Wellfleet Asset Management Market Outlook
Updated February 27, 2009
In our view, the best interpretation of recent market activity is that the Dec-Feb rally in the U.S. dollar versus both the euro and the Swiss franc represents an ‘announcement’ that the dollar’s intermediate-trend is up. However, often when a trend ‘announces’ its re-emergence, it is the worst time to commit to it as a correction sets in. Indeed, the market appears to be overcommitted to the U.S. dollar at present – this is evidenced in several places including price itself, where the dollar’s rally versus these two currencies has been a meandering one over the past month. As a result, we are reluctant to strategically commit to what we believe is the intermediate-term trend (i.e. rising U.S. dollar) in advance of what should be a substantial correction. Instead, the better approach is to tactically short the dollar until enough longs have been dislodged. My trend level on the euro is about 1.5 cent higher from here (1.2720 last) – sustained trading above there suggests this outlook is correct and we could see 1.34+. As we are trading beneath this level, in terms of price criteria, we only have structure and momentum to make the argument to be long euros, whereas we need structure, momentum, and level. Thus, our rules of engagement suggest staying neutral until there is a break higher. The risk of course is that the rally never materializes and the market is still moving in the direction of the intermediate-term trend – not the preferred scenario but our views are always subject to change if conditions warrant.
Being flat is often the hardest position to run – and investors and brokers want to see activity - but we have to stick to our discipline. Our success is a function of being in the market during high probability situations - which take time to develop – and not simply being in the market. Over time, most of the Program’s returns will be generated when the intermediate and short term views are pointing the same way. When there is a significant discordance, we adopt a tactical/countertrend approach.
Past performance is not necessarily indicative of future results. The reader is advised that futures and options are speculative products and the risk of loss can be substantial. Futures spreads are not necessarily less risky than short or long futures positions. Consequently, only risk capital should be used to trade futures.
Daniel A. Seitz
Wellfleet Asset Management, LLC