Wednesday, March 9, 2011

Charles Nenner - March 2011

If you have not made your year by now, you are dead meat. Many of 2011’s big moves have occurred, and there aren’t going to be many fireworks for the rest of the year. Many asset classes are about to settle down into boring, predictable trading ranges.

Charles is not yet ready to short the US stock market. While the rally is definitely showing advanced signs of age, the upside momentum is impressive, so he would rather stand aside. His extreme, best case target for the S&P 500 is 1356.

Nenner caught a short play in gold earlier in the year, on which I was able to ride the coattails. Now that we are back up to all times highs he is looking for a repeat. Ditto for silver.

Charles is looking for further weakness in bonds, but doesn’t see a crash. His preferred play is a short volatility one whereby he shorts puts on both the 10 year and 30 year September bond futures contract at the 110 level. That equates to a yield of 4.2% on the 10 year and 5.2% for the 30 year. If yields don’t get that high, he keeps the entire premium from the short put trade. If he goes in the money, he is quite happy owning bonds at these levels, which he can then sell on the next rally.

We are in the midst of a major long term bull market for the grains and commodities. His next target is $4.84 for copper, up 5.6% from today’s level of $4.49. The food sector is getting an assist from high oil prices, as all types of farming have substantial energy inputs.

I always end every one of our conversations by pinning Charles down on the one trade he would pull the trigger on today with new money. Wait for the Euro to hit $1.40 against the dollar, and then go short, with a $1.4050 stop. At that point the European currency will have had an impressive 12 cent rally against the greenback and will be well overdue for a correction. European Central Bank president Jean Clause-Trichet has shot his wad with his promise today of rate hikes, and from here traders will want to see the color of his money. But break the $1.4050 stop and you should run for the hills, as the next target is $1.46.

Note: Interesting to see how Understand, Survive and Thrive's model predicted a turn in the equities within 1 point (Mashallah) on February 16, 2011 Stock Market - Risk Definition 

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