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
The Solar Eclipse Resolution
So, as I went into more depth about on Sunday night, there seems to be market impact via solar eclipses…namely a $VIX ramp the week before the eclipse and then some volatility chop. The chop is normally in a downward trend afterward though.
You can check that post for some historical charts and the chart leading up to the eclipse yesterday. For simplicity, I’m just going to post the days leading up to yesterday on $VIX and this ‘resolution’ that is occurring so far (pull back).
Hurray, you were seemingly right so far! I wish I took your $NQ_F and $HG_F trades!
Yeah, that’s actually true. Those both worked out very well for me (copper is a highly conductive metal…magnetism and electricity are obviously related, so the impact of it caused by the solar eclipse is implied).
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“.
Last week, we saw the markets hit panic mode on Friday (June 9th), particularly in $QQQ (the Powershares Technology ETF, that approximates the value and performance of the Nasdaq 100) and other members of the tech sector. The chart below shows the pain from Friday pretty clearly…
Leading the pain are the next stocks typically abbreviated to “FANG”: Facebook, Apple, NetFlix, Google. They all exhibit explosive growth, that continued beyond the tech bubble crashed. They are so endeared that they’ve got their own abbreviation.
But happened on Friday exactly? Why was the whole market hit so badly and then why were the Qs body-slammed even harder? I mean the Nasdaq 100 hit an all-time high on the very same day…what happened?
Some might point to the geopolitical tensions going on between the US, Russia, China, ISIS and…well…frankly just about everywhere. Even the tension within our country, created by this pseudo-bipartisan government, is at a higher level than it has been for some time now.
The issues with James Comey, et. al. are used to emotionalize people about President Trump in whichever say so best suits them….once they’re mad or at least engaged.
But dros, what about the markets?
I’m getting there.
The whole point of that rant was that when the citizens of the republic, we traders included, it’s easy to create all sorts of misguided anger and crazy chains of thoughts.
The market had withstood worse news in the same week, so why that day? I would have to say that there’s a clear correlation in the 24-year low that $VIX (an indicator of market volatility) hit on Friday as to why.
So what happened Friday? The “house” (the big banks/market makers) were taking home some money, squeezing it out of retail with sellers of the stock on that day, as well as all the bulls who held calls expiring this week (monthly JUN expiries) as a great deal of gains were lost by them not locking in profit.
What do I see coming this week?
I think the energy sector and the the financial sector keep us propped up from collapse until later in the week. I’d advise rolling your JUN17 expiry options or selling them at a loss if you no longer have bullish convictions about the stock. Tech should be fine by next week.
Ok I started writing this a bit too late…it’s time for the opening-bell, I’ll be back with more later.