Trading On margin

Negotiating Office Notes: Odd WTI Forward Curve; Short and long rates tempo; CAD rally

New all-time highs for major stock indexes – but ‘rotation’ rules

The and the have skyrocketed and hit new all-time highs after that small 6% drop in September (capital flows show that retail and hedge funds bought the bottom), but heavy tech and have not reached new heights. . The and the smoked the other clues.

Emini S&P 500 Daily Chart

DJTA Daily Chart

DJTA Daily Chart

S & P / TSX Composite Daily Chart

S & P / TSX Composite Daily Chart

Share buybacks in the United States

Share buybacks in the United States

Greed / fear index

Greed / fear index

SPX Put Chart

SPX Put Chart

Energy markets continued to climb higher—,, and were at 7-year highs.

WTI has increased for nine consecutive weeks.

WTI Daily Chart

WTI Daily Chart

Uranium ETF Weekly Chart

Uranium ETF Weekly Chart

Lithium ETF weekly chart

Lithium ETF weekly chart

Something big was happening in the front curve of WTI

The first month’s WTI premium soared over the lagging months as the whole retrospective curve steepened. Is this due to shortages of physical WTI for near immediate delivery? Is this due to the fact that speculators are concentrating their purchases on the contracts of the first month? Is this a sign that the margin clerks have lifted any bids they can find to liquidate a colossal spec short position? Is this just another example of the Brave New World of energy markets – and watch out for the gamers?

One strange thing – as WTI prices skyrocketed and time spreads exploded, the implicit theft on WTI options did nothing. It sits in the mid-range, where it has been for several months.

This spread chart shows that the December WTI traded at a premium of around $ 1.50 compared to March in early October. By Friday, the premium had climbed to around $ 4.25.

Light gross calendar daily spread chart

Light gross calendar daily spread chart

spreads soared on physical shortages.

LME Copper Spot Graph

LME Copper Spot Graph

Interest rates were rising as markets braced for central bank tightening. Short rates have risen faster than.

The long bond hit a historically low yield (high price in this chart) in August 2020.

Weekly chart of US 30-year bond rates

Weekly chart of US 30-year bond rates

Bank of America’s monthly survey of fund managers showed they were the “the shortest»Bonds over the 20 years of the survey.

Bond outlook

were rising faster than long rates.

Weekly chart of 5-year US treasury bills

Weekly chart of 5-year US treasury bills

2-Year U.S. Treasury Bill Chart

2-Year U.S. Treasury Bill Chart

The drop from year-long highs as a sense of “risk” flooded the markets.

Weekly dollar index chart

Weekly dollar index chart

The was the weakest of the major currencies Vs. the USD, down around 10% year-to-date. It has also fallen by around 10% since the start of the year.

JPY Weekly Chart

JPY Weekly Chart

The and the (commodity currencies) were two of the few actively traded currencies that rose since the start of the year against the USD. The CAD was at a 6 year high from the. Was it that simple that Japan is a major energy importer while Canada is a net energy exporter?

CAD weekly chart

CAD weekly chart

From a cynical (or realistic) FX speculator’s perspective, the price of is a function of 1) the relative strength of USD vs. other currencies, 2) the relative strength of commodity markets, especially fossil fuels , and 3) the relative strength of the stock market. Think of the CAD as a floating plug in the ocean, where the “the water”Is the USD, the commodities market and the stock market. Canadian domestic inputs have relatively little impact on the CAD / USD. Short CAD rates are now higher than short USD rates, but that’s not as important as the Big Three.

hit a 6-week high above $ 1,800 on Friday, but…

Gold weekly chart

Gold weekly chart

Gold was up over $ 30 in early New York “ground”On Friday, October 22, but fell over $ 30 in just over 30 minutes at midday when Powell confirmed that the Fed would go ahead with their “cone” plans.

30 minute gold chart

30 minute gold chart

Gold and USD have had a strong negative correlation since the start of the year. In this chart, gold (pink line) is reversed. The blue line is the US dollar index.

Daily dollar index chart

Daily dollar index chart

My short term trading

I started the week flat and didn’t do anything for the first three days. Call it a mini vacation or say I was patiently waiting for a setup I liked.

Over the past few weeks, I have been on both long and short stock indexes. I had closed a long position at the end of last week for a decent profit, and was looking for a market reversal last week. I did not sell the market short Monday through Wednesday because it was trending higher. I thought I saw a topping pattern on Thursday (selective viewing), and I was short. I was quickly arrested for a small loss. The same thing happened on Friday. I’m flat at the end of the week and my P + L was down about 0.4% on the week.

On my radar

I am well aware that the stock market’s seasonal trend is higher for the remainder of the year and that the stock market appears very capable of absorbing “bad” news and continuing to recover. I’m not a permanent bear (although I like to tone down irrational exuberance), and have made some money buying stock indexes recently, but next week I will be looking for opportunities to set up. to sell stock indices or other examples of speculative excess!

SPX seasonal composite from August 27 to December 31

SPX seasonal composite from August 27 to December 31

I interviewed Bill Fleckenstein years ago. He gave me some great advice on shorting:

“I don’t sell markets short because I think they’re overvalued. Markets can easily become much more overvalued. I short sell markets that I have good reason to believe will decline. One of the best reasons they can go down is that they’ve already started going down. You want to shoot them in the back.

Thoughts on Trading

I rarely write about crypto. I don’t know what it is, but I’m curious about it in terms of market psychology. Is it, for example, the hot money star kid looking for the new, the new? Is it the perceived inflation hedge for millennials, like gold was for baby boomers? Is this the modern version of tulipomania, or will digital currencies become the backbone of global finance?

Forty years ago, I was in the main trading floor of (what has become) one of the largest bank-owned brokerage firms in Canada. They exchanged “all”On this floor, but the guy I was visiting didn’t trade anything other than CAD / USD. He was not a market maker; he was an accessories dealer, so he only traded when he wanted. He seemed to be well respected by other traders in the field, and he “Took the entrance”From everyone on what was going on in their markets, but he only traded CAD / USD.

I am interested in all kinds of markets; I’m a macrotourist, but I don’t “feel the need”To trade all markets. I don’t either “feel the need”To negotiate a single deal. One of my core beliefs is that successful traders find a way to participate in the markets that are right for them.

I sometimes wonder if my Old School metrics for understanding things like value or rate of change are out of step with the markets these days.

Quotes from the notebook

“In an inflationary world, you want to have a strong currency if you are an importer.»Louis Gave, in an interview with Grant Williams 2021

My comment: I listened to this podcast a few days ago and immediately thought this quote was an example of cognitive dissonance. A strong currency would be nice because it would make imports cheaper, but don’t net importers end up getting a weaker currency?

“It’s easier to spend money than it is to earn it. When there is no money coming in through the door, LOVE flies out the window. My grandmother 40 years ago

My comment: Forty years ago, commodity brokers made a lot of money driving new sports cars, while stockbrokers took the bus to work, taking their lunch in a paper bag. We used to have expensive lunches and said, “It’s only three ticks in bonds”, When we ordered another $ 100 bottle of wine. Easy come, easy go, but there are always consequences.

“We couldn’t panic even if we wanted to… there was NO offer to touch!”Steve Leuer, S&P floor broker during the August 2015 market breakout

My comment: If you are going to panic, panic early!

“If you want to make God laugh … tell him you have a plan. “Woody Allen (and others)

“Everyone has a plan until he’s punched in the mouth.»Mike Tyson 1987

My comment: Making plans is a good idea, but since anything can happen, be prepared for your plans to not work.

“You have to assume that the money in your client’s account is all the money he has. ” Peter Appleby, Branch Manager, ContiCommodity 1984 – in response to a broker telling Peter he was confident his client would find the money to meet his margin call.

My comment: When I was a branch manager, I always told my guys to never let a client use more than 50% of their capital to trade on margin. Clients who have consistently used 100% (or more) of their capital for margin purposes have ALWAYS gone bankrupt and brought someone with them, usually their broker!


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