Victor shares how The Gambler would play today’s volatile markets. Hint: You’d better be nimble. 

“You’ve got know when to hold’em, know when to fold’em…know when to walk away, know when to run.” 

I started this week with all of my trades going against me. I was short CAD and NZD and long puts on Gold and WTI. I was stopped out of CAD and NZD early Monday and I liquidated the Gold and WTI puts early Tuesday. I’d been money ahead on everything at the end of the previous week so the net losses were pretty small…but they were losses all the same. BUT…it was a good thing I got out when I did…CAD and NZD jumped higher Tuesday/Wednesday, gold spiked higher mid-week and WTI just kept rising all week…gaining over $5 to hit 3 ½ year highs!

I make money when I’m going with the market…if the market is going against me I want out. The most important piece of trading advice I ever got was to cut my losses, and let my profits run.

The stock market felt “on edge” this week…who do you believe about Syria? Are the missiles going to fly? And then what? Where is Mueller going? What’s Trump going to tweet next? Did the “trade war” with China dampen down with Xi’s speech or is this just a lull before things get worse?  Price action was choppy and volumes were light.

The Canadian Dollar topped out with the US stock market in late January….fell ~5 cents to hit a 9 month lows in mid-March and has bounced back ~3 cents over the past 4 weeks. Maybe the market was too bearish at the mid-March lows…NAFTA worries seemed to lessen the past 2-3 weeks…the bounce back in the stock market seemed to help CAD and the 12% rally in WTI since mid-March has also helped. Western Canada Select has risen from ~ $34 mid-March to ~$51 now…a gain of ~50%!!   The Bank of Canada meets this coming Wednesday. (- Song Here)

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The US Dollar Index hit a 3 year low as the stock market was making All Time Highs in late January. It has gone sideways in a narrow range since. Futures market speculative positioning is heavily negative the USD.

US short term interest rates continue to grind higher. The next Fed meeting is May 2. Speculative positioning in the futures markets is heavily negative short term interest rates.

My short term trading: I’ve had a good run the past couple of months but I was obviously “out of sync” to start this week so “going flat” was a good idea. One of my main trading ideas the past couple of months has been that the stock market looks toppy after a 9 year bull run. I’ve been shorting “bounce back” rallies that ran out of steam. I thought this week’s low volume price action looked like a weak “bounce back” rally and when the S+P made new highs for the month on Friday and then rolled over I bought OTM puts. The weak Friday close may simply be a case of people not wanting to buy ahead of the weekend…or maybe it signals weakness ahead…I don’t know. If the S+P trades up through 2,700 next week I’ll liquidate my put with a small loss but if the market drops below 2,600 it could build downside momentum.

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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

Tech investment expert Blake Corbet has some buy recommendations and what stocks to drop like a hot potato after the revelations about Facebook and other companies harvesting and selling your personal data makes waves throughout the world. What should you be selling? Where are the opportunities as FB and others get hammered?

….also from Michael: Federal Liberals Blackmail Canadians

Each member of the younger generation set to inherit a minimum of $113,000 in Federal, Provincial and Pension debt, so it’s no wonder they are going to have a problem finding money to buy a home. Where is our Politicians angst about that?

….also from Michael: Beware the Informed Voter

Michael’s Guest James Thorne who manages billions explains current market risk, the current decline and where and when to take advantage of the next opportunities that will last for the next 3-4 years. 

….also from Michael: A Hall of Fame Bad idea

Live From the Trading Desk: Victor had a big week capturing the huge move down in the US Stock Market & profitably closing out a short Canadian Dollar position. He remains short the Stock Market, sees something going on in the Crude Oil market, & explains how he intends to manage risk – R. Zurrer for Money Talks

Transcript:

I started this week with short positions in CAD, Gold and the S+P. I took profits on the short CAD when it started to rally late Tuesday on news that the US was “softening” its NAFTA position on auto parts. I liquidated my gold position for a small loss on Wednesday when spot gold traded above $1325 and I remain short the S+P with a combination of option positions.

The Canadian Dollar tumbled >6.5% from the end of January to Monday’s lows. It had closed lower for 5 out of 7 weeks and hit a 9 month low. It just about registered a Weekly Key Reversal Up this week. I liquidated my short position on the NAFTA/auto news because the market had been very focused on Canada’s vulnerably to Trump’s protectionist bombast and any “let up” could trigger a rally in an oversold market. I was also puzzled by the bid in the crude oil market the last 2 weeks (in the face of stock market weakness) and I thought CAD could benefit from rising crude. The USD feels “heavy” ( the Yen is at its highest levels since Trump’s election) despite the HUGE American interest rate premium over other currencies and if the USD falls from here that would give CAD a lift.  I maintain a bearish view on CAD…I’m just not short at the moment.

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The gold market was under pressure last week and looked vulnerable…I had a bullish view on the USD so I bought gold puts. On Tuesday of this week gold closed at its lowest price in 3 months and I expected it was going to take a tumble…but it turned higher on Wednesday and I bailed out. This week the US Dollar Index registered a Weekly Key Reversal Down while gold registered a dramatic Weekly Key Reversal up.

I bailed out when gold started to rally because I believe that trade selection is only a small part of successful trading…risk management is much more important…and the first chapter in the book on risk management is, “Cut your losses and let your profits run.”

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The US stock market had “rolled over” Monday/Tuesday last week…a move I had been waiting for…so I bought S+P puts but by the end of the week I had a “low conviction” level on the trade because the market hadn’t broken down. Thankfully I stayed with the trade and my unrealized gains are now many times the size of the loss I took on my gold trade.

My view on the US stock market has been that the big break from the late January highs was not a “Buy The Dip” opportunity but was likely the start of a “sentiment change” and I’ve been trading stocks from the short side. I’m of the view that the market makes the news, not the other way round. The “Facebook fiasco” the “changing of the guard” in the White House, the “Trade Wars” headlines, the new “Powell Fed” are all things that hit a market that was already on its way down from a very overextended top.

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The crude oil market rally the past 2 weeks has puzzled me. I’ve made some pretty good money trading WTI from the short side over the past 4 years and my bearish bias is hard to shake. I find it VERY interesting that crude has been rallying the past 2 weeks (WTI is up ~10% from last week’s lows) while the stock market has been falling. Since last summer WTI and the S+P have moved up and down pretty much in harmony…but that has changed dramatically.

I’m always watching inter-market relationships and when I see them change I ask, “Why is that?” Could it be that “somebody” senses that the new “Bolton/Pompeo” team in the White House is going to re-sanction Iran? (MBS was in Washington this week.) Is there some other supply side shock brewing out there? I don’t know, but my gut instinct…and the chart pattern…tells me to NOT be short WTI now.