Today’s trading was a flight away from risk–risk off. US equities were weak with the S&P 500 (SPX) off 2.82%, the Dow Jones (INDU) Industrial Average down 2.51% and the tech heavy Nasdaq Composite (COMPQ) down 2.5%. The Volatility Index traded higher by 24% at 30.71. On the Nasdaq, there were 4.2 decliners for every advancer. On the NYSE, 6.5 decliners for every advancer. Volume was heavy all around.

S&P 500 - Daily

Volatility Index (VIX) - Daily

The US Dollar index closed higher by .62% at 76.39, Ten year Treasury futures traded higher by to close at 118 19/32 or up .76%, IEF closed at $91.99.

IEF - iShares 7-10 Year Treasury

Below are a few of the intraday charts.

US Dollar Index - 15 Minute

Crude Oil - 15 Minute

ES S&P Electronic Mini

Citigroup: He Said, She Said

I couldn’t help but reach for puts in Citigroup (C) today. Analyst Mike Mayo was quoted as saying that Citigroup will write down $10 billion of deferred tax assets, representing 10% of Citigroup’s tangible equity. Citigroup quickly responded they had no idea how the analyst was making those calculations. No matter if Citigroup learns how to calculate or not, their common stock is likely heading south of $1 within the next 6 months to year. I am short the big C–the former largest bank in the world.

Citigroup - Daily

The Shimmer of Gold and Silver

Yesterday, I noted that my stance had changed on the precious metals. I am positioned to take advantage of a move higher in gold and silver.

Gold was weak at the equity open this morning, but strengthened throughout the day to close near unchanged. This is evidence of the strength in gold to come. I am long select gold miners and maintain my stop below yesterday’s low. Credit default swaps on Japanese sovereign debt are rising, and the Yen is outperforming against the US Dollar versus other major currencies including the Euro (FXY), the British Pound (FXB) and the Aussie Dollar (AUD).

The charts below show this outperformance graphically. It is my view that this relationship will eventually lead to US Dollar weakness, and therefore strength in gold.

Gold - Daily

FXY - Japanese Yen

FXE - Euro

FXB - British Pound

FXA - Australian Dollar

Next week, same time, same place. And the beat goes on.

In evening news, Deborah Ball of The Wall Street Journal reports on the crackdown of tax evasion in Switzerland, especially in relation to Europe.

While most attention has been focused on the US probe of Swiss tax havens, more attention should be paid to Europe’s relationship with Switzerland, according to the story.

“Americans have made up no more than 5% of Switzerland’s $1.8 trillion offshore-banking business.”

“Now, in the wake of the American crackdown, and Switzerland’s cooperation, an exodus of European money is under way. According to consulting group McKinsey & Co., Western European money makes up 51% of legacy assets in Switzerland, but only about a third of new money.”

“According to KPMG, as much as 80% of the Europeans’ money in Switzerland is undeclared. In all, KPMG reckons that tax evasion could represent up to 25% of Switzerland’s total private-banking market.”

“It’s a big mistake to say this is an American issue,” says Philip Marcovici, a Zurich partner at law firm Baker & McKenzie. “The Europeans are right around the corner.”

“To be sure, the demise of the tax-dodging business is akin to a melting ice cube, and the speed at which it dissolves will depend on how aggressive European governments — whose rhetoric in clamping down on tax deadbeats has exceeded real action — will be. No other government has been as aggressive as the U.S. has in putting up demands that the Swiss hand over names of suspected tax dodgers.”

It was written on the walls that success is a process
No matter how hard I fall I know it is some progress
Notches of the ladder I climb, holdin a bottle of wine
So many paths to take, I’m followin mine
-Common

Yesterday, I wrote about Goldman Sachs lowering their expectations for Q3 GDP to 2.7%. This morning, the Advance GDP number was announced at 3.5%–higher than expectations and far higher than Goldman’s lowered target of 2.7%. This is the first of three GDP announcements. We’ll see preliminary GDP on November 22 and final GDP on December 22. I find it tough to think that an advance number of 3.5% can be lowered all the way down to 2.7%. Then again, don’t count Goldman out. Goldman is Goldman.

No matter where the final Q3 GDP number comes in, the announcement today is significant in that the economy grew in the 3rd quarter for the first time in just over a year. It was widely expected that there would be growth, and now the actual growth numbers will be analyzed and argued about on television.

There will be a myriad of economic releases in the next few weeks that will provide insight into what Q4 GDP will come in at. If Q4 GDP expectations need to be revised downward, there will be large gains by being short the right sectors.

Gross Domestic Product

Risk On, Risk Off

The higher than expected GDP announcement this morning spiked S&P futures and induced a selloff in the US Dollar. I have been referring to the “risk aversion trade.” The risk aversion trade is a risk off trade–when traders and investors run for cover. In the current market, I’d describe the risk off trade as being short the S&P, long the US dollar and long treasuries. Today’s market was the opposite of the risk aversion (risk off) trade. Traders scrambled to the risk on trade–long the S&P, oil, short treasuries, short US Dollar. When the risk on trade is on, the Volatility Index (VIX) trades lower. When the risk off trade is on, the VIX trades higher. From the intraday charts below, you can see that what the S&P lost yesterday, it gained back today. Conversely, what the Volatility Index (VIX) gained yesterday, it gave back today. Yesterday was risk off, today was risk on. You follow?

Volatility Index - 15 Minute

S&P 500 Index - 15 Minute

Phone Calls

Can a phone call change your view of the market? This one quite possibly could. I have long opined in these pages that there is more risk to this market than what it is priced for. Of late, I have written of a sudden spike in the dollar that no one is prepared for. After a phone call with a broker in Japan last night, I think it is best to be short select names in the weakest sectors rather than be short broader indices or sectors. Here is why. My broker in Japan alerted me to something very important: Japanese default swap spreads are at their widest in 6 months. Other sovereign default swaps have seen a significant widening as well. This is a sign of potential dollar weakness to come. If the dollar weakens, it will be tougher for the S&P index to sell off dramatically. It is for this reason that I am once again long some silver options (calls). If this widening of swap spreads is a sign–a tell in poker parlance–of dollar weakness to come, the best way to take advantage is to be long precious metals.

The Wall Street Beat

And there you have it, straight from the gut of Vinnie Vega of the Wall Street Beat, a subsidiary of Volatility News.

And the beat goes on.

Meanwhile, back at the office, I am convinced the internet is here to stay and is not going out of style anytime soon. As this profound thought struck me earlier today, I decided to have a call with my collaborators. They all agreed with my assessment. Then we shared some news of interest. I walked away with the following:

Some good info out of Fast Money today:

–Tim Seymour sees diversification away from US dollar to continue. He thinks the Dollar sees 75 before it sees 78. I agree that 75 is an important support level. If it breaks down further from here, It should find support at 75.

– Re: Google (GOOG) earnings this week. Upgrades around the table into the number after the bell Thursday. Analyst Christa Quarles from Weisel gave Google a $620 target. Joe T. mentions pay per click stabilization an important metric.

–Analyst Berger-former analyst at INTC, then Wedbush Morgan–thinks Intel goes higher after the number tomorrow afternoon because of “double reverse psychology.” My opinion: INTC is a tough call into earnings. My indicators say it peaked as it hit a high of $28.65 both today and August 28th. Demand leading up to today’s high has been much weaker than demand was leading up to the August 28th high, according to my calculations. That said, I appreciate the concept of “double reverse psychology,” and it’s potential ramifications.

–Doug Kass is the most bearish he has been and he nailed the bottom in March. The hot hand is the hot hand. Life works in streaks. Doug’s voice should be a loud alarm. After all: there were very few bulls in March. I was not. My notes from the march era are right here on these pages. I nailed the short in 2008, but I was not bullish in March. It was tough to nail the market both ways.

–There was a segment on Fast Money called “Double Down.” It’s good to see some coverage of money management as it pertains to trading. Along with position sizing, money management is an extremely misunderstood topic. It is good to see the media covering some aspect(s) of it.

In addition, I also note:

Robert Prechter

Prechter is bearish. He is the other hot hand. Kass called the fundamentals, Prechter called the technicals. Both of them are bearish here.

Whitney Cuts Goldman

As I reported earlier, Meredith Whitney Advisors cut Goldman Sachs (GS) to neutral from buy and removed the price target on the stock–it was $186. Meridith Made a huge call last Q–that Goldman would profoundly beat street numbers. She was right. Another hot hand. Take note.

Goldman on Asian Steel Sector

Analysts at Goldman Sachs (GS) raised the Asian Steel sector to Maximum Bullish. I read an extensive note by the analyst which I agree with. Most importantly, he notes to pay attention to Japanese steel names. As Asia moves to a more steel intensive economy, the position of China as a steel exporter may be reduced, creating demand shortfalls that will be filled by other regional players such as Japan. JFE and POSCO were raised to Conviction Buy. Nippon Steel, Kobe Steel and Hyundia Steel raised to Buy. Also speaks to current investor apathy. I think this will prove a great call.

Citi on Precious Metals

Analysts at Citi made comments on the European Mining sector. They remain positive. They also gave targets for precious metals: Spot gold to $1,025 in three months and at $1,050 in 6 to 12 months. Spot silver to trade at $17/oz in next three months; at $17.80/oz in 6 to 12 months.

UK Inflation Data

The UK September Inflation data is due in a few minutes at 4:30AM EST (8:30 GMT).

And the beat goes on.

Meanwhile, back at the office, Gold hit an all time high today and the S&P 500 closed +14.26 points or 1.37% at 1054.72.

The gold market is going to offer an obscene amount of trading opportunities, both long and short, in the years to come. The breakout today is big news.

Gold - Weekly Chart

Now, the big bad question is what to do from here. It has been my viewpoint that gold is vulnerable to a violent sell off–if there is a sudden risk aversion rotation into the US Dollar. Last night, there were rumors that oil traders would abandon the US dollar and attempt to denominate oil against a basket of currencies. These rumors make the rounds now and again, and they are always funny. Oil is not going to trade against anything else anytime soon. After all, if you were an oil trader, what would you like the contracts settled in? I prefer my oil settlements in dollars (just fine thanks). That said, not everyone thinks like I do. The rumors of oil re-denomination, a 25 bps rate hike in Australia and weakness in the greenback all pointed to the the new high in gold today.

I remain sidelined in the yellow metal for the moment, and it feels lonely. The move in gold is starting to be about momentum and trading the technicals–an endeavor which I have a decent track record.

The next chart speaks to the conspiracy theory of the day. Rumors of a derivative loss at Goldman Sachs (GS) between 9:30 and 10:00 AM PST. These rumors come up from time to time. I discussed my thoughts on Goldie in a prior post. I’ll leave them at that. Before you dismiss the Goldman oil rumors straight away, check out the price action. They traded in lockstep throughout the equity session. Conspiratorial as these rumors may be, the charts sure move together.

Goldman Sachs Vs. Oil

After the bell today, a slew of oil numbers were released. They all seemed inline except the distillate numbers, which were -2.9 million versus a flat estimate. Oil traded a tad firmer on the news.

Tomorrow before the bell we’ll see numbers out of Monsanto (MON) and Costco (COST). After the bell Alcoa (AA).

I am off to dinner with a vice cop turned lawyer turned trader. Reinvention is the mother of innovation. And the beat goes on.