Blue Line= BRLUSD

The market began weak and recovered at the midpoint of the COT period. It repeated the pattern in the days following the COT in a volatile market that closely followed the trend of the Real.

The primary impetus in both KC and RC has been managed money. It appears that during the first half of the period, funds continued to buy as the market eased. Whether they also bought on the sharp drop of the Thursday following the report is unknown, but it appears that managed money is collectively committed to building a long position for now. The sellers were mostly commercials who sold option delta for the large part. There has been origin selling at times as well.

Spreads have been erratic as the DecMar has been very strong, trading up to -.95 or -.3167/month, while the two month MarMay traded down to -1.15, -.575/month. It’s tempting to sell the DecMar considering the expanding long position of the fund sector but the CSO market continues to express a bullish sentiment as positive strike prices are trading in volume.

The trajectory of the market remains a cautious one. Nagual’s charts indicate an overbought market. It may be so even with the sharp corrections that we have been seeing. It has also been a generally successful strategy for the last few years to fade the funds. Finally, fundamentals remain bearish. However, the market is behaving well. Thursday’s sharp drop proved to be an opportunity as Friday brought strength. Personally I am cautiously bullish and I am long strangles as a result, not purposely. Outside factors may worth considering, like the $, interest rates and other markets.