On June 20, 2020 we wrote, “Markets currently seem to be highly correlated into a simple “risk on / risk off” dichotomy...with the emini S+P futures leading the way while other markets follow.” Some people refer to it as, “All One Market,” and from a macro perspective it’s been a “risk on” market since mid-June as:<
The US Dollar Index (USDX) had its worst month in a decade in July...falling >5% to a 2 year low.
We look for trading opportunities in exchange listed futures and options. Our time frame is a few days to a few weeks. We believe that net trading profits over time come more from risk management than from trade selection...but a good trade selection process is important.
You have to ask yourself, “What are we trading these days?” 50 million Americans have applied for first time jobless benefits since the lockdowns began and the Nasdaq 100 has rallied >60% from the March lows to this week’s All Time Highs.
Our base case has been that all of the central bank and government stimulus would not prevent pervasive global demand destruction as the virus continued to spread...that the stimulus inspired “risk on” trade in financial markets would “roll over” once the divergence between the real economy and the financial markets got too wide.
I trade futures and options for my own account. My initial time horizon for a trade is usually a few days to a few weeks. Sometimes, if my view of the market is working I will maintain a position for months. I believe net profits over time come from disciplined risk management...not from having a great crystal ball.
Markets currently seem to be highly correlated into a simple “risk on / risk off” dichotomy...with the emini S+P futures leading the way while other markets follow. If the spuz is bid then WTI catches a bid while the USD and bonds are offered...and vice versa.
I thought the stock market’s huge rally off the March lows was a bear market rally because of the huge dis-connect with the real economy. I thought demand destruction was so powerful that stimulus from the Fed and the government was only going to keep the economy from falling into a depression...not turn it around.
A Key Turn Date occurs when a number of different markets all reverse direction at the same time...giving us a very valuable window into market psychology.
Link to Victor Adair podcast on Howestreet.com recorded June 3, 2020.