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March 28, 2020 | Trading Desk Notes March 28, 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

When I get a trade idea my first question is, “How much of this idea is already in the market? For instance, if I consider that the “virus news” could get worse next week I ask myself, “To what degree have the people who move markets already taken this idea into account? To what degree does the 4,000 point DJIA rally reflect an “allowance” for the possibility that the “virus news” will get worse next week? And if there has been some “allowance” for that risk then other factors have driven this astonishing rally…will they be sustained?”

I’ve read research/ opinion pieces this week that range from, 1) This is a once-in-a-lifetime buying opportunity to,  2) markets are going a LOT lower.  If I thought that either of those ideas had a good chance of being right then I could buy both put and call lottery tickets…one side would win BIG while the other side evaporated. Except of course, that Vol is sky high, bid/offer spreads are wide and the high probability outcome is that both positions would expire worthless.

Last week I wrote about why I pay attention to “the news” but trade price action.

For people with a bearish persuasion this week’s price action has been a dead cat bounce…a short-covering rally…a great opportunity to reload for another leg down. For people with a bullish persuasion this week’s rally has been a classic case of a market recovering from a brutally over-sold position, discounting a ton of negativity…a great buying opportunity.

Price action was “bullish” this week if I look at the market without a bullish or bearish persuasion. Markets are discounting negative news…stocks and commodities are bid…the USD is offered. That may change next week if “the facts” change…but for now that’s how it is.

The DJIA dropped to a 3 ½ year low Monday, down ~38% in just over a month. Aggressive action from Central Banks and governments helped reverse extremely bearish sentiment and the market rallied as much as  25% off the lows. Expectations of massive pension fund rebalancing (selling bonds/buying stocks) boosted bullish sentiment and obviously there was urgent short-covering…and FOMO buying.



Implied volatility on S+P futures peaked last week (ahead of the market bouncing from its lows) and fell further this week…but VOL remains very high on an historical basis.


US Treasury bonds closed higher on the week after WILD swings the past 2 weeks. This was a week when a lot of inter-market relationships “broke down” and it was interesting to see Treasuries remain bid even as stocks rallied hard. Perhaps the thought of the Fed buy ~$100Bn Treasuries a day discouraged sellers.


The US Dollar soared the last 2 weeks but was pummeled this week. If the last 2 weeks saw capital flowing to the USD for “safety” then perhaps that “flow” took profits this week as stocks rallied hard and a “safety” hedge wasn’t needed. Or perhaps the swap lines created by the Fed alleviated panic USD buying?


The CAD traded at a 4 year low last week hit by the triple wammy of, 1) the virus knock on effects, 2) tumbling oil prices…Western Canada Select at ~$8 and, 3) an ultra-strong USD. CAD rallied back this week as the USD fell against virtually all FX…with the market discounting “the worst” of the virus knock on effects.


the front month May WTI crude oil contract closed the week at an All Time Low as hopes for some relief from the “oil price war” were dashed. The big story in the crude market has been the huge swing in the forward market…with the December contract now ~$8 premium to June. In early January 2020 when Iranian/American tensions were high Dec traded ~$4 discount to June. This dramatic change in the forward curve from backwardation to contango reflects the market’s attempt to “price in” the supply/demand imbalance created by the price war.




WTI option volatility soared much more than stock index volatility over the past few weeks. Wholesale ROB gasoline prices fell even harder than WTI. The May futures contract traded below 50 cents/gallon this week…down from $2.00 in early January. Will Trump pressure Saudi Arabia to reduce production? He obviously has leverage and as much as he may like 50 cent gasoline he will need Texas votes come November.

Gold swung wildly within a $250 range the last 3 weeks while Open Interest in Comex futures fell by 1/3 from January’s All Time Highs.



My short term trading:  I came into the week with a bearish gold put spread and short OTM CAD puts. The unrealized gains in the gold put spread evaporated as gold rallied $200 Monday and Tuesday and I liquidated the trade for a small loss. I still hold the short CAD puts…fortunately premiums have evaporated and the contract expires next week.


I bought MEX on Monday and bought more Tuesday as a low risk play on panic subsiding. MEX had fallen >25% in just over a month…discounting a lot of bad news…and with bank deposits in Mexico paying ~7% interest I thought MEX would rally with the S+P. it did. I sold the positions Tuesday…too early as it turns out…but I made a nice profit on the trade…reminding myself that trading is never a game of perfect!



I shorted CAD after it rallied ~3 cents from last week’s lows but covered for a small loss when it wouldn’t break down. At the end of the week I bought 10Y Treasury call options…purely on price action as the market took out Thursday’s highs even though stocks had rallied hard from Monday’s lows.

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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March 28th, 2020

Posted In: Victor Adair Blog

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