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An Exciting Week of Trades – AUD/CHF, EUR/USD, NZD/USD, etc!

Last week, we had some pretty decent trades in, netting close to US$2,000 in profits for a handful of quick trades, riding on the strength of the USD after the FOMC.


 

Also took the chance to check out my new house:

 

For those who are keen to join our private network for timely trade calls, you can reserve your spot here, but do so early, as we only allow 20 new people to join each quarter!
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GBP/USD – Predicting the Big Short (And Cashing Out Big Profits on it!)

Last week, the Pound suffered its steepest daily fall of 2017 after a shock election result denied any party a majority in parliament days before Brexit negotiations begin.

Source: The Telegraph

Thankfully, our Synapse Network came fully prepared to profit from this move! 😀

Here is a highlight of the early prediction given by Spencer several days before the sharp plunge:

While waiting to short Gold, we took a short-term long trade to make some quick bucks on the side.

 

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The World’s 7 Greatest Currency Trades Ever Made – Key Lessons & Insights

Have you ever wondered, what are some of the most epic forex trades that went down in history? And more importantly, what crucial insights and lessons can we learn from these legendary traders?

1) ANDY KRIEGER – $300 MILLION PROFIT

Andy Krieger is a somewhat unknown trader who made his name at Bankers Trust. He was watching currencies in 1987 after the Black Monday crash, and he saw an opportunity for arbitrage in some overvalued currencies. He became famous because he shorted a few hundred million dollars worth of Kiwi (New Zealand’s currency), and he shorted so much that his position was said to exceed the money supply of New Zealand as a nation.

Andy shorted so much currency that there was not enough currency in circulation to support the short.

The kiwi fell tremendously while he was shorting it and made $300 million for Bankers Trust. Legend has it that a worried New Zealand government official called up Krieger’s bosses and made threats to him. Krieger later left the firm to work for George Soros in his quantum fund.

 

2) STANLEY DRUCKENMILLER – $2 BILLION TRADE

Stanley Druckenmiller made this historic trade as a trader working for George Soros’ Quantum Fund. He went long on the German mark because of the fall of the Berlin Wall, and the undervaluation that was going on during the reunification between East and West Germany. Legend has it that Stanley initially bet a few hundred million dollars, until Soros told him to raise the bet to $2 billion. That year, the Quantum fund brought in 60% returns.

Stanley is a rather unknown person, but the fact that George Soros hired him is worth noting.

Another trade that Stanley made was in the 1990s. He was buying German bonds, because he expected investors to move from British bonds to German bonds. It was also during the period where Soros broke the Bank of England.

3) GEORGE SOROS – $1 BILLION PROFIT IN THE POUND

George Soros became famous because he shorted the pound aggressively, in fact, so aggressively that he borrowed heavily and make $1 billion in the process.

At that time, Britain wanted to keep the value of the pound above 2.7 German marks, a key feature of the fixed exchange rate mechanism. Many speculators began to take up short positions in the expectation that this fixed exchange rate would not hold.

This was the famous ‘broke the British bank’ trade that shot George Soros to stardom.

Britain even raised its interest rates to double digits to try to attract investors and prop up the buying in its currency, however, the British government soon realized that it would lose lots and lots of money trying to keep the value of the pound. Soros made $1 billion for his fund on this trade.

 

4) PAUL TUDOR JONES – $100 MILLION PROFIT SHORTING BLACK MONDAY

The U.S stock market experienced its largest 1-day percentage decline ever on Black Monday of 1987. This was the most shocking fall the world had seen at that point, and even up to today, no 1-day decline has ever matched Black Monday.

Betting on a black swan event netted Paul Tudor Jones $100 million in profits.

1The 22.6% drop in the Dow in 1987 has not been rivaled even up to 2017.
Source: stock-market-crash.net

Paul Tudor Jones shorted the stock market, tripling his money, and making US$100 million on that trade while the Dow Jones plummeted 22%.

 

 

5) ANDREW HALL – $100 MILLION PROFIT BETTING ON OIL

While working for Citigroup, Andrew Hall predicted a 5-year bull-run in oil from 2003-2008, and made the appropriate trades. Oil went from $30 to $100, and Hall brought with him $100 million as part of his compensation plan.

Andrew Hall made it big on oil in his career at Citigroup.

jAndrew Hall at a conference in September 2016.
Source: Forbes

Aside from this brilliance, he reportedly bought 1 million barrels of physical oil in 2009, and stored it, hoping that oil would rise greatly. It did, and from 2009-2011, oil went from $50 to $100. However, his oil fund hasn’t been doing well in the past 5-6 years, and he has had to repeatedly explain the lack of profits to investors.

 

6) DAVID TEPPER – $4 BILLION PROFITS BUYING BANK STOCKS

David Tepper’s strategy was simple; buy low, sell high. In early 2009, he scooped up big banks like Citigroup and Bank of America, and saw them quadruple and triple in value from their bottoms in 2009.

Nothing spectacular; buy low, sell high.

These trades earned $7 billion for Tepper’s hedge fund. His personal compensation was $4 billion.

 

7) LOUIS BACON – 86% RETURNS BETTING SADDAM HUSSEIN WOULD INVADE KUWAIT

Louis Bacon went long on oil, short on stocks in the 1990s because of this geopolitical situation. Later, he also correctly bet that the U.S. would quickly defeat Iraq and the oil market would recover.

Bacon’s event-based bets rewarded him handsomely.

1Louis Bacon explaining what he knows best; geopolitical event trading.
Source: Quotesgram

His hedge fund returned 86% that year because of these trades. Although his strategy is somewhat unconventional, he has excelled in it and carved a niche for himself.

 

AFTER READING THIS, WHAT’S NEXT?

Many of these traders had decades of trading experience under their belts. Although they all seem like they had a great stroke of luck or a brief moment of brilliance, the preparation and practice that they went through was thorough and gruelling.

I hope that these stories of real traders would motivate you to continue at your game, brush up your skills, engage the financial markets, and stay up-to-date with what’s going on.

P.S. If you are keen to learn the strategies that professional traders are using and experience some practical live trading, I would like to invite you to join us for this:

In our previous workshop, during the live trading segment, one new trader made US$200+ from following our USD/SGD short trade, while Spencer made US$454 on the same trade and over US$1,200 of profits in total during the workshop.

Come join us for our next hand-on workshop, where you will learn 4 easy strategies to tackle any market (stocks, forex, CFDs, etc), and how you can apply them with as little as 15 minutes a day to make 20-40% annual returns consistently.

In addition, this workshop also includes training notes and slides, case studies, a customised trading plan, and an additional 120 mins of exclusive training videos you can keep.

Check availability and register here: http://bit.ly/2oXJYIL
(Each workshop is limited to 30 pax)

 

RESEARCH SOURCES & REFERENCES

investopedia.com/articles/forex/08/greatest-currency-trades.asp
commodityhq.com/education/5-legendary-commodity-investors/
businessinsider.com/greatest-trades-in-wall-street-history-2013-2
ibtimes.com/top-10-greatest-trades-all-time-253039
cabotwealth.com/daily/options-trading/the-greatest-options-trade-i-ever-saw/

Synapse Weekly Market Highlights (8 Jan 2017) – 1st Week of 2017, How Did it Go?

 

If you’ve been following my blog posts and Instagram account, you would know that I just got back from my trip in South Africa last week. Still a little jet lagged (even though I’ve traveled so many times), and missing the awesome sights and sounds of that beautiful continent.

The Southern-most tip of the continent of Africa! 🇿🇦🌎 #southafrica #capeagulhas #africa

A post shared by Spencer Li 🇸🇬 Synapse Trading (@iamrecneps) on

 

3 OF LAST WEEK’S PREDICTIONS – S&P500 and Forex

Prediction #1: S&P500 – Look to buy on bullish bars near the EMA (Triggered!)

spS&P500 as at 31 Dec 2016.
Source: MetaTrader 4

I mentioned the following last week:

  • Bulls will be hesitant given the uncertainty surrounding the first week of the new year.
  • Bears would try to exert their influence repeatedly, so don’t be alarmed if your long positions get stopped out easily.
  • I would wait for 2-3 bullish signals before being confident of a nice up-move.

On Monday, we saw a gap up from the open + a bullish bar with a substantial body. This was sufficient to enter a long position.

You would have bought once you saw a white bar printed on the EMA. (Monday)
Source: MetaTrader 4

Prediction #2: Short AUDUSD, but wait for pullback to EMA + bearish bars for a  higher probability trade.

The AUDUSD looks bearish and 3 bullish bars have occurred last week.
Source: MetaTrader 4

Last week I said: “Possible price levels to observe at 0.73000, 0.74000, and 0.75000 (all these present good shorting opportunities).”

Even though a short entry is possible given the bearish bar we now see on the AUDUSD, I advise against it because the 3 bullish bars before it present a lot of bullish commitment. Stay away.  

 

Prediction #3: Short on NZDUSD on every opportunity! (but read the cautionary notes below before you trade)

Last week, I said it was a “good time to short on NZDUSD, but caution is advised”. Now, shorting seems like a reasonable thing to do.
Source: MetaTrader 4

This is what I said last week:

  • The year has just started so a sideways market is more probably in the first few days.
  • If you are going short once the market opens on Tuesday, take a small position, use a wide stop, and don’t be afraid to sit through pullbacks and open losses.
  • Add on for every short opportunity you can find (if you are more aggressive).
  • I’ll be more confident if I see 2-3 confirmation bearish bars.

Now, we see a nice bearish bar near the EMA. If you got stopped out intra-day last week, that’s ok. Now, this presents a good opportunity on the daily chart. 

 

UPCOMING MARKET OPPORTUNITIES: SINGAPORE MARKET

As summarized in the picture above, the STI is still in a sideways market and caution is advised against a bull run. I’m aware that other experts might argue that a bull run is in place, but technically and professionally speaking, a bull run only occurs after it has clearly emerged out of the sideways consolidation phase. 

At this point, my stock screener has printed a buy signal, but I’ll only look to enter if it pulls back a little, bounces off the EMA, prints a nice bullish trend bar, and I see the EMA turning upwards. Otherwise, it is still in a sideways situation right now.

Markets tend to move from bear market > sideways market > bull market. I believe this to be the case for the STI. Watch and wait.

 

UPCOMING MARKET OPPORTUNITIES: GOLD

Source: MetaTrader 4

The gold chart is VERY bearish, but the recent bullishness makes me want to stay away. I’ll wait for 2-3 more bearish confirmations before deciding to go short. 

I might also take a bullish trade if I see multiple pullbacks to the EMA, and if gold starts rising gradually without any huge bearish bars.

LASTLY: UPCOMING NEWS


The only thing worth noting this week.
Source: myfxbook.com/forex-economic-calendar 

The second week of January will see no important market-moving news, except Yellen’s speech on 13 Jan, 08:00 hours. Watch out for USD pairs, just in case they get affected, and as usual, reduce your open positions or take some profits before this time.

Happy trading, and all the best in your trading journey!

Cheers!

Will Higher Interest Rates Eventually Lead to a Stock Market Crash?

asJanet Yellen’s actions come into the spotlight once again.
Source: slate.com

 

After a slew of unprecedented events (Trump, Brexit), what has been troubling the world financial markets in recent days? As the FOMC announcement approaches, market participants have all eyes fixed on the almost-certain rate-hike that is coming up on Thursday. You probably have started to see Yellen’s photograph in news articles across all major financial newspapers.

Traditional economics theory teaches us that when interest rates rise, they are deflationary; businesses find it harder to borrow and affects interest-sensitive investment, while home owners find it harder to pay their mortgages. It all seems reasonable on the surface, but what actually goes on behind it?

In an economic climate such as ours today, traditional predictions have fallen very flat. There are Fed officials and scholars (not lay-people) who still insist that QE has no impact on the real economy whatsoever. The average wage-labourer probably doesn’t feel much when interest rates change, nor will he care even if rates drop or rise significantly.

However, as traders, our portfolios are at stake and it will bode us well to study this properly. Several macroeconomic indicators have to be understood and analysed to understand what is likely to happen. I’ve broken it down into 4 components for easy reading. Let’s get going:
 

INDICATOR #1: Falling GDP?

The body of scholastic material addressing the link between interest rates and GDP is rather depressing. Stephen D. Williamson summarizes this rather aptly:

“There is no work, to my knowledge, that establishes a link from QE to the ultimate goals of the Fed—inflation and real economic activity”-Stephen D. Williamson, St. Louis Fed Vice President

When the cost of borrowing rises, economic activity slows. That has been what the Fed was trying to do when it goes ahead and raises interest rates. They were used as a deflationary tool to keep the economy from expanding too rapidly. What have we seen? I came across this table while researching on this topic:

bank

What we see is that the average rate hike cycle takes 22 months, while a recession normally happens 41 months later. However, it has been 87 months since the last rate hike, eclipsing even the 85 months lag time since the 1994-1995 rate hike.
These are definitely unusual circumstances. While the economy has been chugging along for 7 years despite near-zero interest rates, I don’t see how a rate hike would dramatically change this, especially in the short-term (1-2 years from now). While the economy has been a big topic on Trump’s agenda during the election, the reality is that the economy is still reeling from the damage caused in 2008, and it could take far more than more investments to bring the world back to economic health.

 

INDICATOR #2: Lower Stock Prices?

The US stock market has been breaking new highs and with every new high, another analysts comes out and purports that ‘this is the top’.

 

econDire predictions by an economist.
Source: CNBC

However, before we all go into doom and gloom, let us remember that the bear markets of the last 50 years have had different causes, to be fair, there had to be some sort of trigger. It could be a political issue, such as the 1973-74 oil crisis, and the 1990 bear market caused by Iraq’s invasion of Kuwait. Furthermore, the Fed could be behind a market crash; in 1982, after raising interest rates relentlessly, the U.S market saw some severe bear moves in that period of time.

Sometimes bear markets happen because of bubbles; such as when the 2001 dot-com bubble and 911 terrorist attacks came about. In 2008, we saw a market crash as a result of a tanking housing market spurred by widespread institutional dishonesty.

Let us not be quick to jump to conclusions about a market crash coming. I’ll be watching the S&P and other indices closely over the next few months.

Interestingly, some quip that the “three steps and a stumble” rule would become a reality. It last happened in 2004, but we didn’t see a stock market crash until 4 years later.

“The ‘three steps and a stumble’ rule states that after three consecutive rate hikes (three steps), the stock market would begin to fall rapidly (stumble).”

I don’t quite buy into this idea. Over the past 30 years, there were only nine occasions where we saw 3 rate hikes in a row. Thrice in the 1970s, four times in the 1980s, and twice in the 1990s, and on average, only the 1970s saw a significant decline (approximately 10%) of the stock market in the next year or so.

chartChart of DJIA price changes after 3 rate hikes
Source: MarketWatch.com

More interestingly, the S&P500 looks like it’s ‘toppish’; the bull run seems rather unsustainable, but something seems to be sustaining this euphoria. On a technical basis, it has simply broken out of an expanding wedge on the daily chart.

sp
The S&P500 has broken out of an expanding wedge pattern. It looks rather unsustainable, but it is happening before our eyes.
Source: MetaTrader 4

We’ll have to watch closely how the S&P behaves near the resistance before deciding if it would continue the rally (which is very possible!).

 

INDICATOR #3: Volatile Bond Prices?

There are signs that the market has already adjusted to an interest rate hike. Check out what happened to the 30-yr Treasury Bonds over the past year or so:

30yr

The 30-yr Treasury Bonds have fallen 15% since its last high in July 2016.
Source: MetaTrader 4

The rude correction has shocked many bulls out of the market, and it seems we have entered bearish territory in the bond market. My opinion is that the rate hike has definitely contributed to this, but it seems that the rate hike is a mere response to the macroeconomic conditions of the world. On the technical side, we see a head and shoulders pattern that has broken down (as a result of election fever), and the downtrend has continued somewhat.

yieldsShort-term yields have risen almost as much as long-term yields.
Source: Bloomberg

If you’ve studied finance in university you would immediately recognize that the yield curve has flattened. Check out the table above; 3-month rates have risen as much as 30-year rates! This means 3-month yields have risen more than 100%, while 30-year yields rose about 10% or so. This is a typical response when the Fed tightens monetary policy.  A famous interpretation of the yield curve states that when yield curves get inverted (when short-term bonds yield more than long-term bonds), that’s when the stock market crashes like nobody’s business.

We are still very far off from an inverted yield curve, so a market crash is still some distance away. My guess is that the bond market, as a measure of fear, will be in a state of confusion as there are valid reasons for economic strength as well as economic panic. Volatility in yields is likely to be the norm in the year ahead.

INDICATOR #4: Commodity Prices

Although some pundits claim to be able to predict how interest rates will move commodities, I beg to differ. Oil, for example, is very much output driven (think OPEC), and recently we’ve been having output cuts among producers. As you can see in the image below, when I checked the newsmap yesterday, ‘Oil Surges as More Producers Join Output Cuts’ was the most-read news of the day.


A casual glance at the NewsMap reveals a heightened focus on oil production.
Source: Newsmap.jp

Generally speaking, if you look at the relationship between oil and real interest rates, we see very little correlation even over the very-long-term.

irIt’s hard to come to conclusions about how interest rates have affected commodity prices globally.
Source: cobank.com

More recently, we’ve seen commodity prices tank over the past 5 years despite interest rates remaining almost constant. I just did a simple google search on the price of DBC (the global commodity price ETF) and this is what happened in the past 5 years.

commm
A quick glance shows that commodity prices have fallen for 5 years.
Source: Google finance

To make an investment decision on commodities solely on interest rates isn’t wise. On a technical basis, commodities look like a good buy and I’ll be watching them closely to spot trading opportunities.

UP NEXT: THURSDAY’S RATE DECISION

If you aren’t already riding the bull market in stocks, it doesn’t make sense to enter now. Heroic bulls would want to enter now with a small profit target, and the world will be watching closely how the new year starts. Moreover, you won’t want to have too much exposure during the final FOMC meeting of 2016. Volatility on all other asset classes are expected, and I’ll be trading currencies, perhaps more regularly on an intra-day basis if I can’t find any good longer-term trends to ride on. All eyes will be on Thursday’s Rate Decision and the price action in the aftermath will be worth watching.

RESEARCH SOURCES & REFERENCES

http://www.cnbc.com/2015/09/15/when-the-fed-raises-rates-heres-what-happens.html
http://www.cnbc.com/2015/08/18/st-louis-fed-official-no-evidence-qe-boosted-economy.html
https://www.thestreet.com/story/13279476/1/what-happens-when-the-fed-hikes-interest-rates.html
http://www.slate.com/content/dam/slate/blogs/moneybox/2015/11/23/janet_yellen_responds_to_ralph_nader_s_sexist_letter/495620136-federal-reserve-chair-janet-yellen-testifies-before-the.jpg.CROP.promo-xlarge2.jpg
http://www.cnbc.com/2015/08/24/8-things-you-need-to-know-about-bear-markets.html
http://www.cnbc.com/2016/12/10/economist-harry-dent-says-dow-could-plunge-17000-points.html
http://www.marketwatch.com/story/edson-goulds-three-steps-and-a-tumble-rule
https://www.thebalance.com/inverted-yield-curve-3305856
http://www.cobank.com/Newsroom-Financials/~/media/Files/Searchable%20PDF%20Files/Newsroom%20Financials/Outlook/Outlook%202012/Outlook_10122.pdf