August 17, 2024

 A NEW TRADE

I AM BUYING THE “LOONIE”

As the futures markets are inherently volatile, one of my market scanning disciplines is to look for markets that “have done nothing for a long time,” or have  notably dead sideways, in that lengthy consolidations are quite often followed by LARGE ONE DIRECTIONAL MOVES…And to me, that IS what being in great trades really starts with…i.e., figuring out if there IS a direction, and if you think it could be a big move, and then going with it…AND I VIEW THIS IDEA AS EXACTLY THAT. I AM BUYING THE CANADIAN DOLLAR.

What I’ve written forever is that major price changes in all of the markets are mostly a function of traders getting in…and GETTING OUT of markets…of the trading masses chasing ideas to the point of totally overloading the boat on one side of the market…and then having to “flee” as the trade goes wrong…And specifically, in today’s world of fund driven MONSTER bucks sloshing around the markets, an almost common occurrence has become seeing all that fund money unanimously pile into a trade, and then suddenly find it necessary to exit…again, in MONSTER numbers…when “everybody is in,”…and that market makes what I’d say is an almost inevitable reverse…and the losses start mounting. And simply stated? When you have a TON of money gone wrong, EVERYBODY GETTING OUT IS WHEN YOU OFTEN SEE BIG PRICE MOVES…as, believe me, markets DO tend to move a lot faster when the FEAR OF LOSING MORE MONEY is the driving force in making trading decisions…

And all of the above describes what I see just beginning to happen in the Canadian Dollar.

These first two charts present the undeniable case that “everybody” is HEAVILY Short this market…and about, I think, to get it handed to them…

 COMMITMENTS OF TRADERS – THE FUNDS ARE MORE SHORT THAN THEY HAVE EVER BEEN…ABOUT TRIPLE THEIR PREVIOUS RECORD SHORT.

OPEN INTEREST…THIS CHART SHOWS YOU WHEN THEIR SHORT POSITION WAS “BUILT” AND HOW HISTORICALLY BIG THE POSITION ACTUALLY IS…

So, what you have had here is a massive influx of speculators on the short side since early March somewhere from 7350 down to the 7200 lows…which basically argues that there are a ton of shorts that will be losing money if/as this market starts trading up through 7350…

Make no mistake, what you see above, as one sided as it is, does NOT axiomatically mean that a rally is imminent, or even that I will be right…And if I am wrong, you will almost certainly lose whatever you invest…There are NO Holy Grail indicators in futures, but from experience, I do know that Commitments and Open Interest data DO sometimes provide solid “clues” as to what to expect in this GAME of “guessing the future.”

Another Reason I LOVE this trade…

And on a very directly related note, ANY time I get involved in trading the currencies, I remind myself of several quotes, made by Alan Greenspan while he was Fed Chairman…when he was absolutely at the top of the economic information chain…and when he had more experts, computers, financial data and economic information at his disposal than anyone else on the planet:

(Do note that the term “exchange rates” refers to international currencies…that where you see “exchange rates,” you could substitute “currency values.”)

“I would like to raise a technical issue and a flag of caution regarding those forecasts—or, for that matter, any forecast of exchange rates. There may be more forecast of exchange rates, with less success, than almost any other economic  variable…Although measures such as real interest rate differentials, differential rates of productivity gains, and chronic external deficits are often used to explain exchange rate behavior, none has been found to be consistently useful in forecasting exchange rates even over substantial periods of one or two years.”

“Statistics have shown that forecasting exchange rates has a success rate no better than forecasting the outcome of a coin toss.”

So…What he is basically saying, generally speaking, is that NOBODY is able to predict what the currencies are going to do…and he’s pretty point blank about it. And again...THEREFORE…ANY time I can see that there is a major consensus has been built regarding ANY of the specific currencies, in this MOB PSYCHOLOGY GAME, I am extremely comfortable in taking the opposite side…In other words, in this specific case, all of those speculative short positions have NOT been taken due to some random factor…All of that money has been bet on some supposedly “logical” and UNANIMOUS premise in a market sector in which Greenspan, paraphrased, has stated, “NOBODY IS RIGHT.” Again, regardless of what you might have thought of his policies, if he says, “Hey. Nobody at my level knows!”, I think you can go with that…

I LOVE THIS TRADE....It has big leverage and a lot of time...

What I also love is that it has already made the turn…that it already appears to be heading higher…And all those Spec Funds are STILL very Short.

Here are a few options I like…Right here. Right now…as in Monday morning.

Updating other market recommendations...

Cattle Complex

Corn and Soybeans

With new lows last week in Corn and 50 CENTS LOWER new lows in Soybeans, farmers are getting hit HARD in the wallet, and I continue to think this will only spur BIGGER and BIGGER sales of the record stored Corn and Soybeans they are holding. With yesterday’s dead low closes, I certainly don’t know but I would not be surprised to see Sunday night and Monday morning be sharply lower as the selling picks up. Some degree of LOST MONEY PANIC MUST BE SETTING IN.

I CONTINUE TO RECOMMEND BUYING PUTS IN CORN…In Soybeans, we are mostly still just sitting on our existing shorts…with the exceptions of more aggressive traders (like myself), where I still recommend  adding puts.

Enough for a Saturday…ugh! Hate doing this but a lot is happening.

Call if you want to do anything with any of this…

Thanks,

Bill

770-425-7241

866-578-1001

All option prices in this newsletter include all fees and commissions. All charts, unless otherwise noted, are by Aspen Graphics and CRB.

The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Canadian Dollar, Feeder Cattle, Live Cattle, Corn, Soybeans