Trading Desk Notes - January 12thSubmitted by Polar Futures Group on January 14th, 2019
The major US stock market indices have rallied back from their Christmas lows...recovering everything they lost after Powell triggered a 2,000 point / 4 day tumble in the Dow with his "auto-pilot" remarks on December 19.
WTI crude oil has bounced back as much as $10...the US Dollar Index has weakened to 3 month lows...and CAD has jumped nearly 3 cents in the past 2 weeks. Gold rallied ~$80 in December on a "safe haven" bid and a weaker USD.
In hindsight it seems that sentiment got WAY too negative at the December lows (the stock market's worst December since 1931) and price action the past 2 weeks has restored some level of emotional equilibrium (try saying that with a straight face after the wicked volatility we had in December!)
So what now?
Stocks: Just over 3 months ago the leading US stock market indices were at all-time highs. Prices broke ~20% to the December lows and have bounced back ~12%. I'm seeing the "bounce back" as a bear market rally. I'm looking for the indices to roll over sometime soon and go back towards the December lows. I think those lows were "extreme" so if they get broken the indices could take another nasty leg down. If the lows hold and the market starts to rally it's a green light buy. If I see signs that the market is starting to roll over I'll try to find a good spot to get short.
Crude: I'm looking for WTI to have a similar price pattern to stocks...that is, roll over soon and head towards the December "extreme" lows. If those lows get broken, look out below. If they hold, or if crude turns higher without getting near the lows it's a buy. I may or may not try to find a spot to short crude if it rolls over. My consideration will be the "concentration" of my positions as I see crude and stock price action reflecting the same sentiment.
Currencies: I sold CAD short near its highs this week. CAD has been highly correlated with stocks and crude at a few key points this past year so it rallied along with them the past 2 weeks. The weak USD also cleared the way for a CAD rally but CAD has its own set of problems and shorting into a 3 cent rally seemed like a good idea.
Gold: I've traded gold from the long side since mid-December and bought it again early this past week. I got stopped out with a small profit when gold fell back from resistance at $1300. I'm now neutral to negative on the USD and think stocks could weaken so, if anything, I'd be a buyer of gold...it may be the best way to express my bearish USD view...but I'll have to be wary of overall position concentration.