Be forewarned…this article is not going to be about technicals. As a professional trader sometimes story-telling is the best way to understand someone else’s trade or get in your own (as elaborated on in my last post on “Engineering a Trade“). So why did BTC/USD have that huge spike to 19,000 and that huge correction back down? What’s happening with BitCoin?
I’ve been missing for a while from the blog; for that, I must apologize. For those of you on my unusual options alert service, we’ve been doing quite well I’d say.
But that’s beside the point. Tonight in my chat room I was reminded of a fun story that exemplifies what I’d call ‘designing’ a trade (or even engineering a trade).
Engineering a Trade
Last October, a good friend of mine was going for an interview to go work at a hedge fund. He wasn’t sure what to say at his interview so he straight up asked me if I had any advice.
Luckily for him, I was in the middle of engineering a trade that would shit a decent amount of my asset allocations towards a sector and out of a few currency trades. Talking about a prior trade prospect after it has come to fruition might seem like bragging.
- $S has been the subject of lots M&A speculation since announcing interest in such a deal.
- $TMUS and $CHTR have been the primary targets mentioned in mainstream stories, but neither makes sense.
- $ERIC may be the true target and mainstream financial news may have slipped with a tip-off.
- Timeline of news on $ERIC vs that of $S is oddly fitting
Sprint ($S), a telecommunications company of which Softbank ($SFTBY) owns 80% of, has been in and out news cycles about a possible merger or acquisition for most of the year.
This years’ hype began on February 17th, 2017, when Reuters reported that Softbank was looking to sell their equity in Sprint to Deutsche Telekom, the parent company of $TMUS.
Today’s announcement by Fed Chair Janet Yellen is supposed to give the markets an update of the timeline for when and at what pace the Federal Reserve’s Balance sheet will be cut.
When you look at the sheet, it is a pretty frightful thing and one that makes for some pretty easy headlines.
I wanted to do a quick follow-up piece to my recent articles “Solar Eclipse Resolution and Why I’m Watching $RSX” and “The Hurricane Harvey Trade Nobody Is Talking About…Yet.”
In the resolution article, I noted/proved that what financial astrologers have spoken about (longer than I have) and that the general pattern solar eclipses cause on the market had done as predicted; $VIX spiked up leading up to the eclipse and then started to come back down soon after it was over.
Russian Stock Markets and the 2017 Solar Eclipse
Hurricane Harvey has the mainstream financial news companies hyper-focused on which stocks or futures they think you should trade during the storm.
Most of the snippets I’ve seen or the commentaries that I’ve read focus on the obvious stuff.
Energy names in the oil and gasoline sector, home builder stocks (like $LOW and $HD), generator companies ($GNRC – I sent to the text alert service and traded it also. I bought calls Friday and sold most of them Monday pretty soon after the opening bell @ +155%), and insurance companies.
Last night though, as I was going over some money flow data from the day’s session I noticed something odd. Most of the major banks had net positive flows despite lower stock prices. This is very typical of institutional buying. The banks with the most in-flows were $C (+243.81 mil), $JPM and $WFC. They all have fairly large lending entities.
So I decided to see what storms have done to the financial sector in general in some of the larger more recent storms.
If you want to skip to end, the trend is that they move up during the duration of the storms and then continue onward in their prior trend afterwards. So watch those three tickers above as well as $XLF. I’ll be buying some more bank exposure as soon as I see the sector start to make a strong move up.
Trading Hurricane Harvey With Bank Stocks: Little chart history anyone?
October 25th, North American Storm Complex
Bottom Line: Watch bank stocks for a possible swing-trade soon.
Tomorrow’s Solar Eclipse and Its’ Impact on Markets
Tomorrow, August 21st, 2017, a solar eclipse will occur. The eclipse will be visible as a total eclipse by a band stretching across the USA from Oregon to South Carolina, and as a partial eclipse in the rest of the country and world.
Such an event usually brings me back to elementary school when we would typically get an extra recess to go out and watch it.
I have an insatiable curiosity about things that interest me The simple explanation behind a solar eclipse is fairly easy to grasp, even when you’re young; the moon is at an angle that sets it between the sun, such that the sun seems to blocked out (eclipsed, if you will) by it. Even studying physics in college doesn’t give you much more than that beyond the specific axial angles the occur at.
But after spending over a decade in financial markets and letting that curiosity remain insatiable, I’ve read and continue to read a great deal about the markets and things that influence it.
Now here’s where it gets weird…
The vast majority of financial writers and investors are quick to pass off the notion of such events as having any sort of impact on the markets as being ridiculous and purely pseudo-science.
But there are some well-recognized investors that take/have taken financial astrology seriously, with one of the most notable being W.D. Gann (listed as one of Investopedia’s Top 10 Most Famous Traders in the World).
Gann, in-fact had an entire section of his reading list for students that covered financial astrology.
Maybe it’s not so weird after all
Let’s think of it like this for a minute. The gravitational effects of the sun on the Earth are what keep it in its’ orbit. The power of the moon’s gravitational effects on the Earth are strong enough to create ocean waves.
We, despite our appearances, are composed of individual molecules (in-turn composed of individual atoms). The gravitational impact on atoms is widely accepted amongst the modern scientific community; depending on the size of the atoms and their proximity to each other, the larger body will pull on the smaller atoms.
I came here to learn about trading! What are you yapping about?
During a solar eclipse, the gravitational pull from other stellar bodies on every atom on our planet is impacted; if you think about it, there’s really no other alternatives.
Our bodies, including our brains, are therefore impacted by such lunar and solar events in some way. Typically the time leading up to an eclipse guides us towards a great deal of negative energy, which can cause the choices that we, our political leaders, as well as players in the market are making without us (or them) even being cognizant of our thought processes being altered.
And now the point.
Historically, solar eclipses have been correlated with periods of high volatility in the markets (up and down). This correlation is seen the week leading up to and after the week after the eclipse.
Well, last week, $VIX saw the first significant spike it’s seen in a while (roughly a week before tomorrow’s eclipse)..
The last solar eclipse visible from the USA was on May 20th, 2012…
And then before that, May 10th, 1994.
Ok! Ok! Enough charts!
There’s much more to the theory of solar eclipses and their impacts on markets. Not all eclipses are visible from every country and there’s talk about the impact being different based on which countries they are indeed visible from and the how this alters the impact. For an interesting read check out this little blog here.
The same site, in and attempt to prove the sanity of those who would believe such things is where I got the reading list from Gann that I posted above.
So What Does This Solar Eclipse Mean For Markets and Volatility?
Well, we’ve already seen what happens in the week leading up to solar eclipses with regards to $VIX; it ramps up. Typically, we see some chop in volatility the week after the eclipse, with it sometimes rising, but usually, the ramp resolves itself.
If recent history repeats itself, we should see the higher levels of volatility remain as the week starts, but then observe it start to trend downwards with a bit of chop as it resolves itself.
Will it happen? I have no idea, but I love looking at markets from novel ways and seeing what happens. I’ll write a follow-up article next week with what ended up happening.
Eclipse Date Source: https://www.wikiwand.com/en/List_of_solar_eclipses_visible_from_the_United_States
Market psychology is a cornerstone of how markets operate. Whether that’s psychology that the ‘big money’ has trained retail to follow or whether it is the psychology of traders themselves. Options expiration dates are a great way to show what I mean.
Trading is a lot like gambling; I’ve already gone over the differences of investing vs. trading in previous blog posts, and it’s a subject I’m very likely to touch on again. It’s very important.
August 18th, this past Friday, was the standard expiration for August monthly options. While many people were still holding onto options expiring that day (something you should NOT be doing because of the impact of the options greek ‘theta‘ as the primary reason), there was some hope that the markets would rally and those option holders might be able to regain some of the profits they had made. That or they were hoping their losing positions would gain in value.
The June 14th, 2017 Fed Hike, and Its’ Repercussions
Earlier in the week, I made a post regarding the Federal Reserve’s decision to hike not meaning anything to the market. I’m going to use $ES_F (the Standard & Poor’s 500 Index) here rather than $YM_F (the Dow Jones Industrial Average Futures) because the Dow is “price-weighted”…meaning that the most expensive stocks have the strongest impact on the average. This sort of index weighting can distort the true measure of the index rather easily. The S&P 500 is weighted based on the market capitalization of the companies within the index; which means companies with higher market capitalizations have more impact on the movement/pricing of the index. It’s also a basket of 500 stocks, rather than the Dow’s 30, so it also gives us a wider breadth of the market to base trends on.
So We’re In a Bear-Market Now For Sure Right?
Bears crying out all over the internet are saying this hike has essentially brought about the end of the world and the market. But take a look at the chart above…what happened to the market after all was said and done with Wednesday’s hike?
Absolutely nothing. The markets faded on low volume, rose on low volume, faded again on slightly higher volume and then on Friday returned to where it was (on decent volume) prior to the Fed hike announcement.
Why You Shouldn’t Be Scared of a Fed Hike Today
If you’ve been ingesting any sort of financial news for the past two weeks, you’ve no doubt heard the Federal Reserve is making an announcement today. That announcement will be their decision regarding whether they’re going to hike interest rates or leave them unchanged.
Nearly every pundit interviewed on CNBC or Bloomberg has had some sort of answer to the questions of whether or not they thought the Fed would indeed hike and what that impact for the market could be. When I woke up today though, to share my thoughts on the event and its’ outcome here, I was pleasantly surprised to see one of the better-known ‘gurus’ actually shared my thoughts…AND did some math for me.
Consequences Of A Fed Hike Today
Mark Hulbert, a senior columnist at MarketWatch, (who I tend to usually disagree with) wrote an op-ed piece called “Here’s how to make easy money off the Fed interest-rate decision“.