Environmental Hedging — Week #32: The Big Squeeze

Hooty Hoo Tackle Traders!!

I’m back and coming to you from the beautiful island of the nation of Indonesia! But once again, not really… I have moved onward but chronologically the blog has me in Indo — but was almost caught up, folks! That said, it was nice to be back in the developing world. In my earlier years, the majority of my travels took place in emerging markets and is something I rather enjoyed. Back then it was a question of price and budget, but now that I can make a living off the financial markets, the rest of the world (the more expensive part of the world) has opened up a bit.

That said, I still enjoy the developing world more, the world where 2/3rds of humanity spend their day today. Indeed there are extra challenges in this day to day life but they’re challenges that bring a certain form of satisfaction and gratitude for us Westerners.

For one, you learn you how good we have it, that and it teaches you how to appreciate the little things in life… like toilet paper, clean water, or functioning banking systems for that matter. It is in such moments of forced humility that you laugh at yourself and laugh at the multitude of stupid things you hold dear in the pampered world. Indeed all things are relative but I suppose if you have never owned a decent pair of shoes, the notion of a good pair of shoes is as foreign as being barefoot is to me.

One common denominator which always runs through the series in these places, beyond the lack of material things, are the ideas of community and friendship. People rely on one another more than they do in, let’s say, the United States. And this is strikingly surreal if one pays attention. For example, if you need food in the U.S. the most common route is to acquire food from the grocery store, with a credit card or a debit card. Well, first and foremost, there may not be a grocery store here. Thus you have to rely on the township market or your neighbors. Maybe you’re a fisherman and your neighbor is a farmer. In such instances, there is daily trade taking place, the trade that may not require money whatsoever. Or a debit card for that matter. It’s simply fish for vegetables and vegetables for fish.

Thus money can be as foreign as you are…and, as a matter of fact, there are places that I went where there isn’t an ATM or bank in general within a 2 hr motorbike ride. It’s in these places where “the money bucket” game takes place. And yes, I literally mean money bucket. Vendors take your money (assuming you have it) and exchange it via a bucket. What you put in there counts as payment and your change is retrieved from it as well. And if you leave your wallet at the vendor, that goes in there as well. By which, (when you return later to retrieve your wallet), you stick your hand in there to get it.

I kind of enjoyed the process. As did my friend Fred who stored his wallet in a money bucket one day. As they would say in Indo, “ it’s same but different”.

So let’s talk about value. Indeed money is a store of value but it is not value itself. And what some people see to be valuable, others could care less about, (money buckets aside). Value is best contrived as “what matters most”. I suppose the environment, energy, water, food, shelter and life reign supreme in that respect, which is why Environmental Hedging focuses on these things primarily. But comes the paradoxical aspect; that, all of these things require money in some way shape or form. Once again, something that Environmental Hedging attempts to provide.

For me, the only thing that matters is experience and humanity and I love experiencing humanity in different lights. Id gives any amount of money to have such experiences because it’s from these experiences that things become more clear to me. And whats clear to me is that this last year of trading my way around the world has taught me more about myself, the idea of friendship, and the way of the world than I could effectively describe in this blog. It taught me what value truly is. The next blog I write will be reserved for this attempt.

But for now I just want to let you know, the world isn’t so bad. Its remarkable as a matter of fact. I highly suggest you do what I have done… Now, Indonesia was my last stop in this world adventure and was nothing short of amazing. The sea life was, as they would say: “very good, number one” and the people were some of the nicest I have been around. Truly happy, smiley people.

I also was blessed to be traveling with some even more remarkable human beings from Canada and the United States. They kept an eye on me and made sure I stayed out of trouble. We had a cop, a doctor, a musician, a teacher, a webpage designer, a stock and options trader and a photographer in the group. And as they say, “a picture is worth a thousand words”. But maybe videos are worth ten thousand. Who knows… So, here is a little montage of my time there and the people I traveled with. Thanks for everything, Tackle Trading:

So last time I chimed in on the market a variety variables had put it in a very dangerous position, i.e. Trump, Twitter, China, and that partridge in the pear tree. Well, folks, it is still in that position and it is getting rather close to a breakdown. In fact, the market is being squeezed into a “big move” position that can end horribly, or end with a massive upside move. I personally suspect the former and what were are looking at is, in fact, an agonal breath — that moment of gasping and heavy breathing before the cardiac arrest takes place.

However, in trading, it is important to be open to the latter, and in our case, the market moving big into another bull run. Either way right now is the Big Squeeze and it is important we analyze it and come up with a game plan of sorts.

In market terminology, our market position is most akin to a “short squeeze” if the move is bearish. Or, a “long squeeze” if the move is bullish. Now, both definitions do not fit the technical picture perfectly, all I am getting at is that there is a lot of pressure being put on the market from above and below. But whatever direction it chooses to spring towards, it ought to move big, and continue in that direction for a substantial period of time.

As the market bounces up and down in the Big Squeeze zone, however, the only thing we should be concerned about is the 200 day moving average in and around 2600.50 on the S&P. If that breaks and the market finishes below that number, look out!

ES Chart with 200 Day Moving Average.

Now many of the coaches at Tackle have bearish sentiments, other’s are bullish. Which is no different than the overall market at the moment. Indeed we have been primarily bullish since 2016, however, many things have come to ahead, things which the market is accountable to, (as I mentioned in my last blog).

But it is May folks and May typically is not a good month for the marketplace. That and earnings have has left the market unimpressed. Which is not a good sign in many regards. Now, I am not claiming seasonality and earnings alone will drive things south but the totality of everything taking place at the moment may have a negative effect… But then again, it may not.

The point is there are lots of “may(s)” in the month of May and I am not entirely sure how much I want to expose myself to it. Therefore I am very neutral and well hedged in my portfolio, carrying a Beta of -176 on SPY, (which is basically neutral).

Although I am bullish in some positions, bearish in others, and own some put options, I am only laying stake to neutrality at the moment. I do, however, have some cash on the sidelines in case the market breaks down — of which I will use to buy more put options on index ETF(s). This I would enjoy immensely. But… if the market breaks north I will gladly buy call options and make money in that direction as well.

However, going back to the lessons articulated over the last three blogs of mine, (which could be taken as one single lesson on volatile markets), we need to be playing it safe. I have no speculation trades on right now, no naked puts, and nothing directional that is not considered to be a beta hedge.

The fact of the matter is that RSI is midline and the market is having a hard time getting past the 20-day moving average. There is room for momentum to the downside and the S&P is sitting right near support on the 200-day moving average. No amount of good news has moved the market north nor did the best earnings season in two years. There is hostility on the geopolitical level and the Mueller investigation is closing in. Which is, in part, why I have bearish sentiments on the matter.

If the 200 is broken we are looking at 2550 for a potential bounce and 2500 as a potential support for buyers to step back in. If 2500 breaks, however, heaps of sell orders will be triggered and we are going right back down to election levels, potentially. Of which, I would find rather ironic considering everything that has taken place since 11–9–16. I’m ready, are you?


Bob Shannon.

Learn. Trade. Connect. Succeed. tackletrading.com