Disliked{quote} Hey Fader123 Spending that time reading is key to my edge as you seem to relate to. Not many retail traders will understand this let alone identify it as an edge.Ignored
I personally use a slightly different approach as I am often unable to trade after the news in its direction, given liquidity constraints for the size I need to move around. Usually the only way for me is to be the one who is providing liquidity / fading the spikes, if I think it makes sense given macro / sentiment and technical considerations.
There are a few things I am looking at at the moment and a few trades that I like. I am a swing trader, looking for larger moves in general while being very active and managing my risk / position sizing dynamically on shorter timeframes. I trade multiple assets from rates, credit, FX, and their derivatives - futures / forwards, options and CDS. That's why what you described about looking across the spectrum and following everything from commodities to equities is very close to me, as it really allows you to understand how the markets click together and that you can find many opportunities looking at correlations and short-term mispricings that occurr very often.
Now the ideas - happy to hear everyone's thoughts. I am not going to go into deep details on the reasoning as I would probably need to spend an hour writing this, but in summary:
US stocks / General risk appetite to rebound starting probably tomorrow
- Extremely positive seasonal period for stocks ahead of us
- US midterms are coming soon - currently the market is pricing a very marginal chance of Republicans taking both the House and the Senate -> that would mean pricing more fiscal stimulus which is positive for risky assets. There is a potential for re-pricing of this probability in my opinion as Trump's approval ratings are rising consistently and pre-voting in 5 important "coin-toss" states is showing Republicans being more enthusiastic.
- Historically, around mid-terms (in the period of 1 month before until 2 months after) only 1 out of apx 30 occassions has been bearish on US stocks, with median return of 10%
- Month-end to be technically supportive - given the moves in stocks vs moves in govie bonds, there should be significant demand for equities driven by pension fund month end rebalancing
- A big part of share repurchases (buybacks) have been mostly stopped in the last few weeks because of the earnings season black-out period. This and next week, many large companies are coming out from this black-out period and the largest source of demand for stocks this year - the buybacks, will start resuming.
- We have Facebook and Apple earnings this week, with expectations being rather on the low side given recent dissapointments elsewhere. Possibility of a positive surprise there?
- The market is oversold in the short-term and technicals have been mostly cleared out (market participants are mostly bearish, quant driven funds like CTA, Vol Target, Risk parity have de-risked already)
If the above happens (my base case), that should mean:
- I am looking for opportunities to get long USDJPY (maybe AUDJPY too) tomorrow - it correlates very well with risky assets, at the same time US govie bond yields should resume the march higher - also correlated to USDJPY. I think chart still looks constructive here as long as we remain above 110, and would be looking for targets towards 118.
- I remain short EURUSD, have had that last 2 weeks - makes sense macro wise given macro fundamental / growth / central bank policy divergence between EU and the US. I like it as long as we stay below 1.1460 which is a nice level to add. The longer term target would be towards 1.0750 which is a post Macron election gap. I will be trading short term price action around, but with a general bearish bias.
- I do expect a general USD strength into year end / mid January, because the rest of the world is slowing down, FED remains hawkish, price momentum is very strong, it is a trade that seems "underowned" on the institutional level and there is a lot of space for people chasing it higher. But I think the main source of flow is going to be another leg of USD repatriation from abroad that will increase the pace in my opinion - many of these decisions on the corporate side are especially made into year end to make sure the balance sheets are clear for end of year reports.
- I also bought some topside options on Cable as a hedge today as potentially positive Brexit news could mess up with my EUR lower view.
- Interest rates to start moving higher again, but not too much - we might make new highs but it seems the move there is soon to be over, finishing for this cycle before year end in my opinion.
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