Pride Goeth Before the Fall? – A Performance Review of 2021

It’s been awhile since completing a review of market calls made here at Marginrich.com.  As my general knowledge of market inter-workings and crowd psychology has refined over the past several years increasing in nuance and depth, now’s as good a time as ever.

Let’s start with accuracy percentage and a list of the articles with basic details.  Then I’ll provide a quick, detailed breakdown of each call afterwards down below.  We’ll work backwards from the most current post, skipping 2 posts where I don’t make any directional calls or predictions.

Nine of the 11 asset forecasts between December 2020 and December 2021 were correct, for an accuracy rate of 82%.  Stellar by any definition, especially for a free blog written in spare time.  Each forecast was actionable via options, futures, the underlying asset, or simply raising cash.

Forecasts:

1. Trading Brazil – 12/12/2021:  The Brazilian Real would strengthen against the US Dollar and Brazilian stocks were about to be re-rated higher. (CORRECT)

2. Options Markets Muting Signals – 11/20/2021:  Trapdoor underneath stock markets and potential for a large selloff in the near future. (CORRECT)

3. Insiders, Metaverse, and Options – 11/16/2021:  Options usage too extreme; quick & shallow selloff felt very close. (CORRECT)

4. I Can’t Fight This Feeling – 10/24/2021:  Commodities sentiment extreme and due for a selloff led by oil with a rise in the US Dollar. (CORRECT)

5. If Everybody’s Thinking Alike, then… – 9/13/2021:  Technically, I stated the cannabis sector looked as if it might be basing for a potential up-move.  I didn’t actually make a directional call, but I’ll still own it. Same goes for EWZ, for which I actually did make a directional call 3 months later. (WRONG)

6. Volatility Interpretation – 9/1/2021:  Volatility was about to show its face in stock markets. (CORRECT)

7. I Don’t Know Why I Talk About Crypto in a Public Setting – 8/30/2021:  Ethereum on the verge of another run upwards. (CORRECT)

8. The Best Part of Waking Up – 7/22/2021:  A correction in coffee was imminent. (CORRECT)

9. Bitcoin – A Quick Technical Read – 7/16/2021:  I thought BTC had one more puke-dip into the $20k range, anywhere between $21k and $29k.  Major whiff.  My article actually bottom-ticked that particular correction before BTC went on to return over 100% within 4 months. (WRONG)

10. Oil Taking Its Breather…Finally – 7/7/2021:  Oil correction had begun (not obvious yet) and XLE would sell off accordingly. (CORRECT)

11.  Beware the Secular Trend’s Short-term Counter Move – 12/28/2020:  The Euro/USD pair had reached an extreme point and a USD rally looked primed, which would coincide with potential fear-events in the equity markets. (CORRECT)

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So that’s the quick and dirty.  Keep reading below for a bit more detail and to view the charts better illustrating each forecast.  Each chart will have a yellow circle denoting the date the article was published.

Trading Brazil:

EWZ Performance

Calls on EWZ were the chosen expression for this trade.  Pre-tax return was 100% in less than 2 months.  While everyone has been focused on energy, I focused on an EM component that looked ripe to provide a kickstart to 2022 trading.

Brazilian Real Strenghening Against the USD

Real strengthening vs the USD.  Any reader could’ve bet futures here on the currency pair for a tidy profit.

Options Markets Muting Signals:

NASDAQ Performance

This particular article actually top-ticked the NASDAQ Composite, but I didn’t go short here.  Hindsight being what it is, I should have, but instead I simply raised cash levels for the opportunities that are currently availing themselves.

S&P 500 Performance

My focus was on the NASDAQ in this article however one has to include the S&P 500 if one is going to comment on general equity markets.  No top-tick as there was a bit more demand for the S&P 500, but within a matter of weeks, the trapdoor opened for this index, too.

Insiders, Metaverse, and Options

SPX Performance Turkey Day

You could almost smell the move coming, like a turkey basting for hours.  Then, Black Friday delivered a little fear for the unprepared.  No trade here as raising cash was the strategy, and the ensuing rallies assisted with that process.  Going short up until the past few months was a dangerous endeavor and understanding option flows was and is critical.

I Can’t Fight This Feeling

DBC Performance

That little 11% jaunt downward in the underlying ETF over the next month resulted in a 135% pre-tax return on simple Put purchases.  Of course, energy as a sector is a different beast entirely now, and along with inflation, the Russia/Ukraine conflict has put commodities front and center of the financial space again.

USD Performance

The US Dollar followed it’s typical anti-correlation to commodities by rising.  Since that initial run upwards, it has chopped in this uncertain environment.  I suspect the ultimate, long-term path is downwards for the USD, but that’s a philosophical discussion for another time.

If Everybody’s Thinking Alike, Then…

MJ Performance

Ugh, what else needs to be said?  This one is ugly.  To reiterate, I did not actually make a directional call or bet here.  I simply thought that the bear market in cannabis may be reaching a nadir.  But investors and speculators had other ideas as the market pounded this ETF for an additional 50% loss subsequent to publishing the article.

Volatility Interpretation

VIX Performance

The article literally bottom-ticked the VIX.  Unfortunately, I didn’t directly trade Vol here.  I used the ensuing volatility to pyramid some positions in the long portfolios.

I Don’t Know Why I Talk About Crypto in a Public Setting

ETH Performance

Those percentages in the chart above were from the publishing date of the article (yellow circle).  The actual moves were,  20% as annotated for the first ascent, then a quick 50% downdraft followed by a 75% spike.  If you ignored ETH in 2021, or crypto period, then you missed some of the best trading opportunities of the year.

The Best Part of Waking Up

Coffee Performance

Coffee was the gift that kept on giving for about 4 weeks in late July through late August, before squeezing out of an old school pennant to what seems like non-stop upside.  The initial trade was simple Puts on the JO ETF for a 40% pre-tax return in a week.  Then I was able to scalp 20% in a week out of JO with some Calls before finally squeezing the last bit of Put juice for 10% in a week before THE breakout in coffee.

Subsequent to those trades, I did overestimate the extreme in buying-sentiment and underestimate the impact of the freeze in Brazilian crops.  Consequently, I gave back a bit of the profit with additional Puts and failed to capitalize on the ensuing multi-month rally as a result of my bias.  All additional lessons at a fair tuition price.

Bitcoin – A Quick Technical Read

BTC Performance

I darn near bottom-ticked BTC with this particular forecast.  So wrong!  As BTC goes, so goes the crypto markets so it wasn’t long before I was pursuing the other opportunity as noted above.  As has been said countless times by countless players, trading is all about managing risk (control losses & maximize gains).

Oil Taking Its Breather…Finally

WTIC Performance

Oil (West Texas Intermediate) was overdone.  I top-ticked the high in July on the day of publishing and was fortunate to estimate an unsurprising 20% sell off in the commodity.

XLE Performance

I favored Puts on the XLE as the expression for this trade and the market rewarded me with a 100% pre-tax return in under 8 weeks.

Beware the Secular Trend’s Potential Short-term Counter Move

USD Performance

I published this article in the midst of what felt like virtually everyone expecting the “obvious” demise of the USD.  The dollar’s imminent demise down into the $80’s has since proven to be fallacious logic.  Its haven status as the world’s reserve currency has kept it afloat and demand will probably keep it there for some time until internal and external geopolitical/economic events shift perceptions and capital flows.

Euro Performance

Once again, the anti-correlated pairing could’ve provided currency traders with an exceptional opportunity.  Admittedly, I failed to take advantage of this potential trade with a currency pair expression.

S&P 500 Performance

What I did do was expect more intense volatility.  As such, I purchased hedges which ended up costing me insurance premiums as the S&P 500 simply chopped for a month before continuing onward and upward.  Sure, I was correct about some volatility but wrong about the amplitude.  Still though, I contend that the price paid for peace of mind was worth it.

It’s my sincerest hope that if you’ve read this full performance-review that my skills and experience are apparent.  I’m not some wannabe, greenhorn daytrader posing as a professional.  Although I mostly showcase my technical analysis skills here at the site, I’ve honed my fundamental analysis skills for all asset classes and sectors.   Over the last 20 years, I’ve poured my heart and soul into building an amalgamated skill set around a professional-level understanding of investing, finance, banking, currencies, economics, accounting, business operations, sales, geopolitics, crowd psychology of markets, leading/managing/coaching, and asset management.

Now I’d like to test those skills in the appropriate arena.  If you’re here just to have a read, I hope you’ve enjoyed.  I’ll continue to intermittently share actionable thoughts.  But if any readers from the professional, financial space are interested in how I can benefit their organization, please don’t hesitate to reach out.  Email address is listed at the menu button in the upper-right of the screen.  My LinkedIn profile can be accessed at the About page by clicking the hamburger in the upper-left of the screen.

Here’s to a fruitful 2022 for any and all readers of Marginrich.com.

The Best Part of Waking Up

The Best Part of Waking Up Attention Grabber

Wow, what an ignition for coffee.  This all-important soft has shot up a rough 20% in three days as of today.  That’s smoking momentum.

Props to those who are grabbing or grabbed a piece of that squeeze.

However, capital is nervous these days.  One can feel it across multiple asset classes and sectors.  That general nervousness could cause capital to quickly shift out of coffee and into some other asset bearing a superior portfolio correlation.  The move this week feels like a firework as opposed to a rocket headed to the moon.

FinViz Daily ChartFinViz Coffee Daily (7-22-2021)

And fireworks fizzle out.  Now maybe this is a legitimate breakout.  Destination?  Moon.  I don’t identify as a commodity market expert in any futures category so there are definitely legitimate fundamentals factors that I’ve spent zero time assessing.

In fact, I don’t identify as an expert in anything.  I just like to surf the swells of extreme price action across various sectors and assets classes.  Simple as that.  Sometimes I win big.  Most times I lose small.  Just trying to net higher and higher.

Let’s zoom out to a monthly chart of coffee (FinViz Monthly with COT).  The blue circles below show every time the big-money, savvy traders get a bit out over their skis against the smart-money commercials.

FinViz Coffee Monthly (7-22-2021)

Over the last 16 years, it would’ve paid to heed this signal more often that not.  In 2010, it was a total bust during that commodity super bull coming out of the GFC.  But other than that, futures and options would’ve paid out nicely betting on a sharp change in trend.

I’m a simple man.  Simple mind.  Simple life.  Simple trading tactics, and Puts on the JO ETF could provide a solid reward to risk if a reversal is essentially imminent.

The spreads suck, but there’s enough liquidity.  If coffee is to see holders start grabbing profits just as fast as they’ve made them, then the zone highlighted in yellow below looks like a logical place to explore opportunities.

Stockcharts Coffee Weekly (7-22-2021)

Ideally, we’d like to see profit taking tomorrow (Friday 7/23/2021), in order to add a wick to the top of the current weekly candle.

Again, beware of that price action in 2010.  And the Great Mother asks you to kindly stop brewing your morning drug with single-use plastic pods.

Sneaky Suspicion

Today, tomorrow, and Monday.  That’s all we have left of the 2018 year in equities.  This bipolar market has even the professionals pulling their hair out; Monday’s despair vs. Wednesday’s relief.

Here’s how I think the S&P500 plays out to end 2018 and you can take advantage whether you’re a short-term trader or a long-term investor.  These are just gut-guesses that also influence my own decision-making process.

Thursday (12/27/2018) – I suspect we’ll get a flattish (up 0.25% to 0.50%) day.  But the pros are smart and they’re going to harvest their tax losses and perhaps perform some year-end window dressing

Friday (12/28/2018) – Down between 1.25% and 2.8%.  This will freak out entrants who will feel they waded back in too early.

Monday (12/31/2018) – Down 3.5% to 4.9% and we erase Wednesday’s recovery.

I can easily see the skilled timers across all genres of the investor universe using the unskilled timers for lipstick-on-pig returns to dress up their 2018 performance against the damage of Q4. 

Then get ready for a great H1 2019.

Another Bounce or Not

Hmmmm.  What to do in a market like this?

For your long portfolios, my advice would be to sit tight.  The odds are strong that we’re in a multi-week bounce before another little shakeout.

SPX Thru 2018 Holidays (Nov. 2018)

I’d suggest getting long after the next move downward.  Market behavior suggests a rally into 2019.  It could be the start of the final leg of the melt-up as “late-cycle” keeps getting bandied about out there.  Over the past few years, the drill seems to be a quick move down followed by the exhaustion-bounce followed by another move downward before regaining the up-trend (weekly charts).

For the contrarians, it’s hard not to look at China and energy as two obvious areas for medium-term plays.  If you play in the markets at all, I don’t need to throw up charts to illustrate the performance of both sectors of late.  Tencent and JD could be easy moneymakers.  And the energy toll roads can provide a nice yield along with cap. gains on an oil bounce over the ensuing months.

EPD has the infrastructure footprint and financial efficiencies that begs for yield-starved investors who’ve been waiting for a better opportunity for entry.  However, the company’s price remains quite steady in the $20 to $30 range.

Oil’s price action looks exhaustive.  Fundamentals appear to bear out an inexplicable magnitude of this sell-off.  If institutional traders on the wrong side are able to quickly offload positions, then there may be enough support by energy bulls to resume an up-trend without extreme volatility.  I remind energy traders of what we saw in H2 of 2016.

I liked the Starbucks story, but it quickly got white-hot before I could position with my long portfolios.

SBUX Retrace (Nov. 2018)

Based on the trajectory over the last several weeks, it wouldn’t surprise me to see a retrace down to the $56 – $58 range.  That’s a good spot to get positioned if you’ve been eyeballing this world-class caffeinator.

In the quasi-cash-equivalent area, muni-CEFs have presented recent value with their widened NAV discounts.  The discounts have come off a few points as investors have taken advantage of the historically free money and positioned accordingly.  The big question mark is interest rates.

Does the Fed raise rates next month?  If so, that could renew selling action in muni-CEFs and widen discounts again.

Interest rate tape reading has rates looking a little toppy.  Not like they’re going to topple over as we know the Fed will raise rates which will force support.  But still, I like interest rate-sensitive funds here to drive a little yield for a bit in place of sitting on excess cash.

          IIM Current NAV Discount (Nov. 2018)

          JPS Current NAV Discount (Nov. 2018)

Remember, these aren’t long-term investments.  We’re talking about using them as cash-equivalents, but their volatility makes them decidedly un-cash-equivalent.  We’re speculating on additional points on your money earned relatively conservatively.  Mind your stops.  Protection first.

Flat or Bumpy: Choose Your Own Adventure

                                                                     The Abominable Volatility

Last week’s “whopping” 1.8% selloff on Wednesday shocked market players but was also blown way out of proportion.  The selloff also presented a nice little set-up to possibly scalp a few bucks out of the market over the next week or two.

Was Wednesday’s price action a precursor to some further weakness?  Or was it a one-inch pothole in the continued advance of this bull?

You choose the trade.  For you children of the 80’s, remember these books?  Hours of time wasted flipping back and forth as the protagonist.  The book reference is a good metaphor for the current state of the US stock markets.

                                            Volatility Hunter                 Don't Bother Trading

As I see it, the price action is saying we’re in for another little move downward.  I suspect no more than 5% down to around 2,260 on the S&P 500.  In the chart below, I’ve circled and described what I think can happen.

SPX Weekly (5-19-2017)

The recovery on Thursday and Friday are just small snapback moves for the real players and market makers to close out certain positions with a more positive effect on P&Ls.  Then the rug get’s pulled out from the crowd in a panic-inducing 5% “real” selloff.

This is just what the price action is telling me.  I’ve arbitrarily assigned a probability and bet (regional banks) and hedged (volatility) accordingly based on nothing but my hunch.

Incidentally, my old friend in the credit department thinks there’s room for a little further downside in the larger market.  Below is the chart of the action of what the credit-friend thinks.  Notice the tight correlation between the S&P 500 and my credit-friend.  It’s only over 90% positive, so maybe it’s nothing.

Friend in Credit (5-19-2017)

Besides my friend in credit, there is the alarming increase in vol shorts.  Or maybe the crowd is right.

VIX Shorts - ZH (5-21-2017)

To scalp or not to scalp?  You choose your own trading adventure the next couple of weeks.