SPX500 - So I was off the desk for 24 hours and wasn't looking at markets. But 24 hours later and not all that much has really happened. Stocks have dropped off a little more, which is good for the SPX500 short, but we really need to see a break below the September low to get this trade going. Technically, it's looking good, though this is a story we've heard many times before that just never seems to play out. The line right now is the 2108 September low and if that gets broken, this trade should start to get real pretty.
YEN - The other interesting development has been a break higher in USDJPY. I had defined 104.32 as a lower top within a downtrend and the break above that level on Wednesday could be a big deal and start to shift the focus back on the topside. I would say we need a daily close above 104.32 to truly confirm the bullish shift, so look out for such a close on Thursday to confirm. If we do see a close above 104.32, this could set the stage for a major acceleration to back towards 110.00.
EURGBP - Just as a reminder, I have the EURGBP short in play from 0.9030 but in super small size. The first setup I got after waiting for a while was at 0.9030 the other day. But I wanted to be cautious given all the volatility and only dipped in with a super small position. My position size is less than half my total equity and I am leaving myself plenty of room to build into this short position if the market continues higher. I love this trade but it requires patience and discipline.
ONE AND TWO - The other day I highlighted on Twitter why I love the EURGBP short. Here are four reasons I gave: 1) The market is technically overbought across the three major time frames. The RSI is tracking above 70 across the daily, weekly and monthly charts. 2) I believe most of the Sterling Brexit weakness has been priced and though we aren't out of the woods, the market now has a good handle on things as far as the Pound goes.
THREE AND FOUR - 3) On the other hand, Euro weakness has not been appropriately priced if Brexit is going to be as ugly as the Pound has reacted. Moreover, there is plenty of systemic risk associated with the European banking sector that really could expose the Euro going forward. 4) This reason is the coolest of all. It isn't too often that you can take such a contrarian play with so much upside potential that is actually paying you money. Yes! Short EURGBP is a trade that pays interest. Of course, it's a tiny carry, but baby carry in today's world is an amazing luxury.