In 2013, the great Stanley Druckenmiller- mastermind behind George Soros’s infamous speculative attack on the British pound in 1992- questioned whether he had a competitive advantage in today’s markets.
He retired gracefully from managing other peoples’ money to focus on running his own considerable fortune. As early as 1999, another superlative money manager, Jim Simons, late of Renaissance Capital is quoted as saying that there are “no gross inefficiencies” in the market. it would, therefore, seem to me that markets are somewhat difficult to predict, and perhaps that is why we are having these enormous swings in the markets despite what I see as huge risks to the downside.
There are of course high-frequency market makers- the likes of Citadel, Virtu and GSA- whom I would imagine are making a ton of money during the current volatile daily swings. Their competitive advantage is that they have speed on their side and make markets to the many retail traders who dare to trade. They will collect spread in some cases or offset risk instantaneously (at a profit) in other cases.
Some retail brokers may indeed also be making money- certainly this quarter- but I would imagine that retail traders are probably not making money. The statistics back this up in normal circumstances and the dangers of over leveraging, over trading as well as wider spreads is likely to exacerbate client attrition in the current scenario.
The VIX (volatility index) should be everybody’s gauge of the dangers of trading in these markets and yet it looks like bargain hunting and optimism bias are pushing people to double down or go “all in” to capture value while they can!
I cannot for the life of me understand why after a 10% or 12% fall for stock indexes on Thursday, that market participants chose to push American indexes 10% higher on a Friday, especially before a weekend of uncertainty with respect to Coronavirus. The move-up I understand was a reaction based on US “emergency measures.”
President Trump’s selective tweeting on record “up” days, beggars belief! He is less vocal on down days. So we’ll see how it all pans out. To me, there are ominous signs that this week is going to be just as volatile as last week and I’m not sure that a “melt-up” is on the cards.
Data wise, we have the Eurozone ZEW economic outlook survey and US retail sales to look forward to on Tuesday; both unsurprisingly expected to drop.
Wednesday will likely see more interest easing from the US Federal Reserve Bank. Analysts are looking for a 0.5% cut. New Zealand 4th quarter GDP (Y/Y) which is released late Wednesday night/ early Thursday morning is expected to suffer too (expected 1.7% from 2.4%).
Japan and Swiss Central banks release interest rate announcements on Thursday, with both countries likely to hold interest rates at existing negative levels. Australian employment figures, also on Thursday, are expected to post a small improvement.
I fear that last Friday’s euphoria will be short-lived. For those who are hooked on day trading, I wish you all the best!
Good Luck and Good Trading! Ben Robson
Ben Robson is the CEO of Spectrex Commodities and author of Currency Kings- How Billionaire Traders Made Their Fortune Trading Forex And How You Can Too.
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