A Case of Price Versus Value


  • Market volatility triggers portfolio shift
  • Profit booked on short equity play
  • Rooting for Canadian Dollar, Rand recoveries

THE 180 - I believe the best opportunities come when things get scary. So long as the world isn't coming to an end, markets always have a way of finding stability. And even if that stability comes for only a short time before the next storm, that short time is more than enough time to capitalize, or reassess and step back to the sidelines. Interestingly enough, for the first time in a long while, my portfolio has shifted from being positioned short risk assets, to now long these correlated markets. Of course, it shouldn't come as a surprise given my well known contrarian nature. The shift comes at a time when I have just gone ahead and liquidated the final portion of my short position in US equities, exiting my 2088 short SPX500 position at 1894 on Wednesday. But there is work to be done and as per above, this leaves me net long risk. So I will be rooting for a recovery in risk markets over the coming days, something I have not done in some time. I don't think things are going to get all peachy again, but at the same time, there is plenty of room for periods of light amidst the darkness. So this is how I am positioned at the moment.

MEAN REVERSION - As highlighted in the opening line of today's commentary, the best opportunities come when things get scary. I'd say scary price action is definitely the way to describe USDCAD and USDZAR at the moment. USDCAD has surged to fresh 12-year highs and tracks well in overbought territory across multiple time frames. The combination of collapsing OIL and sinking equities have been driving weakness in the Canadian Dollar to the point where one truly needs to consider the reality of the price holding at current levels. On Wednesday I built into a full position and am now short from 1.4260. I won't rule out the possibility of another jump towards 1.4500, but I do strongly believe we should see a correction that takes us back to 1.3800 area in the days ahead. The same holds true for my view of the Rand. The USDZAR monthly chart shows an RSI above 90! This is super-scary and USDZAR is tracking at levels that can not be sustained. In the end, there is price and there is value. Trading markets is all about taking advantage of those times when price deviates from value. Both the Canadian Dollar and Rand have deviated from value.

Trading is all about taking advantage of the times price deviates from value. Via @joelkruger

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