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June 26, 2013 I have been here before…and I wake up every morning knowing that Eurodollars could be opening sharply lower…and not looking back from there… Here is one reason why… Even though Eurodollar futures have been sideways for months, LIBOR, which exactly determines where Eurodollars will be at expiration, continues to make new highs…almost on a daily basis…as worldwide demand for borrowed money continues to strengthen... And I am sure what follows is going to confuse a whole lot of people but here it is anyway… The next two charts compare LIBOR to the September, 2017 and December, 2017 Eurodollar contracts. BUT…as Eurodollars go down when LIBOR rates are rising, I have INVERTED the LIBOR chart to facilitate being able to compare their respective movements…In other words, even though LIBOR has been rising steadily since last July, on this chart, this rate will appear to be going down…with the Eurodollar futures being shown as you are normally used to viewing them (going down as rates go higher). I created these charts to more closely study the relationship between cash LIBOR and how the futures contracts have been trading…specifically with an eye towards ascertaining if the rally in Eurodollars since mid-March had actually ended…and beyond that, to then determine if we could now expect to see this market accelerate on downside…IN LINE WITH THE ALMOST NON-STOP RISE IN LIBOR. Ok…So check out these two charts…and observe, as I have, that the futures contracts have been LAGGING (due to ongoing perceptions that “rates will be staying low”) for most of the past year…and then periodically playing catch up…which is exactly what I think we are IMMINENTLY about to see again… Prepare to be confused…Hope this all doesn’t come off as gobbledygook …
At some point, in this game, PERCEPTIONS give way to REALITY…and a big, fast catch up move is the result…I would also say that, quite frequently, there is no defining event or piece of news that “announces” the drop…that literally, the next move simply starts…from one trading day to the next. TO BE CLEAR, AS NOTED ON THE LIBOR CHART…INTEREST RATES HAVE NOT REALLY EVEN PAUSED ON THEIR MARCH HIGHER…AS EURODOLLARS HAVE PERIODICALLY DONE…AND I SEE NO REASON WHATSOEVER TO EXPECT ANYTHING DIFFERENT NOW…EXCEPT THAT I THINK THEY WILL BE MOVING FASTER…The USA and World Economies are speeding up…NOT slowing down. Whether it’s here, on in Europe, or Asia or anywhere else…EVERYWHERE, NOWADAYS, IT’S ALL ABOUT “LET’S DO SOME BUSINESS.” RATES ARE HEADING HIGHER…AND 6-9 MONTHS FROM NOW, I FIRMLY BELIEVE EURODOLLARS WILL HAVE MOVE SUBSTANTIALLY DOWN FROM CURRENT LEVELS…AND MORE THAN EVER…REALLY…I STRONGLY RECOMMEND BUYING MARCH,2018 PUTS…WITH 9 MONTHS OF TIME. Putting it bluntly, in this “nasty ass business”, you cannot allow a sideways market, and the pain it inflicts, to change your opinion…nor deter you from doing what you know you would be doing if you were walking up to the table…and the bet…for the first time. THIS IS A KILLER PLACE TO BE SPENDING MONEY ON PUTS…YES, AGAIN…TO AT LEAST DO SOME…AND I SERIOUSLY DOUBT ANYONE WHO DOES SO WILL BE REGRETTING IT A MONTH OR TWO FROM NOW. AS ALWAYS, I MIGHT BE WRONG, BUT THAT IS WHAT I ROARINGLY BELIEVE…And though I fully understand it, to just sit here, “waiting to see what happens with the Septembers” is a big, big mistake…I have been here, in this situation before, and I KNOW that what you DON’T do, right now, is just SIT on what you own. From an earlier newsletter… And another example of what I absolutely think could happen here… DO SOMETHING… William 866-578-1001 770-425-7241 All option prices in this newsletter include all fees and commissions. The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Eurodollars |
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