Trading Desk Notes September 28, 2019Submitted by Polar Futures Group on September 27th, 2019
Political turmoil is having an out-sized impact on markets these days and it’s hard to not get sucked into trading on the latest political news flash or tweet. It’s not that the tweets and news flashes can’t move markets...they obviously do...but I want to trade the market not the tweet.
For instance, I’ve been thinking that the S+P looked like it could break down after failing to make new highs earlier this month. I got short Friday morning and my position was “helped along” by reports that Trump was considering restrictions on American investments in China and also restrictions on Chinese companies listing on American exchanges. I think this report is negative for the S+P because it ramps up tensions with China but I didn’t get short because of this news flash...I got short because the market look vulnerable.
The WTI crude oil market spiked as much as $9 following the attacks on the Saudi oil facilities. Within a couple of days WTI had fallen back ~$6 from the spike highs and at this week’s lows had given back all of the spike gains. The jump in prices was a “risk premium” driven by fears of further attacks/reprisals, talk of $100 oil and worries that 5% of the world’s daily production would be offline for an unknown amount of time. Prices quickly fell back from the spike highs when there were no more attacks and no reprisals, on reports that Saudi exports would not be reduced and that the damaged facilities would be repaired in short order. This week the “risk premium” was further reduced by talk of a Saudi/Yemen ceasefire and possible US/Iran talks.
The attacks highlight the vulnerability of oil supply from the mid-east...and the $9 spike in WTI prices was an understandable emotional reaction...but the quick subsequent drop in prices from the spike highs may give us a better insight into the real world supply/demand picture. Geo-political flashes often follow a similar price trajectory.
The US Dollar Index closed this week at a new 28 month high. American interest rates are higher than those in other developed countries and capital continues to flow to the USA for safety and opportunity.
The Canadian dollar has traded in a narrow 1 cent range (75 to 76 cents) for most of the last 2 months with the Federal election now less than a month away.
Gold has looked as though it could break down below $1490 a few times over the past 3 weeks but hasn’t done so. Open interest hit an All Time High earlier this week and net speculative long positions are also near All Time Highs...meaning that a decisive break below $1490 could set off a “falling-dominos” wave of speculative selling.
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