Month: July 2022

Trading Update (June 2022)

June was my best month of the year so far. I shorted S&P and iron ore stocks. I actually lost money on my S&P short bets. Fortunately, my profits from my iron ore stock short bets were more than enough to cover them.

Iron Ore Trades

Iron Ore Price – 3 month chart

The price of iron ore took a dive from 140+ to 110+ in the earlier part of June. I caught probably about 2/3 of this move via shorting Rio Tinto and Fortescue in the Australia market (ASX). Sentiment turned very bad in the iron ore sector, primarily due to stimulus/demand expectations not being met.

S&P Trades

S&P – 1 month chart

I got caught by the rebound in the S&P in the later half of June. I was betting that the continual negative news flow would bring the S&P lower, but the reverse happened.

Concluding Thoughts

Loss aversion is defined as the cognitive bias that describes why the pain of losing is twice as powerful as the pleasure of gaining. It is very real for me. At the end of June, I actually did not feel happy. The pain I felt from my S&P losses was more than the pleasure I gained from my iron ore gains. This is despite my iron ore gains far outweighing my S&P losses.

Because of this cognitive bias, there is often more pain than pleasure in the field of trading/investing. It is therefore important to take care of our mental health, as we can only perform optimally with our minds in tip-top shape.

Take care everyone!

Thoughts on the Markets (3 July 22)

Since my last post one week ago, markets have dropped somewhat. S&P is now at 3825, down from 3911.

General Markets

The corrective bounce ran out of steam, and the major equity markets dropped a few percent. There was a rebound in US yesterday, and S&P went up about 1%. However, I doubt the uptick can be sustained, as there has been a constant stream of bad economic news flow applying downward pressure on sentiment.

Earnings season in the US is starting in the 2nd week of July. This is another potential source of downward pressure on equities. There is a significant risk that earnings expectations have not come down enough. If earnings disappointment + negative economic news flow hit the markets together, it would be difficult to avoid another down leg.

Commodities

Commodities are still falling. Below is the chart for copper.

There has been no relief at all for commodities, even with China’s re-opening impulse. The pessimism from the global downturn seems to be overwhelming everything else.

Is there still room for further falls? Let’s take a look at a longer timeframe for copper.

Copper is still above pre-COVID levels. To me, it feels like there is still room for further falls. Of course, things rarely move in a straight line.

Trading Considerations

I am back to favoring shorting commodities, as negative economic news flow has been relentless. Except for China PMIs which have been ok, but their economic stimulus has been underwhelming so far. However, prices have dropped a lot, so a lot of agility is needed to avoid getting caught in any violent rebound.

As for the long side, I still like bonds. Bond yields have dropped somewhat, with 10-year Treasury yields dropping to multi-month lows. Recession fears are the culprit. Just be careful and do not bet huge on junk bonds for their high yields, as recession will still hit low-quality bonds badly.

Take care and good luck!