It’s All About The Dollar!

Fujisan here.

After all, it’s all about the Dollar.

I don’t know how many of you keep track of currency movements, but yesterday’s USD/JPY movement was totally amazing.  It moved more than 200 pips in a matter of hours, and this breakout confirms the upside potential of 108 yen/dollar (which translates into 92 area in this chart).

I have also discussed a completion of EUR/USD Gartley pattern last week (although it went higher than my target), and I’m expecting a dollar strength against major currencies for the coming weeks.

Currency Play

Now, I know that not many of you are currency traders, and Mole suggested last week that I should probably discuss how the equity traders could take advantage of these currency movements.

I looked at FXY (JPY/Dollar ETF) and FXE (Euro/Dollar ETF) option activities and I realized that there are hardly any open interests in these ETFs, which makes it quite difficult to go with any option strategies – not even straight naked options.

I played with many different combinations in the front months and back months, and this simply does not seem to work (i.e., bid/ask spread is too wide) so I won’t be able to pick up any options at this point.  Sorry, guys.

Commodity Play

With US Dollar going strong, commodity and/or commodity related stocks are expected to be weaken.  Mole already picked up SLV and I picked up GOLD (not GLD) and these are better than currency ETFs.

Here is July 70/65 call bear spread that I picked up.  There are not enough open interests in put side so I decided to go with a call credit spread.

As this is a counter bounce movement, I am expecting another leg up after this sharp pullback.  If you think that risk/reward is not there, you don’t need to play the short side.  Just wait for a pullback to go long.  I’m watching many high fly commodity stocks like POT, FCX, BHP, PBR, etc. but I’m not playing the short side.  I am waiting for a pullback to go long.  Much better risk/reward.

SPY Weekly

Lastly, here is SPY weekly chart.  It looks to me that SPY has already passed its half way mark to its 110 level.

I was waiting for a reasonable pullback, but so far, we have not had any major pullback and I don’t even know if we would have one going forward at this pace, so I have started putting together July and Aug butterflies to capture the upside.  I am adding on to this position on every little pullback.

QQQQ Weekly

Qs is way ahead of SPY and getting very close to the edge of the upper trend line of the current downward channel.  I’m sure that it will get there before the end of this summer.

I started putting various butterflies in different months with different strike prices so that my positions are somewhat diversified.  Here are some examples of my QQQQ butterfly positions.  I will take it off once it reaches my target. 

If you look at Qs July open interests, you will see a huge open interests right at 40, and I’m sure that the market is expecting Qs to hit 40 by the end of July at the latest.

Here is July 36/40/44 call butterfly.

Here is July 38/40/42 – a high risk/return play.

Please note that these butterfly positions are for much longer time horizon (aka, more than a couple of months) and I’m expecting some type of pullback or consolidation in the equity market in the coming couple of weeks.

I hope you have a wonderful weekend.  That’s all for now!

Fujisan

UPDATE 8:44pm EDT: Mole here. Although there is technically nothing wrong with Fujisan’s channels there are various sentiment indicators that have currently reached extreme readings and which therefore cast doubt on the notion that we’ll push all the way into 1100 on the SPX or 1640 on the NDX. However, it’s not impossible and if we rally higher from here (a very distinct possibility) there is not much overhead resistance. Further, even if the final targets might not be touched all the way her strategies are valid nevertheless and have a very good chance to be profitable before expiration.