Looking back over the month of November, I can honestly say that I’m very disappointed with my trading performance. Not that I’ve lost lots of money or anything like that, I just haven’t added anything to the bottom line. The reason is that I’ve been nursing dreary positions for far too long. The danger with static markets or small price moves is the temptation to increase position size to compensate for shrinking profit prospects. Activity gets increasingly aggressive trying to meet quotas, then suddenly things go pear-shaped – big time!
With this in mind, we warn that December is even more dangerous, thin conditions adding another layer of potholes along the way. I have learnt to square up most outstanding positions before knocking off for a fortnight between Christmas and New Year, something I’ll start on the 20th of this month.
Looking back on my monthly candlestick charts I can see that sterling barely budged last month, cable moving just 2¢, with moves of just 3¢ in June and August. The range since January has been only 14¢ and considerably smaller than that of the three previous years. Observed volatility, on a close-to-close basis, started the year well below one standard deviation under the very long-term mean regression, but picked up to the mean in the third and fourth quarters of 2019. Implied volatility (used to price options) is, as usual, higher than what’s happening. We would therefore describe this currency pair as quiet, but not moribund.
Focus on the FTSE 250 for a change, and in November the index put on a good push higher, taking it to within spitting distance of last year’s record high at 21371. This year’s rally has put it firmly back above trend-line support since 2009’s low. As for volatility, it’s decreased a little since January’s high, but remains well within a normal band established since 1986.
Over to fixed-income markets, where I am proud to admit – and happy to have profited handsomely from – the secular trend to lower yields. Despite global interest rates being at record lows – some say their lowest since 1350 – the trend for benchmark 10-year gilt yields shows no sign of reversing yet. Many commentators are warning that this is a new boom and bust in the making, and are probably the very same individuals who have not bought into the idea for many years. September’s dip to a new record low rate, and significantly lower than that of an equivalent US Treasury, sees the subsequent bounce capped by trend-line and Fibonacci retracement resistance.
Gold prices have outfoxed me, suddenly this summer bursting above $1,350, resistance that had capped for 42 months. This surprise rally had stalled by August, with no subsequent progress nor a meaningful pullback. What is interesting is that open interest in the New York futures contract almost doubled over the year, setting a new record high in October and well above the peak reached when the price of gold hit a record at $1,920 in September 2011. Whether this is linked to Eastern European countries’ new-found appetite for precious metals, or the process of repatriating gold bars stored for decades at the Fed and the Bank of England, who knows. Despite frenetic activity, the current price is exactly midway between peak and 2015’s interim trough; unexciting.
