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March 8, 2019 | Trading Desk Notes – March 8th

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.

The DJIA fell ~1,000 points from last week’s high to this week’s low as sentiment turned “risk off” after a 10 week rally took the DJIA up ~4,500 points from its Christmas lows. My thinking has been that the slowing global economy would sooner or later cause the stock market rally to falter…even though the rally was inspired by the Fed making a 180 degree turn from hawkish to dovish…because the global economy was slowing!

The ECB surprised the markets this week with a more-dovish-than-expected decision to resume pumping cheap money into the Eurozone banking system…just 3 months after they had decided that such lending was no longer necessary. The Euro tumbled on the news.

The 10 week stock market rally off the Christmas lows had been showing signs of fatigue…Transports had turned lower 2 weeks ago and are now down 12 days in a row. Small caps and the EM Indices turned down along with the Transports and technical exhaustion signals across the major indices were flashing red. The Shanghai market, which had been racing higher recently, tumbled 4% overnight, it’s worst day in 5 months on reports of that China/USA trade talks were not going to produce a “deal” any time soon. The S+P 500 Index registered a Weekly Key Reversal Down this week, making new highs on the recent rally and then closing below the lows of the past 2 weeks.

The Treasury bond market rallied sharply this week on the ECB news, continuing soft economic reports and stock market weakness. The 10 year Treasury futures market registered a Weekly Key Reversal Up.

The US Dollar Index briefly hit a 20 month high this week as the Eurocurrency tumbled. The USDX has been trending higher the past year (up~10%) and I expect that trend to continue.

 

The Canadian dollar dropped over 2 cents from last week’s highs to this week’s lows as weaker-than-expected economic data gave rise to a more-dovish-than-expected tone from the BOC. The premium of US 2 year Treasuries over similar term Canadian paper went out past 80bps this week…a 12 year high. A strong USD, lower stock markets and lower crude oil prices helped pull CAD down. Political melodrama in Ottawa also hurt the CAD. Just a few years ago the CAD was trading at a premium to the USD…now it seems that 75 cents may be too high.

WTI  rallied ~$15 (36%) from its Christmas lows to last week’s highs but has set back ~$2 this week in sympathy with the stock market weakness. It’s been interesting to watch the correlation between the US stock market indices and WTI since last October…they’ve been up and down together in nearly perfect harmony.

Gold dropped ~$60 from its February highs to this week’s lows. The strong USD contributed to gold’s weakness but it also rose too-far-too-fast in mid-February (up~$45 in 4 days) when bullish sentiment hit an extreme of 90%…leaving it  vulnerable to a short term correction. Longer term, it’s been my view that the gold market began to rally last November as a “safe haven” from the falling stock market and the subsequent swing to Central Bank “accommodation.” Indeed, another round of monetary profligacy will be very bullish for gold! (Hat tip to my very good friend and premiere gold analyst, Dr. Martin Murenbeeld!)

 

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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March 8th, 2019

Posted In: Victor Adair Blog

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