I often wonder whether or not Albert Einstein would have been a good trader, given his IQ of 160 and his ability to correlate seemingly mundane observations and twist them into a mind bending theory related to the inner workings of the universe. Odds have it that he most likely would have laughed at the question and balked at wasting his intellect at a silly endeavor such as predicting future price action.
With the S&P 500 mostly treating water this week the big question in my mind was what the heck is driving the Russell to advance higher as if being juiced by a double dose of Martin Armstrong’s Tour de France special. Time to lift up the market’s skirt and dive in for a closer inspection.
The option market continues to do a horrible job in handicapping risk which is evidenced by the fact that expected move ranges all across the board are repeatedly being taken to the woodshed. We’ve got a situation now in which IV is steadily trickling lower whilst blatantly ignoring the wild moves we keep seeing all across equities. In conjunction with what I’m seeing in the VX futures and other pertinent measures this presents us with a juicy EOY trading opportunity I call ‘the taking candy from a baby’ trade.
Try to say that one three times in a row – heck, I tried! Anyway, it’s now ten days post election election day and we still do not have an official tally (don’t start with me!) and vote by the electoral college. The market isn’t liking this limbo situation one bit as trading whilst strapped to a chair with a Damocles sword dangling over your head isn’t exactly anyone’s definition of wholesome entertainment. Plus it seems everyone’s getting tired of the endless drama and just wants 2020 to be written off as a the year you shall never speak of again.
After many years I rewatched the movie Saving Private Ryan with the Mrs. the other day and must admit that the first ten minutes of the movie almost brought me to tears. I know this may sound a bit strange coming from a born German – after all we are the baddies in the story. But as some of you may recall I became a legal U.S. citizen about a decade ago after a long arduous and costly process. Besides after not having set foot on German soil for almost 30 years now I feel a lot more American than I ever felt German when I grew up there. After all it was the United States of America and not Germany that afforded me the freedoms and opportunities to pursue my hopes and dreams and for that I will be eternally grateful.
The market seems to be going through a manic depressive phase right now which is increasingly affecting its ability to handicap risk. This was to be expected to some extent given the turbulent times we live in. But there’s a lot more to this and in essence it all boils down to the growing contrast between two clashing world views, with Wall Street apparently ready to go back to business as usual while Main Street finds itself mired in a political cold war that may extend far beyond January 20th and the inauguration of the 46th president of the United States.
It’s very easy to emotionally get sucked into the floating dumpster fire that is the 2020 presidential election, for we are all human beings and thus have our own respective political leanings and opinions. That said I’ve always made a point about ignoring politics as they detract from the core mission of this blog. I’m also a firm believer in that we are all responsible for our own success or failure in life. But no matter who will arise as the winner in the end, there are a few immutable realities that we will be facing in 2021 and beyond:
The big day of political reckoning has come and gone but as I suspected we are no closer to a final resolution than we were ahead of the election. Even worse, given what I am currently seeing across social and the mainstream media our nation may face many more days if not weeks of uncertainty.
I hate election years with a passion in general but have to say that 2020 definitely took the cake. The good news is that the big day has finally come and it’s fair to say that November 3rd will be one of the most pivotal elections in our lifetime for each of us. I don’t care which way you swing politically, but you owe it to yourself to go out there and place your vote. If you fail to do so you be advised that you have lost your mandate to bitch and complain after the fact if you happen to dislike the outcome. If I can do it all the way over here from Spain then everyone else can.
I’m going to lead today’s post with some of the weekly stats I shared with my subs on Monday which do a great job in shedding more light on this week’s wild gyrations. In a nutshell: On the surface week #44 had the potential to be the 2nd best earning week of the year but it came with a twist, which was that its positive Sharpe ratio was mainly due to large outliers. As a whole the final trading week of October is volatile mess with a positive SKEW – meaning that it is distributed toward the bearish side.