TIB: Today I Bought (and Sold) - An Investors Journal #183 - Interest Rates, Japanese Government Bonds, Ethereum, Bitcoin
Markets across the world feel the heat of rising interest rates and inflation fears. Or was it just fear and weak hands? I continue to chase rising interest rates. And take a back seat on Bitcoin for now.
Portfolio News
Dow Jones Industrial Index DJIA records biggest single day fall makes for a big headline.
Lies, damned lies and statistics. Indeed it was a record points fall BUT added to Friday's fall it does not even make the top 10 percentage falls. Two charts to get the perspective right. First is the absolute falls with Monday superimposed
The next is the ten worst percentage falls. Adding Friday and Monday certainly gets the move close to the top 10 at 7.14%.
https://seekingalpha.com/article/4142967-dows-6th-largest-drop-ever
What the headlines do not talk too much is what happened in the middle of the day. At one point the index was down over 1600 points and pulled back half of that loss literally in minutes. This tells me that there is an undercurrent of buying that was able to make a reverse so strongly in the middle of the day. Maybe it was just the big end of town shaking out the weak hands. The more conventional analysts argued that markets have been overstretched in valuations, the jobs report did reveal an uptick in wages growth and there is a fear that the Federal Reserve may push more rate hikes than the economy can afford.
The market will let us konw in due course. The Fed is traditionally behind the curve - I doubt they will ever get ahead of the curve. Economies are growing. Taxes cuts will flow through to stronger earnings. And maybe it is time for markets to step back a little and settle around the long term average price to earnings ratio. Now a quick eye ball of the long term PE chart will say this is around 18 but we do have to factor in important changes in the structure of markets that sustain higher valuations (liquidity, technology, debt availability for example).
If we buy that premise then current levels are about right and markets have scope to be rising with rising earnings.
https://seekingalpha.com/article/4056553-25-p-e-s-and-p-500-might-new-norm
Bought
Royal Dutch Shell (RDSA.AS): Oil Producer. Outstanding bid on December 2020 strike 28 call option hit. Price has been holding above 24 strike for some time - I added in the next rung up in the staircase of options. With a premium of 5.5% and expectations of a robust oil market for the foreseeable future, I am comfortable.
Shorts
Euribor 3 month interest rate futures (IZ0): I watched the mayhem emerging in bond markets and in stock markets. Futures prices went up - this is not rational given that the fuss is all about interest rates rising - ie., the futures should be holding or falling. I have been actively shorting the December 2020 contract in my personal portfolio. I added shorts to my pension portfolio. I saw the market give back half a rate rise inside a few hours in one day. By 2020 this day will have been forgotten.
Eurodollar 3 month interest rate futures (GEZ8): In my personal portfolio, I had trailed stop losses on Eurodollar December 2018 contracts. Those stop losses were hit for 25.95 basis points profit per contract (0.26%). At $250,000 per contract these are tidy profits. I replaced these shorts with shorts on December 2019 - i.e., one year out in time.
EuroSwiss 3 month interest rate futures (SZ9): I have been shorting September 2018 contracts in my personal portfolio. My broker was offering December 2019 contracts for my pension portfolio. Market is still pricing negative interest rates for December 2019 (i.e., 22 months from now). With US and European interest rates markets all pointing to several rate hikes between now and then, I cannot see Switzerland being left out of the party.
Japanese 10 Year Government Bond (JGB): Japanese interest rate market has been interesting. Bank of Japan (BoJ) reiterated its commitment to a zero yield on the 10 year last week Thursday. Friday saw yield make a new high despite active buying by the BoJ. Since then price on the bonds has risen by 25 basis points - i.e., more than we saw in Europe. I added another short position as I fully expect to see price move back to the lows.
The challenge is for me, is there enough time with a March 9 rollover to the next contract?
Cryptocurency
Bitcoin (BTCUSD): Bitcoin price has collpased from high of $9491 on Feb 3 to touch a low of $6600 on Feb 5 - a range of 30% from the highs. I did write on Friday that I would not be adding to my longs at Bitmex and I fully expected the trade to hit its liquidation price. I did add one more position to get liquidation price below the December lows. That was not enough and my position was liquidated at $7671. Loss was 53% of account balance. I have added 4 new positions since then and have an average entry price of $8589 and a liquidation price of $5263. I will not be placing any more trades and will just ride this out.
This has been a period of experimentation. The best part of the story from my viewpoint is I restricted my Bitmex trading to BTC I had earned from mining. I also banked the profits from my 2017 Bitcoin trading in January. The price chart I shared last night tells the story. Price is testing one of the November 2017 lows. There is a lot of scared money wound up in the run up - they are bailing now.
There is a bigger game going on here with a combination of forces driving the market sentiment. It is a layering of news events from South Korea, China, India, Facebook banning ads, US SEC/Senate hearings on Feb 6 driving an unmitigated amount of fear. I did calculate the effect of futures 5 day volume - they account for about 1% of Bitcoin market capitalisation. That is not enough volume to drive a 30% drop in price in my view especially not when you consider that the margin requirement to hold those contracts is 47%. Latest data I could find did suggest that short volume was about 30% - you can be sure that this is the big end of town rather than lots of small holders.
Altcoins I started stage 1 of an exploration of using trading robots to trade altcoins. I allocated about $1,000 to two trading accounts using a trading robot service. Trades are made against BTC in coins like DASH and LTC and ETH. I did sell some Ethereum for BTC to start off trading in a Binance account. I will report progress and once I am happy with results I will divulge who the service provider is.
I also started the process of setting up my own trading robot. That will take a few days as I am waiting for a backorder on a VPS machine to run the service uninterrupted.
I will also add new mining contracts fr Bitcoin and Ethereum - always good to do this when the Bitcoin price is low.
Currency Trades
Forex Robot closed 2 trades (0.08% profit) and is trading at a negative equity level of 9.0% (higher than prior day's 8.7%).
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 Google Search. Long term PE chart comes from a seeking Alpha article - credited below the image. 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
Bitcoin and Ethereum Mining: I mine with Lifestyle galaxy. Join me there while prices are low http://mymark.mx/Galaxy
February 2-5, 2018
It's been a wild few days mate! Enjoyed the updates and trades.
Not good for depression. Will wait for things to settle down and then will start a cleanup and rebalancing
Yes, I hear that. I got a little too aggressively adding to positions and am now a little handcuffed in my flexibility to trade. Caught a few good trades though amidst it all.