in a nutshell, here’s the problem; “not only do you have to deal with scumbag LP’s, who are looking to steal you blind with slippage and bogus spreads when given the chance, you have to deal with the myriad of reports, and be disciplined enough [there’s that “D” word again] to stay away from them, and understand that it doesn’t do you any good to get whacked hard and have to make it back … and trust me, a lot of people this week got “whacked” and wished they had taken the week off and gone somewhere”.

And now, as I check GBPCAD about 90 minutes after the report, every buy and sell algorithm signal either got scratched or lost money; why? We got a 315 PIP range today … “how much more do you think is in this thing today to wring out? Simplyput, sells got nowhere to go on the downside, and buys got dealer & commercial orders to sell layered on top of the market; it being Friday, and the weekend coming up quickly, who’s gonna step in after this “donkey mauling” and want to start buying aggressively? Try nobody, that’s who … and you end up with stalemate & chop … and that’s the way it is whether I like it or not [which I don’t], cuz that’s the reality of today’s trade … nothing I want matters; it was “roulette bingo” from the get-go this morning, and the 800 pound gorilla was patiently biding his time to 8:30 EST, where all dissent ended.

And here at 16:11 server time, here’s the problem in trying to scalp from the long side … another bullshit LP stop hunt, where from the 70’s, GBPCAD in seconds drops to 1.71311 on nothing but “vapors” … a nice 40 + PIP robbery, where within a second the market is back up to the 60’s and 70’s again … “surprise, your stop at 60, from your long position at 71, got filled at 1.71311; have a nice day … and there goes 40 PIPS when you thought you were risking 11. Trust me, I know what I’m talking about”! [You do realize, that the LP’s needed this stop hunt to cover their short positions since the report … one way or another, they will find a way to screw the retail spec public [along with some small hedge funds], and as I have said repeatedly, you simply must know where your risks lie, and be aware of the reality of you being the one served up for lunch. And this is EXACTLY the reason you don’t see me in there trying to be long this stuff … I could be right a few times and scalp for 5 – 10 PIPS, and now what do I do when I’ve just lost 40, and feel like a total chump? [Yes, you been played like a violin] But that does not mean you have to be short either; quite frankly, unless you had a resting order sitting in there below the market [which I always recommend as you know], you captured zero of that move, it happened that fast.

Well, now that the market has taken USDCAD out back and shot it in the head, next week sees Cable and the 1.36 level, which if they don’t take it out soon, this market will be next on the docket to see longs get caught the wrong way and punished … cuz make no mistake, the trade is long Cable “bigly & yuge”, while the LP dealer community is short; at some point, the dealers always win. All week long I’ve written and talked about “RISK” … know where it’s at and how your best probability is to escape it; profits always take care of themselves, and when you find yourself in a trading situation where the potential reward isn’t anything near the risk your taking, why do the trade? It makes no sense.

Notwithstanding the mystery “vapors” tick to the low of 1.71311 from the 1,7170’s, in literally 1 second and then back up to the 70’s, since the report the market is in “no man’s land”, drifting aimlessly with a downside bias. All week in GBPCAD, it has either been “dead quiet” or “all hell breaks loose on steriods”, with nothing in between; you got the Mrs. Wantanabe’s of the world now wanting to trade GBP & CAD in Asia, and a trade that got its nose bloodied severely this week, first from the short side and then today from the long side. It might be a while before this market recovers after today … you simply have to understand the extent of the losses from the week, and the fact that dealer LP’s order books are completely empty now, what with the total carnage we’ve seen. It may be until after the New Year and possibly longer than that, before big money comes back to trade GBPCAD … don’t know, but Monday’s action will tell me a whole lot more about the condition of the market than today has. “When a guy gets his arm cut off with a chainsaw in the morning … gets it put back on via surgery in the afternoon … next day he isn’t tossing the football around the yard with the kids … there’s a definite “healing process” … markets are no different, and believe me, a whole lot of people didn’t see the 14 sigma bullish miss in the denominator [me included] and got hurt rather badly … it’s gonna be a while before they are back,, that’s how bad this was”.

And quite frankly folks, this is EXACTLY the reason, during my 2-month hurricane stay, here on ‘Gilligan’s Island’, that I started to do the work [originally 5 markets, now 7] for my “Magnificent Seven”; as we go through the months and years, markets will become hyper-volatile and markets will be “dead quiet”. Neither is advantageous to us; you simply can’t do volume size and trade a market that goes 30-50 PIPS in a heartbeat 20 times a day … throw in LP slippage on that size order, and if you’re the wrong way you simply won’t believe the fill you get back. A “dead market” doesn’t do us any good either, for obvious reasons. Basically, all of the 7 markets, exhibit properties that the “old” Swissy futures market from back-in-the-day had going for itself; I wouldn’t have them on the list if they didn’t.

This week in GBPCAD has me very concerned about the health of this market, on a number of different levels, the most important of which is “risk”; when a market starts moving 20-30 PIPS in seconds, and then just as quickly retraces the same 20-30, and it does this all frickin’ day and much worse to boot, every loser gets “amplified” many times past what you originally wanted to risk … “the LP’s will be sure to see to that”! … and the problem becomes one of “quantification” of that risk, and at the moment nobody can tell me what that number is with any high degree of probability cuz it’s anybody’s guess. Sorry, that isn’t good enough for me, simply cuz if I’m trading volume size [say over 500,000 or 1,000,000], I’m not willing to be the LP’s lunch menu for the day and needlessly risk 3% - 5% of equity on each trade … and given some of the fills I had this week with 1 lots, I can only imagine what some of the GBPCAD fills would have been like with 5 – 10 lots. [Hint: Can you say ugly?]

I’m not giving up on GBPCAD by any means, and it will most likely be part of the “Magnificent Seven” for a very long time; so, I still think it’s a very good market … however, right now and the weeks and months ahead, it’s got some health problems to attend to and solve … not the least of which is to “settle the hell down” and stop with the 50+ PIP spikes, both up & down, and resume normal biz … quite frankly, given the “hurt” put on it this week, a lot of the big money is going to be missing in this pair, which will make things more illiquid and cause the LP’s to be even more outrageous in their slippage and stop hunts … you can count on it.

On Monday, I’m gonna give GBPCAD about 2 seconds to get its shit together [I'm not hopeful], and if I don’t like what I see in Asia coming in, or in the first few minutes of the trade, I’ll be switching over to EURGBP quickly … which, by the way, the data will be up on the website this Sunday night along with 1) EURUSD, and 2) The Summary Volatility Table of all pairs for comparison.

I’ve written before about EURGBP, AND it’s deceptive in its strengths, not the least of which is it’s priced in GBP, and the spread is tight … very tight, usually 2/10^th’s to 3/10^th’s of a PIP … while at the same time exhibiting enough volatility to trade with the algorithm and make money. Liquidity is excellent, and there aren’t any problems with volume size; and, unless there is news pending from a report of some kind, it’s “relatively” an orderly market … don’t confuse “relatively” with no movement for “widows & orphans” accounts; this stuff can hurt you just like any other pair can.

I can’t take trading in George Costanza’s “bizarro” world one more damn minute … it’s frustrating, mentally exhausting [“OMG! Am I glad I didn’t make that trade”!!], and exponentially compounded with risk I can’t avoid, no matter what I do … on top of that, the ever-present LP’s with their shenanigans making life even tougher. Of course, I can’t [nobody can] sidestep risk totally, but avoiding the economic news report cycle from the Euro & U.K., I can trade bigger volumes with less overall risk of being “blindsided” by LP’s and hedge funds who trade this pair. Overall, it’s a good match for the PAMM and gives excellent signals via the algorithm, cuz it allows me to manage effectively my reward/risk profile … something I cannot do right now in GBPCAD. I think all PAMM clients will be happy with the returns in EURGBP; on Sunday night’s “Special Update” post, I’ll have some additional information on EURGBP for those interested in trading it.

Unfortunately, no trades again today cuz of the reports in GBPCAD, and then the utter insanity in the trade, with bid/offer spreads gyrating all over the place, at various times from 1 – 35+ PIPS, and 20 – 30 PIP swings, literally within seconds … this is a recipe for disaster I don’t want any part. Monday will see, most likely, plenty of trading action in EURGBP, simply cuz I think GBPCAD is on life support in ICU; the action there, I believe, will be “wicked & choppy”, as today’s bloodbath gets worked off in the coming weeks … in the meantime, I can trade elsewhere … “goodbye George Costanza”!

When I post on Sunday, I’ll have the updated PAMM spreadsheet. Until Sunday night mi amigos … stay focused, stay disciplined, and above all, don’t do “stupid shit” that simply hands money over to the damn bank; money you don’t lose is money you keep. I’m outta here …

UPDATE: With about an hour to go before the weekend, they just "flushed" Cable to the 34 handle, and in the process sent GBPCAD down 60 PIPS within 3 minutes; market now has a 380 PIP range; meanwhile, over in EURGBP, the algorithm put in a buy signal 17 minutes before the spike up in EURGBP, with no down movement more than a PIP to the top. AS of right now, a much better market awaits us on Monday.

Have a great weekend everybody!

-vegas

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