My Diary 535 --- Hedge Your Dollar!

Trading Diary (March 20, 2009) --- Hedge Your Dollar!

US equities suffered from mild profit taking after a record-breaking 7-day run. But I think the theme overnight was US$ and Dollar hedges with Commodity space up a whopping 5.3%, Gold +7.8% and oil +6.4% respectively. Copper also +5%. Crude has also benefited, closing above US$50 for the first time since late November. Now I suspect that at least some of the crude inventory has been held as a dollar hedge. UST curve started to steepen and IG spreads are narrowed as a consequence. Financial stocks retreated as the US equity market took a much needed breather. On current evidence I think this market will eventually break resistance at 800 in the coming week.

Economy wise, US initial jobless claims came down to 646K (from 654K). Continuing claims rose to 5.473m from 5.288m, the highest since 1967, compounding the impact of high layoffs. Feb leading indicators is -0.4% mom (vs +0.4% in Jan) and the ISM-WAVG of the Philly components fell to 29.4 from 33.8 and suggests that ISM will fall into the low-30s or below

Back to home, HSI now sits just above the 13k level, drawing closer to the 100D MAVG, and I saw everyone chasing metal stocks --- copper, steel, aluminum and gold stocks rallied strongly – the same Dollar hedging trade. As I discussed yesterday, even though I still think this bear market rally must come to an end sooner or later, but in the mean time I must go with the best friend -- TREND. Historically, bear market rally as can last from 26-70 days. We're only 8-10 days into the squeeze…So Enjoy the rally!…Oh, today marks the last trading day with a closing auction in HK…I guess we are going to see short term consolidation after the HSI’s 15% gains.

Overseas Market Reviews

Global markets were flat with stocks rose 0.7% in the EU, but slid 0.3% in Japan and declined 1.1% in US. Elsewhere, USTs gave back a bit with 2yr increased 5bp to 0.86% and 10yr yield moved up 7bp to 2.60%. USD continued its dive; contracting 1.4% vs EUR to1.367 and falling 1.8% vs YEN to 94.5. 1MWTI oil jumped $3.47 to $51.61/bbl—the highest price since November of last year.