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December 4, 2017 | Trading Desk Notes – Dec 2

Senior Vice President and Derivatives Portfolio Manager. Victor began trading financial markets over 45 years ago and has held a number of senior executive positions during his career as a commodity and stockbroker. Over the years he has provided considerable market analysis via radio and television and at financial conferences. His primary brokerage business is providing corporate accounts with risk management services using exchange traded derivatives. He actively trades currencies, interest rates, precious metals, stock indices and commodities for his own accounts.

Volatility jumped this week: Last week the VIX briefly dropped below 9%…a 24 year low…but ramped up throughout this week to a 3 month high above 14.5% on Friday as markets focused on political developments in Washington. The DJIA experienced 400+ point ranges both Thursday and Friday with choppy price action on “will-they-won’t-they” tax reform issues.

Stock Markets: All of the major US stock indices soared to new highs this week while the major European indices fell. The EuroStox50 hit 2 ½ month lows down ~5% from month ago levels. The Emerging Markets indices also fell with particular weakness in Asia-ex-Japan.

Currencies: The US Dollar index steadied after last week’s declines as the major pairs chopped around in narrow ranges. The Fed meets in 2 weeks and is expected to raise s/t interest rates by ¼%.

The Canadian Dollar: Fell ~1.4 cents Monday to Thursday but recovered all of those loses following Friday’s much-stronger-than-expected employment report. CAD has traded sideways in a 1.5 cent range for the last 5 weeks. The Bank of Canada meets next week and is expected to leave interest rates unchanged. The USD has gained over 5 cents against CAD since the Sept 8 Key Turn Date as the 2 year benchmark Gov’t interest rate spread has swung from ~25 points premium Canada to ~30 points premium USA. WTI rallied from ~$49 to ~$59 (20%) in that same time period but seemed to give CAD little support.

Gold: has chopped around in a $30 range between $1270 and $1300 for the past 6 weeks after tumbling ~$100 from its September 8 highs to its Oct 6 lows.

Crude Oil: OPEC-and-Allies extended their production cutback agreements, as expected, until the end of 2018 (with Libya and Nigeria agreeing to cap production.) Front month WTI hit a high of $59 last week on anticipation of this agreement and mostly sustained those gains this week to close above $58.

My short term trading: I had gone flat ahead of the American Thanksgiving long weekend. I sold CAD on Monday thinking that 1) the USD sell-off of the previous 3 weeks had run its course, 2) CAD appeared to have doubled-topped in November around 79 cents so I had a technical backstop, 3) I expected interest rate spreads to continue to widen in favor of the USD and 4) I also thought WTI might be having another “As Good As It Gets” moment around $59 and any break would be a drag on CAD. The trade looked good Wednesday as CAD dropped through the previous week’s low (77.90) and I anticipated that downside momentum would accelerate if CAD could break below the Oct low (77.45). I trailed my protective stop down as the week progressed and was stopped out at 7799 moments after the WAY stronger than expected Canadian employment report Friday morning.

I sold the S+P Wednesday after it fell back from All Time Highs, as the Nasdaq was falling hard. I thought the overall stock market was overdue for a “correction” but since I was selling into a strong uptrend I kept my size small. I saw some daylight on the trade during the Wednesday day session but was stopped overnight for a small loss before the market exploded higher Thursday.

Reviewing my trading activity I see the CAD trade as a well-managed trade that resulted in a profit. The S+P trade, however, was more of a “got a hunch / bet a bunch” style trade (even though I didn’t bet a bunch!) that had a low probability of success. I managed the risk on the S+P trade by taking a small position and using a tight stop…but it was impetuous rather than well thought out and diminished the profits I earned on the CAD trade.

PI Financial Corp. is a Member of the Canadian Investor Protection Fund. The risk of loss in trading commodity interests can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. In considering whether to trade or the authorize someone else to trade for you, you should be aware of the following. If you purchase a commodity option you may sustain a total loss of the premium and of all transaction costs. If you purchase or sell a commodity futures contract or sell a commodity option  or engage in off-exchange foreign currency trading you may sustain a total loss of the initial margin funds or security deposit and any additional fund that you deposit with your broker to establish or maintain your position.  You may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position.  If you do not provide the requested funds within the prescribe time, your position may be liquidated at a loss, and you will be liable for any resulting deficit in your account. Under certain market conditions, you may find it difficult to impossible to liquidate a position. This is intended for distribution in those jurisdictions where PI Financial Corp. is registered as an advisor or a dealer in securities and/or futures and options. Any distribution or dissemination of this in any other jurisdiction is strictly prohibited. Past performance is not necessarily indicative of future results.

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December 4th, 2017

Posted In: Victor Adair Blog

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