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February 1, 2020 | Trading Desk Notes February 1, 2020

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

Market psychology turned decisively “risk off” this week with many global stock indices hitting YTD lows…the “looming recession” idea is back in vogue as analysts factor in the knock on effects from the coronavirus hitting an already weak global economy.


Last August the major American stock indices broke down from ATH when the “looming recession” idea gained credence. Capital fled to the bond market. US Long Treasury yields dropped to All Time Lows and the global “stack” of negative yield bonds hit a record high above $17T. Yield curves inverted and the USDX rallied to a 2 ½ year high.


But around the beginning of September a number of markets reversed course as the “reflation” narrative began to get a following. (I wrote about the Sept 3rd Key Turn Date several times last fall.) For the next 4 months stocks and commodities trended higher while bonds and the US Dollar trended lower. The global “stack” of negative yield bonds shrunk to around $12T and yield curves returned to a more normal configuration.


It’s now looking like there was another Key Turn Date around the beginning of 2020. Since then bonds and the US Dollar have generally been rising…commodities have generally been falling…and now the stock market is also turning lower…the “looming recession” idea is back with a bang as analysts factor in the knock on effects of the coronavirus hitting an already weak global economy.


I use the emini S+P futures contract as a gauge of “risk on/risk off” market psychology. It’s choppy…emotional…and full of “noise” but that’s what I watch. There were a couple of powerful headline driven short term rallies on Tuesday and Thursday this week…don’t ever underestimate the power of the BTD forces…but the market has now closed red 2 weeks in a row for the first time since September (and remember…it then rallied for 13 of the next 15 weeks!)



My key chart point on the S+P is the overnight low made when the Iranian missiles hit American bases in Iraq and the CNN commentators were talking WW3. As I wrote previously:

The S+P Tuesday overnight low of 3181 basis March is now a Pivot point that “should” act as a serious support level for the market. Look at it this way…if that’s the worst hit the market could suffer when it looked like war was going to break out what would it take to drive the market below that level? Or…look at it this way…if that support level is broken then the S+P might be setting up for a much bigger tumble.



I think that S+P Pivot Point is all the more important because last week the bonds blew right through the Pivot point they made when the missiles were flying. Las week I wrote:

So what’s going on with the bonds? First let’s drag out the old chestnut that the bond market is WAY smarter than the emotional stock market. So while the stock market was enjoying a giddy run for the roses the belt and suspender types in the bond market were seeing signs of slowing economic growth and were hunkering down. Maybe the bond market senses that a slowing economy increases the chances of a Democratic win come November.




Copper hit a 2 ½ year low and then turned higher on the Sept 3rd KTD but has tumbled 9% since mid-January (closing red for 12 consecutive days for the first time since 1971!!) on prospects of shrinking Chinese demand.


WTI crude oil spiked above $65 on the Iranian missile attack (creating its own Pivot Point) but then fell back $6 later that day as both the USA and Iran appeared to back away from escalation. The sell-off continued and intensified the past 2 weeks on speculation that the coronavirus would lead to less global demand. WTI fell >22% from the missile attack highs to this week’s lows. Selling pressure was likely intensified by selling from speculators who had aggressively bought the market October through January. Exxon shares closed this week at a 9 year low.


A strong US Dollar and a slowing global economy are a deadly combination for EM currencies and stock indices (especially considering that they carry $9T in USD funded debt) and the JPM EM FX index is at risk of breaking to multi-year lows. The Australian Dollar (and New Zealand Dollar) are especially under pressure given their ties to China and often trade similar to the EM currencies.


The Canadian Dollar hit 14 month highs at the very end of 2019 in thin trade but has fallen steadily YTD in line with the stronger USD, weaker commodity prices and a more dovish Bank of Canada. I’ve been shorting CAD this month but I’m flat at the end of the week.



My short term trading: I came into this week short CAD, MEX and long YEN and took profits on those positions. I bought both put and call options on the S+P at different times this week as the market chopped around and came out marginally ahead…but left a ton of money on the table. My main motivation this week was to “keep my risk down” given headlines could blow up either a long or short position 24 hours a day. I’m flat at the end of the week.


It “feels” like nobody wants to be long into the weekend in case the “bad news” intensifies and markets gap lower on next week’s opening like they did this week. So if there is no “bad news” or if there is “good news” markets could gap higher on next week’s open. I don’t want to take either side of that trade!


My son Drew Zimmerman and I use the futures market to trade currencies, metals, interest rates, stock indices, energy and other commodities. Please give us a call or send us an email if you’d like to know more about trading futures.

Victor Adair

SVP and Derivatives Portfolio Manager

PI Financial Corp


  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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February 1st, 2020

Posted In: Victor Adair Blog

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