Trading Desk Notes - March 31Submitted by Polar Futures Group on April 3rd, 2018
From the Desk of Victor Adair
My short term trading:
- I started this week short the stock market via a bear spread in S+P options. I created the bear spread by first buying S+P puts on Mar 13 when the market rolled over and then the following week I sold OTM S+P puts to lock in profits. I became more aggressively short this past Tuesday morning after Monday’s relief rally ran out of steam. I took profits Wednesday when the market refused to break to new lows. I currently have no positions.
- I bought WTI puts Tuesday after the market made new multi-year highs on Monday and then turned lower. I had written the previous week that my gut instinct and the chart patterns told me that this was NOT the time to be short WTI...but Monday’s market action convinced me to take a small position! The market broke nearly $3 to Wednesday’s lows but then rallied back to close only marginally lower on the week. I still own the puts but my confidence is low.
- I shorted CAD on Tuesday after CAD and several other currencies and gold rallied against USD on Monday and Tuesday and then turned lower. I remain short.
- I shorted NZD Wednesday for the same reasons. I remain short.
Positioning creates opportunities: Markets go up and down in different time frames as they go in and out of favor. When a market makes an extended move in one direction investors become heavily positioned in line with the trend on the assumption that the trend will continue. After a 9 year bull market in stocks it seems reasonable to assume that investors are heavily positioned for the market to keep going up.
On rare occasions markets go to extreme highs on the back of greed and hope...or to extreme lows on the back of fear and despair. After reaching an extreme a market doesn't just stop...it moves hard in the opposite direction.
My trading plan for the stock market is based on the assumption that the hard break from the January All Time Highs was not just another “Buy The Dip” opportunity but rather was an “extreme” high (at least in Market Psychology) and that the market is in the process of reversing from that top. I’m looking for opportunities to short “relief rallies” that run out of steam.
Opportunities in other markets: Speculators are now heavily positioned short the US Dollar and long crude oil. I’ve made some limited risk trades against that positioning and I’m looking for opportunities to become more aggressive, if the markets move in my favor, on the assumption that a “positioning unwind” will accelerate a USD rally and/or a WTI decline.