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April 18, 2020 | Trading Desk Notes April 18, 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

Nasdaq 100 futures went green YTD this week…up ~35% from their March 23rd “max panic” lows…while the Russell 2000 is still down ~25% YTD even though it rallied ~30% from its March lows. This is a classic inter-market relationship…tech stocks (and especially the Big Names) have blown away small caps since the “V” shaped recovery began a month ago…but wait…tech stocks have been blowing away small caps for years and the out-performance has gone parabolic this year.

When you look at this ratio chart of Nasdaq 100 / Russell 2000 do you want to buy the spread (the Nasdaq 100 keeps outperforming the Russell) or sell it (the parabolic trend blows out and Russell takes revenge on Nasdaq 100?)


This chart is actually a Rorschach test that give you a glimpse into how you see the world. There’s no right or wrong answer. I know when I see a chart like this I’m looking to be a seller. But I have to be careful because (as Bob Farrell says,) “Exponentially rapidly rising or falling markets usually go further than you think…but they do not correct by going sideways!”  

Here’s a gold / silver ratio chart. Gold has been outperforming silver for the past few years but the trend has gone parabolic this year. Some people say gold has never been this rich relative to silver…at least for the past few hundred years. BTW…the gold / copper chart looks similar.




Here’s the gold / WTI crude oil ratio chart. It shows that it takes 93 barrels of WTI to buy one ounce of gold today. Last April it took  about 20 barrels.


What can we learn from these ratio charts? Well apparently something big happened this year…something nobody saw coming…and that probably caused a lot of emotional over-reaction in markets. Perhaps we should be looking for mean reversion trades.

I like mean reversion trades. I don’t trade economic forecasts…I trade market psychology and I try to gauge that by watching price action especially in relation to current “news” or “opinion.” For instance, I shorted gold this week after it made a new 8 year high.

My idea was that “news and opinion” had  overextended the gold price advance…it was up ~$200 in 9 days…so I watched for some kind of failure on the charts. I sold the “double top” (on this 120 minute chart) on April 14…got stopped on the April 16 rally but re-shorted when there was no follow through to the rally…but covered too early at the end of the week. Trading, as I keep saying is not a game of perfect!


The first thing I want to gauge is whether market psychology is risk on or risk off…then I looked for opportunities in different markets to position accordingly. For instance, at the end of last week I thought “risk on” might have legs so I stayed long EUR into the weekend…but it could just as easily have been long CAD, MEX or S+P.


“Risk on” psychology did continue into this week and I traded Stock indices and currencies accordingly but I thought the gap higher in the Thursday overnight session was overdoing it and when stock indices fell back from their overnight highs I shorted Russell…but got stopped as stocks rallied hard into the Friday close.


Given the horrible economic and virus “news” it’s obvious that the “risk on” psychology doesn’t have to “make sense.” Opinions about where the economy or the virus might be in 3 or 6 months may be “interesting” but from a trading perspective they are dangerous given that if you believe them you might hold onto a losing trade far too long.

Some people really want to be “right” in their “beliefs” about “why” the market is going to go up or down.  For instance, back in early 2008 there were a few Big Name people predicting that WTI was going to go to $200 or more. When it dropped from ~$147 to ~$30 in a few months they went down with the ship.

These days the bearish stories on WTI are very convincing...and may be right. Maybe the production cuts relative to the demand destruction are way too small and we really will run out of storage space and the market will go “no bid.” Front month May WTI hit a new 18 year low Friday ~$17.50.


But the “super contango” forward market has September WTI at $32…a premium of $14 to front month May. This premium may imply that demand comes back big time over the next couple of months and/or supply really gets cut back. Or maybe “something else” is being priced into the forward markets. For instance, what if Tariff Man shows up? What if Trump decides that he really needs the votes from the oil states and puts a tariff on imported oil to sustain “American energy independence”…in the interests of national security?  Think it couldn’t happen? Think again.


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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April 18th, 2020

Posted In: Victor Adair Blog

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