Trader H

TraderH is a foreign currencies trader and a former Certified Securities Representative in the Philippine equities market. All posts herein are personal views and are not endorsed by any organization whatsoever. It is important that you practice due diligence in your trade plans. This website and its authors will not be held responsible nor liable to any of the reader's losses.

Oil Market at War

 Posted by at 4:18 PM  FX Market
Mar 082020

Saudi Arabia announced an all-out-war in the oil market and vowed to return to the tap and produce even more oil. For Saudi Arabia, they want to inflict pain on Russia. For Russia, this action would help take down American shale industry that has been a problem to the supply glut since 2014.

We will now be seeing cheaper oil prices. Analysts are seeing 26, a historical low around 2016.

The picture is very clear right now that it will take quite a while and a whole lot of effort for oil to go back to year-highs.

Mar 072020

I was wrong. That technical rally on oil didn’t materialize as I forecasted. Putin is as hard as a rock on his position against deeper supply cuts. This is why oil fizzled out as early as 54.00.

However, the turn of events yesterday has given us more conviction on our short trades on oil. With OPEC+ not reaching any agreements on deeper and extended supply cuts, they will resume additional production after March 31 – when their previous agreement expires. Each country will now be free to decide how much oil they will produce. This is like oil on unlimited QE (quantitative easing).

Where does leads us to now?

What we know for now (BEARISH CASE):
– no OPEC+ agreement
– COVID-19 impact
– global economic slowdown
– US continues to produce with no limits – Trump likes cheap oil

What could possibly happen – speculation (BEARISH CASE):
– OPEC members (predominantly, Saudi Arabia) will pump more oil to push BRENT below 42 where Putin said is Russia’s operational cost. Since there will be no agreements, they pump until Russia feels the pain as well.
– Libya resolves their conflict. Far fetched to a lot of analysts but what if Libya gets infected with COVID-19 and weakens the standoff that eventually causes one of the warring party to capitulate? Maybe far fetched as well.
– More flights get banned

What we know for now (BULLISH CASE):
– US Sanctions on Venezuela
– Libyan conflict that reduced supply

What could possibly happen – speculation (BULLISH CASE):
– Oil producing countries (including US) voluntarily cuts supply because of bad business
– Oil fields get hit with COVID-19 and decides to stop producing oil
– OPEC+ kiss and make up and agrees on a cut on June 5th of earlier
– COVID-19 dies away due to seasonal change or when a possible vaccine/cure is found
– Flights resume
– Everything goes back to normalcy – factories open, consumer appetite revives
– Increased Middle East tensions

What we know is already priced in. It’s better to focus on the possible events forthcoming. Which event will happen next is everyone’s guess. Which event is of highest probability is the best basis for your current trade bias.

Personally, I am seeing BRENT to hit 40 easily next week. 30’s is a possibility.

Mar 032020

Given that the market has been oversold last week, this week would most likely be a relief rally. Sell off has ceased to move further. We’re seeing a bounce made by opportunists but investors might just be waiting for the market to reach some level before they continue selling.

COVID-19 issue will remain at focus. Global growth is affected. No one in their right frame of mind would be willing to put their money to sleep in the market.

With fear at the sidelines, equities bounced of key support levels. JPY fell.

Oil made a comeback on a new rumour circulating that OPEC might just push for 1.2M bpd (barrels per day) instead of 1M. Plus the announcement of Russia willing to cooperate (reluctantly) with OPEC. This might cause a rally back to 60.00 by March 5-6.

An experienced trader at this point would try to make some money out of this relief rally. But for position traders, they are better off waiting for a sell/short opportunity. Investors should wait for a few more months before their opportunity unfolds.

Déjà vu

 Posted by at 10:59 PM  FX Market
Mar 012020

We’ve seen this before. It happened 12 years ago in 2008 when the stock market crashed. Fast forward to 2020. The reason may be different but the move is much the same.

JPY, USD, Gold, CHF will still be the safe haven assets. USD was badly beaten recently because of the possibility of a rate cut. But do take note that US economy is still by far in better shape than the others. A pair like EURUSD must remain in close watch as recent rally is making it attractive for a short because EU economy is in no better shape than US’s.

Oil has been badly beaten. In the last few hours of trading last week, rumours were circulating that OPEC will cut 1M barrels per day instead of 600K. US Rigging went down a bit. Both these news bits failed to push oil well enough although Brent closed above 50.00. This hints that the impact of COVID-19 overcomes any good news for oil.

Today, the rumours hit the presser yet again with Russia saying that they need not act not unless oil hits 42.00. Although he hinted of cooperation, the fact he mentioned that Russia is well off at current price levels may just be a signal to further selling until the last minute. Could the market actually send it down to 42 just convince Putin to act?

Given steep rise in COVID-19 cases in Iran, South Korea and Italy, travel bans, and refusal of American Airlines to serve for Milan, we might just see the bears dumping oil some more.

For equities, it is expected that the market will continue to fall for the next 3-6 months. The best time to get in the equities market would be around 3rd quarter of the year. Perhaps during ghost month? As I have always told my students, when markets fall like this, stay cash then buy the blues at the bottom. It’s one of the best proven strategies there is.

Feb 262020

Oil started the week beaten because of COVID-19 fears as it spread across different countries with increasing number of cases.

Sell off started last week and today is the 5th straight day of selling. It currently sits at support and as of writing, the market seems to be holding it well.

In 15 more minutes, US crude inventories will be released. It would most likely be bearish for oil as usual but from this point on, where does oil plan to go?

We can only speculate. The pandemic fear will still be a headwind for oil but do take note that when oil hit 53.5 a couple of weeks back, OPEC wanted to hold an emergency meeting.

Now that oil is back at 53.5 and with the scheduled meeting just 5 trading days away, I believe the viable approach is to trade towards the bias of the meeting. OPEC will most likely decide to extend supply cuts and perhaps a deeper one. This is a bullish scenario.

My bias now is to go long and sell on March 5.

The big risk is what the COVID-19 pandemic can do between now and March 5. If you want to maintain a bearish bias on Oil, it is but prudent to stay away from the coming technical rally and just take a short position after March 5 or at certain resistance levels.

Feb 242020

Here are the 2 trades on EURUSD last Friday. One was EU PMI and the second was US PMI.

Screen Shot 2020-02-24 at 10.11.58

Here is the trade on UK PMI which is still active as of writing. This trade should finish within the day.

Screen Shot 2020-02-24 at 10.13.51