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October 12, 2019 | Trading Desk Notes October 12, 2019

Victor Adair, author of The Trading Desk Notes, began trading penny mining shares while attending the University of Victoria in 1970. He worked in the mining business in Canada and the Western United States for the next several years and also founded a precious metals trading company in 1974. He became a commodity broker in 1977 and a stock broker in 1978. Between 1977 and his retirement from the brokerage business in 2020 Victor held a number of trading, analytical and senior management roles in Canada and the USA. Victor started writing market analysis in the late 1970’s and became a widely followed currency analyst in 1983. He started doing frequent media interviews in the early 1980’s and started speaking at financial conferences in the 1990’s. He actively trades his own accounts from The Trading Desk on Vancouver Island. His personal website is


This was a perfect week to be reminded that trading is not a game of perfect. I was long stocks and crude and short gold early in the week…got cold feet and bailed out with tiny losses just before those markets moved hard against me. I was happy to have played just-in-time defense. But later in the week those markets reversed and my positions would have been golden…if only I’d kept them. But I have no regrets. Bailing out when I did was the right thing to do. I ducked a bullet.

I sold TNotes and shorted the US Dollar as stocks began to rally from their mid-week lows as sentiment turned friendly on the US/China trade talks. I took those positions instead of buying stocks and shorting gold because, 1) they appeared to have much less s/t volatility and, 2) I liked the charts. I took profits on my short TNotes and added to my short USD position going into the weekend.

Stock Indices: At the beginning of the week I told my son Drew that a breakout to new highs would amaze a lot of people…and a lot of people who were under-weight or short would have to buy new highs. The option skew was very bearish…OTM calls were cheap compared to equidistant OTM puts. The prevailing story seemed to be that a recession was coming…earnings and earnings multiples were going to fall…money was flowing out of stocks…insiders were net sellers…China and the US were going to keep banging heads…stocks were going to tumble…forward thinkers were going to sell in anticipation of Elizabeth Warren becoming President. Maybe. I don’t know. If stocks tumble I hope to get short at the right time…but a breakout to new highs would amaze a lot of people. BTW: APPL hit a new ATH Friday.


Interest rates: About a year ago the prevailing wisdom was that the Fed was going to be increasing s/t rates in 2019. Since then US s/t rates have TUMBLED ~150bps, yield curves have inverted, the global supply of negative yielding debt hit a high of ~$17T (even Greek s/t paper went negative!) and this week the Treasury auctioned 30 Year bonds at an All Time Record low yield of 2.17%. Capital flow into bonds/bond funds has been a tsunami. The thinking seems to be that the global economy is headed for a recession, central banks will take interest rates down and resume QE….that interest rates can’t possibly go up because there is WAY too much debt and debt service costs would soar and put the economy right back into recession. That may be the way it works out…and if it does I’ll be buying bonds. But I remember Paul Volker and high interest rates back in the early 1980’s and how nobody wanted to buy bonds because inflation was raging and yields were going to go higher and higher.

One of my favorite bearish chart patterns is a high followed by a lower high…like we have in the bond market.


The US Dollar: I’ve generally been US Dollar bullish for the past several years. Relative to the Canadian Dollar I’ve been US Dollar bullish for a decade. But I’m beginning to change my mind. I’m probably early, like I was in 2001 – 2002, but right now I’m looking for opportunities to short the USD. This week the GBP rallied on Brexit relief. I wondered if that could also give EURUSD a lift…and EURCHF…and EURJPY. EUR has been a dog…it’s been trending relentlessly lower Vs. USD, CHF and JPY for nearly 2 years….for all kinds of good reasons! But…a breakout from that downtrend could trigger a lot of short covering. The New Zealand Dollar also has my attention. The net spec short position and total open interest are both at All Time Highs. The NZD is vulnerable to a sharp short covering rally if the USD stumbles.


Gold: In the mid-1970’s I used to carry a 1 oz. wafer in my pocket and show it to people and tell them they should buy gold. I remember holding a 100 oz. bar of gold in my hand back then (it was amazingly heavy…about 7 pounds and was only as big as a package of cigarettes) and was amazed to realize that it was worth more than a top-of-the-line Cadillac! I’ve traded gold bars, gold shares and all kinds of golf futures and options over the years. I’ve probably made more money buying gold that shorting it…but I couldn’t say for sure. People buy gold at different times for different reasons…last year at this time speculators were actually net short gold on the Comex futures exchange for the first time in over 10 years. Recently they’ve had their largest ever net long position at ~$42Billion. Global gold ETF holdings are also at record highs ~$130Billion.

Gold historically moves opposite to the USD...but over the past year or so gold and the USD have generally risen together with gold going to All Time Highs against a number of currencies. Gold and bonds have more-or-less rallied together since last November…it seems that falling nominal and real interest rates and the growing stack of negative yielding debt has been the main driver of the gold price. I understand why people think gold prices will keep going up, and why some people think you should own gold regardless of its price, but from a short term trading point of view I think it’s vulnerable to a correction here.



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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October 12th, 2019

Posted In: Victor Adair Blog

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