The Russia Bear Sharpens Its Claws. Sunday News, New York (1944)
Stuff discussed:
missing trades
the trades I’m in
the trades I’m thinking about
oil
I have been busy recently, at a time I would love to spend all day watching the markets. It is the greatest show on earth. If you don’t think that, shove your money with a decent financial advisor and get on with life.
Spending time away from the markets means:
not feeling how it breathes, leading to…
missing trades or forcing them
If you’ve got to force it, it’s probably sh*t, is a vulgar but true statement. Let the trade come to you is a common way of putting it. I like: 'is it the perfect entry?’
For a discretionary trader, being in a trade that was planned out and got tagged at what you identified as the perfect price is a great foundation for managing that trade well.
Getting into the habit of only taking perfect entries keeps you out of forcing a lot of sh*t.
It’s another part of the grind.
A planned second entry on USDCAD long….. Missed by about 25 pips and now 3.5% or so higher:
USDCAD long, showing the first entry (still running) and planned add-to, at 1.27.
My perfect entry (not so perfect, the market decided) wasn’t triggered - but at least I’m not chasing the trade higher - that was only one spot I could get in. The trade was planned, entry and stop in place, and position size managed. Job done.
And another - SPX target of 4322 from a few weeks ago:
Target short (red target symbol) noted for ‘end of August/ start September’ here
But….my timing was off by a few weeks and I was completing a second degree and then fishing (yup, jerk at one end of the line waiting for a jerk at the other end), when that perfect trade came in - wasn’t even looking at the charts to set it up.
Wasn’t watching the market breathe.
That’s OK. Give it time, there’s always another perfect trade coming around the corner.
My week(s) so far
Short USD
Dead in the Water
NZDUSD - stopped at approx 0.85% profit after going a decent chunk further - had chosen to trail the trade prior to entry; them’s the breaks.
NZDUSD daily with entry (green line) and in-the-market stop moves shown by arrows. The plan was to trail this loosely and take profit at the red target if it got there.
GBPUSD - closed out just before the ‘close of day’ stop for around -0.97% loss.
GBPUSD daily showing entry (green line). Cross is the manual exit taken.
The price on GBPUSD gave a big warning when the pump higher (large white candle middle-right in the chart) failed. The trade had been grinding about for a while; time to get out.
Short JPY’s….still trucking
I keep looking between bonds, Japanese inflation compared to, well, every other country with a Major currency, and the Yen.
The BoJ has a history of intervening when JPY gets extended one way or the other, but it’s tough to see why they would want to defend their currency, or at least to defend it more than currencies with 8%+ inflation.
The overall market is on its way to becoming a complete mess and when it does, volatility will smash most open trades out of the water, but Yen making another leg lower against most other currencies still seems like a decent bet. USDJPY blasting higher today adds credence to that argument.
The ride has been rough - the day after I opened AUDJPY and CADJPY, they took a dive. I closed out half of both, then price rebounded hard. The price action then looked better for the trades than when I originally entered them: I’ve added back in.
Excuse the mess.
CADJPY daily - first green line shows the first entry, red cross where 1/2 the trade was taken out, second green line where that half was added back in.
I’ll save you a similarly messy chart of the AUDJPY trade. So, around -0.88% loss for these two being 1/2 closed out. I’ve added that risk back in so a total 2.88% risked between these two trades. That’s getting quite chunky, given that stops in the market add it up to 4.88% risk.
However…I just can’t take my eye away from those bonds.
Sentiment is in the gutter for GBP, isn’t it?! While it’s hard to find a reason to get long GBPUSD (save for bottom picking), if it can even just hold on at these levels for a while, GBPJPY has hope.
GB10Y / JP10Y bonds - breaking higher.
I’ve taken a 0.5% risk entry (1% to the stop in the market) and have another 0.5% entry planned if price breaks higher.
GBPJPY daily, showing initial entry (first green line) and planned second entry.
All JPY shorts are trailing trades (if they get going), however, if there is a clear change in macro outlook (which will likely display itself in a significant bond rally/ bond yield sell-off), I’m allowed some discretion on the trailing exits.
The next few days:
Note on Oil
1- The base case during geopolitical turmoil should be that fundamentals matter less.
2 - If there is strong sentiment one way and this is because of fundamentals, (1) applies even more.
3 - Once the current geopolitical turmoil is resolved (one way or the other), tourist-speculators will leave the market and fundamentals will start mattering again.
It’s backward (and each to their own on these ideas), but the format has worked out well this year. As noted on Twitter- and I may have linked this previously - an old ECB paper on the matter: here.
And the next bit is the fun part.
Just when everyone throws in the towel on fundies mattering to oil price, it’ll start to matter again. And there’s a decent chance the reason to get bullish will be the reason many get out.
It’s hard to see a way for Europe to fix its energy problem without finding a way back into the Russian energy market. This seems improbable at the moment - but there’s a necessity there, and that usually run its course one way or the other.
If this happens - or there’s even a hint of this happening (Russia/Ukraine war goes on pause?), the natural reaction will be for Nat Gas and Oil to plummet. Just when the fundamentals start to matter. What a great time to buy.
Why would Russian oil coming back onto the market be bullish? Well, no one has a crystal ball but I’m thinking something like this happened…..
Expectation:
On the left, how things were in 2021. On the right - an oil producer heading into war usually = their supply shrinks and demand remains.
Reality:
What happened this time was Russian supply remained the same (well, about 3% lower by most estimates) but Europe took itself out of the demand side. Equals cheap Russian oil to China and anyone else willing to take it on.
China and India are the two largest importers of oil, and we have the two largest importers getting cheap oil that is plentiful as Europe has taken itself out of this market. Was this a recipe for oil to move significantly higher in early 2022 from an already elevated price? Nope.
Muhu, Europe has to get its oil from somewhere, but that is not enough to offset the loss of demand from China and India (and a bunch of other countries) for the more expensive stuff.
And the next step - what will happen if Russian oil starts flowing back to Europe?
In the event that Russian oil comes back online for Europe, this changes the supply-side picture minimally - it hasn’t changed this whole time. But it brings demand from Europe into a space that has been filling up.
Yes, it’s a complicated market and I know relatively little about it - but it was only a few months ago that I was being schooled on Twitter about how I ‘didn’t understand’ the SPR and was crazy to be short oil…..
All I know - this is a framework that makes sense and allows a bullish oil call just as everyone turns bearish, and most likely after oil is about ~40% from the highs. That’s close enough to a perfect entry to take the plunge if the market plays ball.
CL1 daily with the 2021 high and close and the potential entry around $76
I had thought about getting in at the 2021 high but the entry wasn’t triggered and the bounce that resulted from that area was weak - it’s no longer the perfect entry. $76 seems like a while away but I won’t have confidence in a long unless it gets extended around that level.
If this coincides with a development in the Russian oil market (Europeans won’t stand for the pain of their electricity bills much longer), all the better.
That’s all for now folks. Opinions welcome.
Be patient; trade well.