Trading Desk Notes March 14, 2020Submitted by Polar Futures Group on March 13th, 2020
Volatility surged higher across markets this week...prices changed with astonishing speed...bid/offer spreads were ridiculous...credit spreads widened with a vengeance and depth-of-markets got scary thin. Global stock market cap tumbled >$16 Trillion in 3 weeks...more than China’s annual GDP.
The US Dollar soared this week as stock markets tumbled. The CRB commodity index fell to a 48 year low as WTI suffered its sharpest 2 day tumble since 1991.
Global central banks were active...governments promised financial help but relief rallies were brief.
I’ve been extremely tempted to sell sky high volatility...to sell panic...but my risk management override said, “Wait.” The emotional wild card is that the virus “news” probably gets worse next week as more people get tested...so as much as I want to sell levels made in panic conditions I’ll wait for price action to confirm that a turn has been made.
I’m fascinated with the bond market. I find it really easy to believe that bond yields have made historic lows here and will surge higher as governments and central banks hit the stimulus button with both fists...and lenders demand to get paid a decent return for the risks they are taking. It was very interesting that the ECB did NOT try to take interest rates deeper into negative territory at their scheduled meeting this week...and that Germany...finally...is going to start fiscal stimulus.
I’m equally fascinated by the CRB at 48 year lows. When I first saw the CRB chart @charliebillo...I thought it had to be a mistake...but my good friend Ross Clark @chartsbyross confirmed it was correct. With consumer inflation expectations at 30 year lows and massive stimulus coming I’ve got to start looking for buying opportunities in commodities and commodity currencies. The Australian Dollar is at 12 year lows...down about 45% from 2011 highs...when commodities started their last big leg down. Copper hit a 4 year low.
Gold made a new 7 year high Monday but was hit with wave after wave of selling as the US Dollar soared and as interest rates stopped falling and started to back up. Gold fell as much as $200 from Monday’s high to Friday’s low. There certainly had to be some selling of gold to raise cash but I’ve thought for months that the HUGE spec long position on Comex left gold vulnerable to a break. My bearish gold put spread did well this week.
WTI crude hit $65 in early January on USA/Iran tensions but tumbled to a 4 year low of $$27.50 this Monday following the price war launched by Russia/Saudi.
The Canadian dollar dropped 4% this week...to a 4 year low...as crude oil fell and the US Dollar soared. The Bank of Canada did an emergency 50bps cut Friday...following their 50bps cut last week...and the government pledged C$10 Billion in business credit support.
My short term trading: I bought the Mexican Peso last Friday and blew it out for a small loss Sunday afternoon. It was a play on panic subsiding and that definitely didn’t happen. I’ve continued to hold my bearish put spreads on both the S+P and gold so my trading account balances are up for the week. I had lots of trading ideas this week...mostly looking to sell vol...but when I looked at the extraordinarily wide bid/offer spreads and wondered how much risk I would be taking I sat on my hands. Better to live to trade another day...the markets will be open again next week!
My son Drew Zimmerman and I use the futures market to trade currencies, metals, interest rates, stock indices, energy and other commodities. Please give us a call or send us an email if you'd like to know more about trading futures.
SVP and Derivatives Portfolio Manager
PI Financial Corp
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