Weekly Perspectives – Finding Edges In Markets

Weekly Market Outlook For July 22 – 26, 2019
July 21, 2019
Weekly Market Outlook For July 29 – AUG. 2, 2019
July 27, 2019
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As we enter into the lazy dog days of summer I’m enjoying a couple of weeks of sun-soaked R&R in Ft. Lauderdale, FL. 

Here’s to the trader life and appreciating the weekly chart review process beside the pool.

Now in case you missed it, this week sellers pulled the indices back this week as earnings were front and center on the minds of traders and investors. Less than spectacular results from the financials (C), transports (CSX), and tech (NFLX) allowed the sellers to finally have a winning week with the VXX logging its first green week in 6 weeks.

This coming trading week has a plethora of earnings so be sure to check the earnings calendar.

As for the price action, we want to watch and see if sellers can continue their control by taking out this week’s lows which could possibly shift price the major timeframes to align to the downside.

In this week’s video, we look at the technical outlook for the VXXB SPY QQQ IWM DIA EEM TSX TLT GLD XAUUSD GDXJ BTCUSD TOTAL UKOIL EEM NFLX CROX SMH INTC for the week of July 22 – 26, 2019.

 

Finding Edges In Markets – 

During the Q&A session at the recent 2019 Modern Trader Summit, in which I was a panelist, I heard a question which I think is top of mind to many traders. 

That question was – With the proliferation of trading algos and the rise of AI in trading do you think there will be a place for day traders ard/or retail traders in the future?

As retail traders, I think this question is an important one as it speaks directly to the viability and sustainability of trading as a business.

I’ll paraphrase the answer that I gave at the Summit but it goes something like this.

I think there will always be a place for retail traders in financial markets and for those who are willing to do the work there will always exist opportunities.  As retail traders, we must adapt our methods so that we do not try to compete against institutions at their game and on their footing.  

A part of this adaptation needs to come in the form of how we choose to define ourselves as traders.  Terms like “day-trader” are often limiting not only in belief but how we choose to identify opportunities in markets.

In a recent article, Dr. Steenbarger discusses where possible futures trading edges could be found.

Here are a couple of questions to consider –  

  • Might the greatest impediment to trading success be the *need* to trade?  
  • Might the greatest opportunities exist at time frames no one looks at?

 

The Coming Paradigm Shift – 

A fantastic piece by Bridgewater’s Ray Dalio (one of the world’s largest hedge funds) came out this week and in my opinion is required reading. 

It is a long read so I will give you one takeaway – consider gold as a long term investment.  

From the article, one of Dalio’s investment principles is:

Identify the paradigm you’re in, examine if and how it is unsustainable, and visualize how the paradigm shift will transpire when that which is unsustainable stops.

While I’m not sure exactly when or how the paradigm shift will occur, I will share my thoughts about it. I think that it is highly likely that sometime in the next few years:

  • 1) central banks will run out of stimulant to boost the markets and the economy when the economy is weak, and
  • 2) there will be an enormous amount of debt and non-debt liabilities (e.g., pension and healthcare) that will increasingly be coming due and won’t be able to be funded with assets. Said differently, I think that the paradigm that we are in will most likely end when
    • a) real interest rate returns are pushed so low that investors holding the debt won’t want to hold it and will start to move to something they think is better and
    • b) simultaneously, the large need for money to fund liabilities will contribute to the “big squeeze.” 

At that point, there won’t be enough money to meet the needs for it, so there will have to be some combination of large deficits that are monetized, currency depreciations, and large tax increases, and these circumstances will likely increase the conflicts between the capitalist haves and the socialist have-nots. Most likely, during this time, holders of debt will receive very low or negative nominal and real returns in currencies that are weakening, which will de facto be a wealth tax.

Happy trading,

Houston

PS – Feel free to share this newsletter and our videos so we can reach more traders!

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Weekly Perspectives – Finding Edges In Markets

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