The markets climb on a wall of worries

Jordan kellner often remarked “The market climbs on a wall of worries”. Many who look to the wall of worries missed the bull market. I learned this lesson in 1998. I felt the pain first hand of Greenspan’s put. This time around as my indicators: (Global Pivot’s, DJI/DJT, Forex) gave me confirmations, I leveraged to the tilt. I backed up the truck loading heavily long the NIkkei, the SPI 200, Aussie, Commodities (Dow Jones AIG index futures, Corn, Orange Juice), MSCI Taiwan and heavily short Eurodollar futures. I went for the works!

The effect on my N.A.V, unleashing unheard of returns However the excessive positive returns have given me pause for thought. Excessive returns normally indicates excessive risk. Just two days ago with the initial shock from China, fluctuations in my NAV’s reminded me of the excessive VAR I had out. 200% returns within 2 months are heady numbers, but there is logic behind my reason for having taken on such a significant exposure during the last 3 weeks. “During times of chaos different rules apply.”

Because we live in “Interesting times”, traders and investors are hesitant. Moves we are witnessing in Markets might not come around for a long time. The volatility in the markets provides the best opportunity to profit from such moves. I am carrying heavy tight stop positions (But this is not without risk because of draw downs), however all considered “I would rather be lucky than right”. As long as trend continues, I will remain its friend.

By Andrew Shawn – Recursive Investments in Global Financial Markets

Iterated Heuristic / Exposure

At times the best trades are not executing any. I have held back accumulating long positions on the equity front primarily because there has been no follow through on the Dow rallies. They have exhibited dead cat bounces.

Current heuristic contends iterated equilibrium before any meaningful rally in equities.

Western Markets weekly Charts - Clockwise DJ Euro Stoxx 50, DAX, SMI, FTSE


Above chart shows if Iterated equilibrium heuristic is valid, this would mean:

SMI pivot 3618 (At current value 4335means another than 600 point drop)
Conclusion: Signal more selling

Macro Asian Markets Weekly Chart - Clockwise SPI 200, MSCI Taiwan, Nikkei, Hang Seng


From Above charts.. If heuristic is valid. Then the following should occur.

Hang Seng pivot 8290 (At current value of 11921, still has 3000 points to drop)
Conclusion: Signal Bearish

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From above Heuristic of iterated global markets I remain long the Nikkei, Long MSCI Taiwan and begain accumulating a long position on the DJ Euro Stoxx 50 as they touched 1848. I refrained from selling any of the equity markets short.

Increased my shorts on the Japanese Government Bond Futures (correlation to Yen is extremely high). Kept my longs on Corn futures, Orange Juice Futures and began accumulating longs on Rough RIce.

By Andrew Shawn – Recursive Investments in Global Financial Markets