Pressure Drop

Published on: March 11th, 2021

Loose Money, Loose Fiscal, Bubbling Inflation, Bond Vigilantes Stirring. All Common Knowledge? If some pressure comes off as bond yields pause, it will be time to increase risk and tighten stops on NDX shorts. Julian makes the case for adding back Gold exposure and scouting around for value. Three suggestions for the radar. Fingers on triggers post FOMC this week.

Comments

  • rm
    roland m.
    17 March 2021 @ 21:23
    "GDX: Buy ½ below $33. First target $41. Stop on close below $30. Add ½ on strength" How would you suggest thinking about the "on strength" part? Something like halfway between 33 and 41 in combination with the advance being sort of confident without intermediate fallbacks to 33 or below?
    • SS
      Sameer S.
      22 March 2021 @ 19:07
      You could use daily moving averages to gauge strength, adding on closes above them.
  • SC
    Sanjeev C.
    12 March 2021 @ 05:12
    Thanks Julian. Please share your thoughts on pros & cons of GDX vs. GDXJ for a position in miners?
    • HM
      Harry M. | Real Vision
      12 March 2021 @ 13:08
      I asked him and this is what he wrote. "Given that the components of GDX are senior miners (like Barrick, Anglo etc) and the components of GDXJ are juniors (none of which are really household names) GDXJ tends to be materially more volatile. Realised volatility for GDXJ (100 day) is usually mid 40% and GDX mid to high 30%. There is an embedded assumption (not true for all members) that there is a higher gearing to the gold price for the juniors, giving more upside leverage. The theory has not really been born out by the experience since the beginning of the Gold bull market in Jan 2016, but may still at incrementally higher levels of spot Gold.
    • ly
      lena y.
      13 March 2021 @ 21:15
      Besides being major and junior miners between GDX and GDXJ, GDXJ has higher silver miners content.
    • SC
      Sanjeev C.
      18 March 2021 @ 19:52
      Thanks for the response
  • GP
    Greg P.
    12 March 2021 @ 05:28
    Hi Julian, Can you advise on your risk management of taking a 1/2 position on Gold by way of an example. If I have a $100K portfolio / trading account, as an example, what would you recommend as a recommendable risk on this trade based on your parameters in your report? 1%, 2%, or 5% of your portfolio? Trying to assess what is a worthy risk of a 1/2 position. Thanks, Greg
    • HM
      Harry M. | Real Vision
      12 March 2021 @ 12:18
      Hi Greg. I will pass on your question to JB, but I can tell you that JB operates with the idea that his "book" or portfolio will usually have between 8-12 ideas or trades. It is more of a book than a portfolio. The trades are not meant to be the entire universe of all investment positions for readers. Not a "portfolio". Instead they are a book of ideas that JB likes. They are meant to make money on an absolute return basis - not "outperform". Optimal position sizing depends entirely on YOUR risk preferences and tolerances. If you were comfortable trading in gold then you might choose a bigger position size. Less comfortable then a smaller one. Ultimately you are the one risking your capital so you have to be comfortable with the sizing. But what JB had in mind was that the position should be of a size where you can add to it if it starts to work, and where the stop is not a unacceptably large loss of capital. JB is concerned that if Powell allows (or encourages bond yields to trend higher then gold may have further to fall). I would be very uncomfortable giving you more specific advice regarding what is an acceptable risk for you because it requires such an intimate understanding of your personal circumstances. However % position size alone is not everything. The volatility of the position is also important, and the risk characteristics of the way you take the position. Using 5% of your capital as margin in a long option trade is one thing. 5% as margin on a long futures trade another.
    • DR
      Derrick R.
      12 March 2021 @ 17:24
      Harry, your response is worthy of dressing up and posting somewhere permanent, for all new Pro subscribers to view, and a good reminder for the rest of us. Thanks.
    • ly
      lena y.
      13 March 2021 @ 21:18
      In general, should commodities asset allocation be less than country funds since commodities are more volatile?
    • GP
      Greg P.
      15 March 2021 @ 19:22
      Hi Harry, Thank you very much for your commentary and suggestions. I'm looking at futures and not options so yes, the risk management is considerably different. I can fully appreciate that you can't possibly offer a position size as you don't know my personal and financial circumstances. Julian mentioned in the last insider talk that one of the MI clients paid off their mortgage with his Silver trade recommendation, which he thought was considerably risky, and he also appears to have a conservative risk management framework around his trade ideas. I'm therefore interested to get a clear sense of Julian's full risk management framework, including position sizing and volatility, that I could use as a benchmark to measure and develop my own framework specific to taking positions on the MI portfolio. I hope that offers further clarity, and if Julian is willing to elaborate on his risk framework I would be most interested to know and learn. Thanks, Greg
    • GP
      Greg P.
      15 March 2021 @ 19:34
      Hi Harry, I would also like to ask whether Julian ever measures his conviction around his trade ideas? For example, when he makes a trade recommendation what is his level of conviction and confidence that his trade ideas will play out favourably...that would certainly assist with establishing a clear framework around position sizing and risk on MI trade recommendations.
    • HM
      Harry M. | Real Vision
      17 March 2021 @ 17:42
      "Julian mentioned in the last insider talk that one of the MI clients paid off their mortgage with his Silver trade recommendation, which he thought was considerably risky, and he also appears to have a conservative risk management framework around his trade ideas. I'm therefore interested to get a clear sense of Julian's full risk management framework, including position sizing and volatility, that I could use as a benchmark to measure and develop my own framework specific to taking positions on the MI portfolio. I hope that offers further clarity, and if Julian is willing to elaborate on his risk framework I would be most interested to know and learn." Sorry for the delay getting back on this. Yes, JB was horrified by that letter. It meant the client was almost definitely taking too much risk! Either that or his mortgage was way too small relative to his trading book!. So I dont know what your finance background is, but I would argue that JB is effectively running a book on VaR principles, but keeping a close eye on gross risk, and the possibility that volatility/correlations can change. In fact, the possibility that correlations switch sign is an opportunity as much of a risk. The ED trade we have talked about is a great example. EDs were becalmed. The Fed had claimed to have ruled out negative rates (although things can change) and fiscal stim was enormous. This trade was one that a careful trade might have put a lot of risk on, because short of a sea-change in the Feds view of negative rates, it was tough to lose much but there was a great chance to make a lot. I mention this cos it is instructive of where it might be ok to take bigger risks. Basically where you have a pretty good idea you have an asymmetric risk return profile. If I win I win big. If I lose, I lose small. Regardless of all of this, JB uses stops. Let me rephrase that. JB USES STOPS. Stops are what protects your wealth from being completely wrong. If you cant be completely wrong hats off to you. I can be completely wrong, and I have proved this on a number of occasions. Your conviction question is excellent. There are trades in which JB has higher than usual conviction. They also have stops. Cos those are the most dangerous trades. Everyone who has played poker knows what I mean. But for those that havnt, its the times when you are absolutely sure you are right that pose the greatest threat to your net worth. I dont have a farm, but if I did I would be very sparing in the times I would bet it. This is both a flaw in my trading and also its greatest strength. My errors do not take me out of the game or put my family at risk.
    • HM
      Harry M. | Real Vision
      17 March 2021 @ 17:46
      Lena Y. In general yes. But I can think of some counter examples. I am a subscriber in Realvision. A while back I watched a video on Uranium. I really liked the story and I liked the chart. So I bought some UUUU, and some CCJ. They have both done pretty well. The CCJ position was way too small, but I mis-sized the UUUU position and it was way too big. I got lucky. I sold some of it, when i realized my mistake, but the stock has done pretty well and I have a pretty chunky position. I have not sold anymore cos I really like the trade. But it is disproportionately big, and I now have a trailing stop. I also trade a lot of Argy debt. I wish I had more Uranium, and less Argy debt. For what little thats worth Lena
    • SC
      Sanjeev C.
      18 March 2021 @ 19:52
      All Good points @Harry M. I agree with Greg & others though - that adding a theoretical book size and then a position size relative to that book -- will add a tremendous amount of value on top what JB & RP are already providing. Thanks for your consideration! PS: It'd be nice to be able to subscribe to notifications on updates to conversations I am following/participating.
  • CB
    Charles B.
    12 March 2021 @ 16:25
    Juilan, in the phrase "break and daily close above 13,100" for the nasdaq stop, what satisfies the word "break"?
    • HM
      Harry M. | Real Vision
      17 March 2021 @ 17:29
      Its definitely broken above and closed above.
  • Am
    Alex m.
    12 March 2021 @ 23:01
    Hi Julian, if you get into the Shanghai comp, would EEM also work as a proxy?
    • HM
      Harry M. | Real Vision
      17 March 2021 @ 17:28
      A bit. EEM has a lot of Chinese exposure but its definitely not a pure Chinese play.
  • JA
    Joseph A.
    11 March 2021 @ 23:53
    I concur about gold support levels being hit. I have levels a bit lower than you under 1700 but they were hit and the trend line support also coincides in this case rather tidily. As for Nikkei I think you should be in. It had an inside day candle on the daily in the June futures that has broken out to the upside and rsi daily and hourly above 50 but not over bought.
    • HM
      Harry M. | Real Vision
      12 March 2021 @ 12:21
      Thanks Joseph. Very useful to share analysis. I share your view, although Nikkei is the very directional market. If S&P is going up, so is Nikkei. If it isnt its usually the case that Nikkei isnt either.
    • JA
      Joseph A.
      13 March 2021 @ 10:23
      Harry indeed there is that so folks should position size accordingly if trading both at the same time as there is some correlation but what I also find is due to the time zone difference of the main trading day they don’t move at exactly the same time so you can get a better trade entry in the futures market sometimes if the set up signal has formed but the market has not yet moved directionally (and that might also depend on economic news pending etc not just Asia desks opening times).
  • TC
    Tascha C.
    13 March 2021 @ 01:17
    This is succinct and insightful. Thanks Julian.
  • AP
    Adam P.
    12 March 2021 @ 03:52
    I like the Mexico call. I got in that one earlier today too.
  • LM
    Lawrence M.
    11 March 2021 @ 23:04
    Yes... finally, a green light to buy gold :)

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