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.
So my last “stocks to watch” post turned out to have a 100% winning rate. Had you taken on any of the positions listed there, you would have profited (to various extents and %s of course).
While that may be the only time that ever happens, I just felt like bragging a little bit. 10/10 on weekly stock pick performance is..well…pretty good.
But regardless, don’t consider all of the trades listed below to be profitable necessarily; some will, some won’t. That’s just how it is.
What this list is meant to be, is a list of stocks for you to consider adding to your watchlist. Nothing more and nothing less. With that said, here are some of the tickers that’ll be on my watchlist.
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.
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).
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
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.