Trading Deswk Notes September 14, 2019Submitted by Polar Futures Group on September 13th, 2019
We’ve seen dramatic price reversals across markets since the Labor Day weekend...especially in the bond market where yields had their biggest one-week jump since Trump’s election. Analysts may point to the softening of tensions between the USA and China, or to stronger-than-expected economic reports which dampened the “we’re-falling-into-a-recession” story but from my perspective the relentless bull market in bonds since last November went parabolic in August...taking the yield on the 30 year US Treasury to All Time Lows...lower than the T-Bill rate...lower than the dividend yield on the S+P 500 share index...and the rally was WAY overdue for (at least) a correction. The yield on the US 10 year has gone from ~1.45% to ~1.90% in the last 8 trading sessions.
On September 3rd the US Dollar index hit a 28 month high and reversed, the British Pound hit a 3 year low and reversed, the Chinese RMB hit an 11 year low and reversed, The Australian Dollar hit a 10 year low and reversed while the EURJPY spread hit a 28 month low and reversed.
On September 3rd the copper market, where net speculative short positions were at an All Time High, reversed sharply higher from a 3 year low...rallying >30 cents/pound (12%) by this weeks close.
On Sept 4th the Gold market, where net speculative long positions were at an All Time High, hit a 6 year high and then fell nearly $75 by the end of this week.
On Sept 3rd the DJIA had a low of 26,000 but rallied over 1,100 points in 7 trading days...but the real action in the stock market has been the dramatic rotation away from the recent hot stars to the recent dogs as sentiment shifted from fear to greed. It’s interesting to see the home construction ETF (ITB) surge higher the past 2 weeks even as interest rates rose sharply.
A Key Turn Date...when a number of different markets all register sharp reversals on or about the same date it adds “importance” or “staying power” to each market’s reversal. For instance, notice that copper reversed when specs were record net short while gold reversed when specs were record net long...such positioning may give us a “window” into “net” market psychology...telling us that the subsequent “change” in psychology was pervasive...not limited to any one market.
My short term trading: I’ve been waiting for the bond rally to break and finally got short on Monday. I sold OTM puts against my position later in the week to manage the risk on the trade. I’ve also been waiting for the gold market to break and finally bought OTM puts Friday. I was away from my trading desk for a couple of days this week and will be away for a couple of days again next week and the week thereafter so I’m trading smaller size / hedging my risks.
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