Shadow Capitalism

Market Commentary by Naufal Sanaullah

Naufal Sanaullah Moscow’s Domodedovo Airport sees fatal suicide bombing

naufalsanaullah@gmail.com
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attack, while Australian CPI misses and solars & semis
outperform ahead of FOMC
Risk was back on to start the week today, with $25b in Fed liquidity helping the campaign. Though
safe havens saw some inflows early in the day after reports of a terrorist bombing at Moscow’s
Domodedovo Airport (killing 35 and reportedly linked to Caucasus separatists), the dip was bought
with semiconductors and alternative energy stocks leading the way (the former due in part to
Intel’s announcement of dividend boosts and equity repurchases). The euro powered ahead
further, as the USD was offered in size once again, but an after-hours CPI miss from Australia to
match an earlier PPI miss sent AUD crosses tumbling.

The S&P rallied 0.58%, retracing much of last week’s losses, with tech again leading the way. The
21d was held after last week’s bounce and I continue to watch that moving average as the
significant support line where the market is finding a bid. With 1300 resistance less than ten points
ahead, we are nearing a potentially significant trend continuation/reversal time period, and I’m
inclined to be bearish at these levels, especially with prior leaders in cloudtech giving way to new
downtrends. Whether we break through 1300 (with semis likely leading the way) or through the
21d, I will be positioning my portfolio applicably.

January 25, 2011 |1

Another good German PMI and some positive Euro-wide manufacturing data this morning helped
provide the fuel for another rally in EURUSD today, sending the euro back above 1.36. Although
Cowen’s resignation from head of Ireland’s Fianna Fáil party has been met with a muted response,
due in large part to reaffirmations of finance bill support from the previous majority party’s
members, it is increasingly likely that the bill’s voting will not take place until after March 11 Irish
general elections, in which citizens are expected to voice opposition to the bank bailouts to reclaim
lost sovereignty. As I’ve been stating, I’m a seller of euros at $1.37-1.38, and with the almost
uninterrupted 800 pip rally since last month’s lows, I’ll be scaling into my position at the bottom
end of the range, likely beginning tomorrow.

Australian Q4 CPI missed expectations of a consecutive 0.7% rise with a slower-than-forecast 0.4%
climb (2.7% YoY vs 3.0% expected vs 2.8% prior), with the RBA’s various non-headline statistical
measures also missing forecasts. This sent AUDUSD immediately selling down 40 pips, with parity
once again rejected. I remain short AUD vs USD JPY & CAD and added a short vs SGD as well today.
AUDUSD is in a trading range between 98c and parity, and whichever way it breaks should lend
near-term directional context.

January 25, 2011 |2

I saw a variety of bullish stock setups today, with nice pattern consolidations after last week’s small
market correction. Solars were at the top of my list, and I bought TSL SOLF JKS and FSLR today. I
also bid some on rare earth plays REE and MCP on some nice technical development. Chinese corn-
based alcohol producer Borun (BORN) and direct marketing retailer Cabela’s (CAB) both also
caught my eye today and saw some buying from my accounts.

January 25, 2011 |3

I am also watching the VIX as a determinant for my directional bias. Below VIX 15 and/or above
S&P 1500, I am back to bullish US equity. But if those levels hold (which is my current bias), I
expect a retracement to about 1225 in the S&P.

Tomorrow begins the two-day FOMC meeting and I expect much of the same again this time
around, with no substantive changes. The recent uptick in US data since the last FOMC meeting in
December may see some acknowledgment in the report, but the continued depression of housing
prices should weigh down on any significant optimism. This year, dissenter Thomas Hoenig does
not have voting rights in the FOMC meetings, although Richard Fisher (Dallas) and Charles Plosser
(Philadelphia) do. Both Fisher and Plosser have issued hawkish sentiments about QE2 already this
year, so we may see rising dissent within FOMC voting, particularly as exit strategies come back
into popular debate if the US economy continues improving. If the muni situation and/or rising oil
prices contribute to downside risks on US growth, the vital question of QE3 will, in my opinion,
likely be voted down, considering there are two potentially outright dissenters with voting rights
and the political capital for another iteration of quantitative easing as a whole very low and still
declining. Obama is in re-election mode and I expect a much more centrist (and consequently
muted/status quo) agenda for the next two years on the economic front as he realigns his social
agenda back to his voting constituents.

January 25, 2011 |4

 Trades
OPEN
Long NOG | 22.20 | stop 21.80 | +12.84%
Long SNDK | 42.95 | sell 51.60 | +18.00%
Long FWLT | 28.30 | stop 37.85 | +30.18%
Long /CL | 85.00 | stop 82.80 | +3.07%
Long IO | 7.03 | stop 6.64 | +21.19%
Long /ZW | 690.00 | stop 675.30 | +19.71%
Long /ZC | 550.00 | stop 541.90 | +18.45%
Short AUD/CAD | 1.0165 | stop 1.0260 | +285 pips
Short SCCO | 48.55 | stop 51.10 | +7.98%
Long ZSL | 10.40 | stop 9.55 | +20.77%
Short SLW | 34.20 | stop 35.75 | +10.61%
Short ANN | 23.05 | stop 24.80 | +5.60%
Long /CT | 150.00 | stop 138.50 | +8.67%
Long OIH | 140.65 | stop 135.00 | +1.89%
Short GMCR | 35.15 | stop 36.50 | -0.05%
Long /ZS | 1418.85 | stop 1381.75 | -1.03%
Long CCME | 17.55 | stop 16.70 | +9.17%
Long MXIM | 25.02 | stop 24.45 | +7.83%
Short ACOR | 28.90 | stop 30.60 | +18.34%
Long ERJ | 30.10 | stop 28.90 | +7.44%
Long TDY | 45.05 | stop 44.85 | +3.64%
Short ECH | 73.40 | stop 76.10 | -0.54%
Long TITN | 21.30 | stop 20.45 | +14.55%
Short AUD/NOK | 5.885 | stop 5.915 | +135 pips
Long EUR/JPY | 109.20 | stop 108.05 | +340 pips
Short X | 56.80 | stop 58.20 | +4.15%
Short CREE | 65.45 | stop 66.60 | +21.39%
Short /ZB | 120’30 | stop 122’25 | +0’22
Long WBS | 21.05 | stop 20.05 | +8.98%
Long EPL | 16.10 | stop 15.30 | +2.23%
Short V | 71.00 | stop 73.50 | -1.11%
Short GME | 20.45 | stop 21.05 | -3.13%
Long HANS | 54.05 | stop 52.15 | +1.48%
Short SPY | 129.30 | stop 131.00 | +0.15%
Short XRT | 47.00 | stop 47.75 | +0.36%
Short FAS | 31.40 | stop 32.50 | +3.98%
Long VXX | 31.50 | stop 29.90 | +0.25%
Short AIG | 53.15 | stop 56.85 | +21.07%
Long /ZR | 14.64 | stop 14.20 | +4.23%
Short AAPL | 348.15 | stop 360.00 | +3.07%
Short AUD/JPY | 82.40 | stop 82.95 | +35 pips
Short NZD/JPY | 63.52 | stop 64.15 | +50 pips
Short USD/JPY | 82.55 | stop 83.55 | +15 pips
Long MMI | 34.30 | stop 33.45 | +1.08%
Short FCX | 118.55 | stop 122.65 | +8.50%
Long EUR/AUD | 1.3520 | stop 1.3380 | +200 pips
Short VZ | 34.55 | stop 35.50 | -1.99%
Short ANR | 59.30 | stop 62.70 | +4.45%
Short WLT | 128.60 | stop 130.00 | +4.29%
Long CNP | 15.85 | stop 15.60 | +1.51%
Short FRO | 26.70 | stop 27.55 | +6.60%
Long GGAL | 16.24 | stop 15.45 | -1.44%
Short IPI | 37.03 | stop 38.15 | +3.08%
Long CHF/HUF | 210.00 | stop 207.50 | +20 pips
Short MR | 26.20 | stop 27.40 | +0.34%
Long NE | 37.65 | stop 36.50 | -0.05%
Short AUD/USD | 0.9950 | stop 1.0050 | +5 pips
Long NOC | 69.25 | stop 65.95 | -0.49%
Long RELL | 12.80 | stop 12.35 | +2.03%
Short GBP/USD | 1.5990 | stop 1.6155 | -10 pips
CLOSED
Short HTZ | 14.00 | cover 14.60 | -4.11%
Short NFLX | 185.50 | cover 182.20 | +1.78%
Short PWER | 11.00 | cover 11.17 | -1.55%
NEW
Long MCP | 44.28 | stop 39.95
Long REE | 12.50 | stop 11.55
Long SOLF | 9.56 | stop 9.05
Long JKS | 30.05 | stop 28.50
Long TSL | 28.87 | stop 27.70
Long FSLR | 154.35 | stop 149.80
Long BORN | 13.64 | 12.80
Short AUD/SGD | 1.2755 | stop 1.2880
Long CAB | 23.40 | stop 22.75
Long TSLA | 23.95 | stop 22.05
Short GBP/CAD | 1.5890 | stop 1.6005
Short RAX | 31.30 | stop 32.95
Short RVBD | 35.05 | stop 36.55
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DISCLAIMER: Nothing contained anywhere in this commentary, including
analysis and trade ideas, constitutes or should be construed as investing or
financial advice, suggestion, or recommendation. Please consult a financial
professional and do due diligence before engaging in any purchase or sale of
securities.
January 25, 2011 |5