Traders Have An Edge Over Investors

2019: Year of The Trader, Part 2?

As 2019 gets underway, it is clear that traders have an edge over investors. Not much was resolved in 2018 to offer perma-bulls an advantage. Sure, we are likely in the early stages of a rally, but I am not expecting it to last too long.  Trying to make longer-term forecasts at this point is a very tall order and does not make too much sense to me. Trader’s clearly are relishing this market action….it is long overdue.

I came into 2019 looking for a rally in the S&P’s. That forecast was put to the test immediately. However, when you line-up several factors to derive your forecast, it can allow for staying power when the market does not see eye to eye with you. And as we all know, just because you have decided to be long or short, it could take time for the market to move in synch with your view/forecast.

The decision to nibble on longs in the S&P’s during the last week in 2018 was rooted in:

  • Minimum downside target(s) met from an Elliott Wave and Fibonacci standpoint
  • Elevated levels in VIX that have historically pointed to a higher S&P 500
  • All-time highs in Put/Call Ratio….historically bullish
  • Valuation levels are attractive
  • 2-year yields = Fed Funds Rate….historically bullish

EXAMPLE:

Our other OPEN TRADES reflect a view consistent with our S&P forecast and the related markets impacted.

  • Gold futures or GLD
  • USD/CNH
  • EUR/GBP
  • 10-year notes
  • Oil futures or USO
  • EUR/USD
  • NZD/USD
  • SC
  • TSLA

Thinking in Bets

Annie Duke, in her book, Thinking In Bets, highlights an important point about poker players and traders. Neither group can possibly know EVERY possible scenario that will allow them to be 100% certain of their ‘hand’ or ‘trade’. At some point, you simply need to play the odds.

The odds strongly favored a rally in the S&P’s, that was all I had on my side. No crystal ball, no sure-fire indicator, just good old fashioned detective work and a willingness to make a bet…..regardless of the outcome.

 

 

 

 

 

 

 

 

Have a question for me? Just ask.

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