Today the NZDUSD had a beautiful shooting star reversal. GBPAUD made a hammer. USDCAD reversed. Gold reversed below yesterday's lows. Oil reversed. The VIX closed up. What's going on?
The market is always giving us clues, and sometimes you have to look farther than the end of your nose for them, meaning beyond the stock market. Yes, the smaller indexes (NAZ and RUSS) are at new highs. That's as it should be. Everyone's bullish and chasing risk. Yet the Big Kahuna -- the currency market -- may be saying something different. And it dwarfs the stock market.
Commodity currencies, as well as gold and oil, may be suddenly hinting at risk aversion. In last night's post I mentioned that the Yen did the same thing back in July '07 when the party was still raging. Perhaps the market is singing a different verse in a similar tune.
In today's trading, I bought IWM puts and hedged them on the intraday breakdown with TNA longs and closed both legs at a profit. I also bought more VXX and let some go as it went green, continuing to manage the position. I will continue this style of "defensive offense" until conditions warrant different tactics.
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