TIB: Today I Bought (and Sold) - An Investors Journal #180 - Agriculture, Cocoa, Bitcoin
News about CFTC subpoena on Bitfinex spooks crypto markets. I am off to the farm looking into agriculture and revisiting the whole sector and adding cocoa.
Breaking News
Bitfinex Subpoenaed Crypto markets took a bashing when news emerged that U.S. Commodity Futures Trading Commission (CFTC) subpoenaed Bitfinex and Tether for information related to the currency balances being used to back Tether. Tether was created to run a peg to the US Dollar. The broad idea was that Tether was to hold currency reserves to back the amount of Tether they created. Information about what they are holding and where they are holding it is not known publicly.
The disturbing part of this news is the subpoenas were issued on December 6 and the news breaks over a month later. This reinforces my view that there are a lot of scared hands holding Bitcoin.
Market Downdraft Markets across the globe face a second day of selloffs.
The new word is a DOWNDRAFT - we now have melt-ups and downdrafts. Stocks are down, gold is down, yields are up, volatility is up. This time through we did not see the normal escape to safe havens. Markets have just come through a strong earnings season in USA. It all feels to me like healthy profit taking on the last few days of a strong month.
The best interview of the day I saw was from Douglas Pebbles, chief investment officer for fixed income at AllianceBernstein LP. He was firmly of the view that there was no need to panic. More telling was his commentary about the European Central Bank (ECB). Europe has shown very strong growth data and yet ECB remains with a stimulative monetary policy. They have to find a way to end that (his words) - or it could end in tears ( my words).
Bought
PowerShares DB Agriculture ETF (DBA): Agriculture has been a challenging area to invest in with declining prices and growing production in many categories. The long run chart shows clear cycles of 2 to 3 years from peak to trough. The important point is that each run up starts at the start of a year. The technical view of the chart is there is possibly a double bottom formed. We will not know until we see a new higher high.
I have had bids outstanding on January 2020 strike 19 call options for a while. I have pushed the bid price up above the 10% premium I like to pay and have not been hit. Last night I added a bid on a strike 20 call option (i.e., two strikes out-the-money) and was hit at a premium of $1.85 (9.25% of strike and 9.8% of closing price). I need price to get back to 2016 highs to make 100% profit. The age old question comes is whether there will be enough time for an options trade to work. The next chart shows the bought call (20), breakeven, and 100% profit as blue rays with the expiry date the dotted green line on the right margin.
The green arrows measure the length of the last cycle down. Assuming a repeat of that tells me when the next run up could begin. The blue arrow models the 2014 run up and the pink arrow the 2016 run up. If we get a repeat of the blue arrow run, the trade makes 100% profit. Another run like this is entirely possible as we have seen 2 like it since 2012. If we get a repeat of the pink run, it will be only a breakeven trade. The yellow arrows model the length of the long decline ( 3 years). If that repeats, my options trade will run out of time. The bad news in this portfolio is I am already holding a January 19 strike 21 call option. This MIGHT work if the green and blue arrows win.
This suggests to me that I might need to consider also buying the ETF when I get a confirmation of the reversal off the lows.
Now I have done something of a step back to see what is actually driving this relative performance for Agriculture. The next chart shows the mix of holdings in the DBA fund.
There are ETFs available covering each of these categories (e.g., coffee) or groups bundled together (e.g., grains) . I have mapped all of them against DBA (black bars) and identified the laggards. All the other sectors are above DBA
- Coffee (brown line)
- Wheat (yellow line)
- Sugar (blue line)
- Corn (green line)
I have had a quick look at market outlooks for each of these markets. They do not look that bright. The smart way to trade these is to wait to see the lows confirmed with a solid reversal. I will be watching over the next few days. I did put bids in overnight on two ETF's before I did this analysis - one matching DBA and one for Grains. I am already invested in Coffee.
ETFS Cocoa ETC (COCO.L): Cocoa. Three triggers for a trade here. I have been thinking about agriculture. @bginvestor posts an update on a cocoa trade which carries a chart of a shape I like. A news headline buzzes across a Bloomberg screen about disease in cocoa growing region of Nigeria.
While Nigeria is only the 7th largest producer, any drop in an important slice of capacity is good for prices. The chart tells its own story.
Price has broken the medium term downtrend and has tested the bottom several times (the dotted green line drawn from a weekly chart). Price has broken above the resistance level (dotted red line) but has yet to make a higher high. I might scale in if it does that.
https://steemit.com/money/@bginvestor/symbol-nib-status-of-trade
Cryptocurency
Bitcoin (BTCUSD): Price range for the day was $1431 (12.9% of the high). Price dropped through last weeks lows and tested just above $9700 for a while. Next low to be tested will be from the week before at $9,222. I added 3 new contracts on my Bitmex account looking for reversals around the $10,000 level. Price held for a while and rose to the $10,200 before collapsing again with a $400 drop in one 30 minute session. Ouch!! I have added one new contract this morning at $9.740. Time to wait for buyers.
Forex Robot did not close any trades and is trading at a negative equity level of 9.5% (lower than prior day's 9.7%).
Cautions: This is not financial advice. You need to consider your own financial position and take your own advice before you follow any of my ideas
Images: I own the rights to use and edit the Buy Sell image. News headlines come from Bloomberg.com. All other images are created using my various trading and charting platforms. They are all my own work
Tickers: I monitor my portfolios using Yahoo Finance. The ticker symbols used are Yahoo Finance tickers
Charts: http://mymark.mx/TradingView - this is a free charting package. I have a Pro subscription to get access to real time forex prices
Crypto Trading: get 6 months free trades with Bitmex for leveraged crypto trading. http://mymark.mx/Bitmex
January 30, 2018
Buena alternativa
we see all the red coin. What happened? the influence of what? thank you for sharing your brother's information. would @carrinm visit my post? if you do not have time to do nothing.
Scared money. A lot of people made strong wins at the end of 2017 and had never had money. Now they have and they sell. The really scared people were those who bought high - then they sell.
Markets are all about understanding what the economic drivers are and living with those. That is why I write the way I do - stepping back to drivers.
Then you have to conquer your own psychology.
yes our psychology we have to calm but it is very difficult. thanks @carrinm
@carrinm , thanks for the mention.. ;)
Most sectors sold off today, but it was nice that Cocoa was positive!
It will be interesting to see where the money flows after today's sell off.. Its going somewhere. I don't think its going to be in bonds
Great article by the way..
I have been strong on my views on interest rates. Australian market ended up today. One more day of selling and then we go back to focusing on the data from earnings once February begins