BTC CME Gap- Fast update.
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Cme!
It’s Corn!You know the “It’s Corn” song trending on TikTok? It brings a smile to our face every time we hear it. But if you look at Corn’s price chart and fundamental outlook, that’s a whole other story…
Corn’s recent breakout of a symmetrical triangle towards the downside caught our attention. With the clear break and an ensuing retest, Corn is now trading right on previous support levels. We think this might just be a small reprieve in the downward direction it is headed.
Not only that, when you zoom out to a longer timeframe, Corn has just broken its long-term trend support established since 2020.
This combined with the symmetrical triangle break proves to provide a strong bearish case from here. Classical chart pattern analysis points the take-profit range from the triangle pattern, at roughly 292 points away. From the initial point of breakout, 292 points away takes us back to the 360 level which was the average price seen from 2014 to 2020, back to pre-covid and pre-Russian/Ukraine conflict levels.
Additionally, in a or few previous analyses we emphasized how many of the commodities have started to return to ‘normality’ with prices moving back to pre-war levels. We have already seen Wheat and Soybean retracing most of the War rally as prices tumbled, therefore it’s not hard to see Corn do the same soon.
Other supporting fundamental factors include the falling Ethanol prices and in turn, lower usage of corn for Ethanol, resulting in overall supply to increase.
Fertilizer prices have also fallen from all-time highs, with continued downward momentum. Lower fertilizer cost means better margins for the farmers and potentially higher usage of fertilizers in planting, which may result in better crop yield. Both factors work to lower corn price through more competitive pricing from the farmers and increased supply.
Combined, we think the fundamental and technical chart set-up provides a convincing case for Corn to fall lower. We set our stops above the triangle apex and at the previous level of resistance, 688, and our initial take-profit levels at 565 followed by 455, giving us a risk reward of roughly 1.46 and 3.66 from the current level of 637.6. Each 0.0025 point increment in CME Corn Futures is equal to 12.5 USD.
The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Disclaimer:
The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description.
Reference:
www.cmegroup.com
www.cmegroup.com
However you slice it, real estate doesn’t look good.While it might not be the subprime/GFC “SELL” kind of situation, the real estate sector is undoubtedly facing headwinds.
With the most recent Fed’s preferred inflation measure, the Personal Consumption Expenditure (PCE) printing higher than consensus, maybe it’s about time we take the Fed’s hawkish commentary more seriously. To review, let us look at interest rate expectations from a month ago vs today. Market expectations are now pricing in three 25bps hikes instead of one, and more importantly no more rate cuts in the second half of 2023. This rise in rates expectation has notably resulted in sideways action for equities, while the dollar strengthens. What a difference a month makes!
Mostly importantly, it’s not hard to see how higher rates will translate into higher mortgage rates. This is bad news for home buyers as borrowing becomes more and more unaffordable. In fact, higher mortgage rates have continued to weigh on the minds of Fed officials as underscored by the following statements in the latest Fed minutes, including “Participants agreed that activity in the housing market had continued to weaken, largely reflecting the increase in mortgage rates over the past year.” and “Participants agreed that cumulative policy firming to date had reduced demand in the most interest-rate-sensitive sectors of the economy, particularly housing.”
Existing home sales are now at a 12-year low, surpassing the 2020 lows. Only 2 other periods post-GFC, saw a lower print, and it’s worth noting that mortgage rates during those periods were at the same level or lower.
Home prices have also started to turn over, ending a 12-year run higher. Lower prices could indicate tepid demand in the housing market, which we will watch closely over the next few prints.
And forward-looking indicators all seem to point towards contraction. With US Building permits and NAHB Housing Market Index slightly off the covid low, while the MBA Purchase Index close to the 7-year low.
It does seem like however, we slice it, real estate looks pretty ugly now. One way to express the bearish view on real estate could be to use the CME E-Mini Real Estate Select Sector Futures which tracks the S&P Real Estate Select Sector Index. Looking at the sector futures alongside the 30-year Mortgage rates shows us the effect of the rising rates on the real estate sector.
On the technical front, we see the sector future breaking the short-term support established since October 2022, while the longer-term trend seems to point downwards.
Given our view that rates have further to go, negative home prices and sentiment measures across the board, and a technical break lower, we see the potential for the sector future to trade lower. We set our stops at 196, a previous resistance level, and the take-profit level at 163, with each 0.05 increment in the index equal to 12.5 USD.
The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Disclaimer:
The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description.
Reference:
www.cmegroup.com
www.federalreserve.gov
A simple sell strategy for Heating OilWith price and “commodity premiums” that we track showing signs of a structural shift, we think these represents potential tradeable set-up in the mid to long term as supply and demand finds some way to normalization after the pandemic & war shocks over the past 2 years. Hence, we think commodities will continue to be where the actions at.
With winter just about over, we thought it would be perfect time to look at the ‘talk’ of pre-winter, Heating Oil.
After a staggering 600% run-up from the depths of 2020 to the peak pre-winter last year, Heating Oil might just be on the opposite journey now.
On a weekly timeframe, Heating oil has decisively broken the uptrend established since 2020 and now sits on the support level for the 2011-2014 period of 2.75.
Zooming closer on the RSI, the current level proves to be a pivotal point for heating oil’s trend, as each time the RSI crosses below the 40-level, it is followed by an accelerated move lower. In fact, taking a short position every time the RSI crosses below the 40-level would have netted an average of 27%, if you manage to catch the bottom!
Even if you can’t catch the bottom, following the strategy, where we build a short position in heating oil when RSI crosses below 40, and hold it until RSI crosses back above 40, would still make a respectable 18.3% average return.
On a shorter timeframe, Heating Oil seems to be trading within a descending channel, with the trend pointing lower.
Another thing we like to look at is the relationship/premium between Heating Oil and Crude Oil. However, as the two types of contracts are quoted differently, we have some work to do to rebase the prices into a comparable format. Given that Heating Oil is quoted in US Dollars and Cents per gallon, while Crude Oil is quoted as US Dollars and Cents per barrel, we can convert Heating Oil to be denominated in barrels.
1 barrel equals to roughly 42 gallons, therefore, we can simply multiply Heating Oil price per gallon by 42 to get its price per Barrel. Given Heating Oil is 2.7505 USD per gallon, this works out to be roughly 115.52 USD per barrel.
This allows us to see the relationship between Heating Oil and Crude oil. The former is trading at a premium to latter.
Over the past winter the Heating Oil premium reached it’s all time high, toping out close to 100 USD per barrel more than Crude Oil. With Spring now in sight, it appears a new season has dawned upon this premium, with the Heating Oil - Crude Oil premium now falling below the previous highs in 2011-2012. Should this continue, then we can expect the price gap between the 2 types of oil to close, with Heating Oil being the likely culprit to drive it lower.
The general downward trend in current Heating Oil prices, falling Heating Oil premiums and historical RSI-based sell trigger, all point towards a potentially lower Heating Oil.
We would consider setting up the trade in the following 2 ways to express our view:
1) Wait for the RSI to cross below 40 and sell, setting the take-profit based on the RSI crossing back above 40 again to close the position. Each 0.0001-point move in Heating Oil Futures Contract is $4.20 USD
2) Trade the spread between Heating Oil and Crude Oil by taking a short position in the CME Heating Oil Futures Contract and a long position in the CME Crude Oil Futures Contract. Given that 1 Heating Oil Contract is for 42,000 gallons, which is equivalent to 1000 barrels, we can Short 1 Heating Oil and Long 1 Crude Oil to form the spread, in order to match the position size of the contracts.
The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Disclaimer:
The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description.
Reference:
www.cmegroup.com
www.cmegroup.com
Get ready for one more swing 🚀 🚀I want to set a buy limit in the CME GAP area that was created last January.
Here are some of my considerations:
• BTC will retest MA50 & MA200 support Which is already the Golden Cross.
• At the same time it will close the CME GAP
• Cup and Handle Formation will be formed
• Also will be Inverse Head & Shoulders
• RSI will also make a Hidden Bullish Divergence
CME GAP at 28K is my target 🚀🚀
Sorry my bad eng 🙏
Do Your Own Research
Fading the Soybean Oil premium.Jumping straight into the technicals, we see a head and shoulder pattern on the daily Soybean Oil chart. With the neckline now broken, it seems a bearish set-up might be possible.
While the technicals are important, understanding where the current price level of soybean oil is in context to other products could help us build further conviction on this idea.
Firstly, the Soybean crush components. Currently, Soybean Oil trades at a pretty large premium against Soybean and Soybean Meal. Looking at the price ratios of Soybean Oil/Soybean & Soybean Oil/Soybean Meal, we also see that both have been trading out of the ‘normal’ range since 2021. With both ratios now trending lower and knocking on the door of the normal range again, we will watch closely to see what happens as we approach this critical juncture.
Secondly, Soybean Oil vs its substitute, Crude Palm Oil. Again, we see Soybean Oil as the outlier here, as prices diverge from Crude Palm Oil, with Soybean Oil trading higher. Looking at the bottom chart, we can clearly see the Soybean Oil/Crude Palm Oil ratio deviating from the average range established in 2018 – 2021. With this ratio recently trending lower, a break below the upper level of the range established (dotted line) could accelerate the closing of this premium, as seen in the 2021 to 2022 period, where the ratio collapsed swiftly.
The technically bearish setup, coupled with Soybean Oil’s relative valuation against the soybean complex and Crude Palm Oil on fundamental standpoint, makes a decent case to short Soybean Oil Futures from here.
To express this view, we can consider setting up the trade in a few ways:
1) An outright short on Soybean Oil using the CME Soybean Oil Futures, at the current level of 60.05, setting our stop at 67 and taking profit at 42, with each 1-point move in the Soybean Oil Futures contract equal to 600 USD.
2) A spread trade between Soybean Oil & Crude Palm Oil, by taking a short position in the CME Soybean Oil Futures contract and a long position in the CME Crude Palm Oil futures contract. Such a setup could potentially allow you to stay profitable even if you turn out to be ‘wrong’ in your market views if it eventually proves that crude palm oil has been underpriced and the soybean premium is closed by crude palm oil rallying. For this trade, it is trickier to set up due to the contract size and tick value difference.
Interested readers can check out one of our previous ideas where we have covered this trade in further detail:
The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Disclaimer:
The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description.
Reference:
www.cmegroup.com
www.cmegroup.com
www.cmegroup.com
The yield curve has to un-invert eventually… right? (Part 2)This week, we thought it will be interesting to review the trade from last week given the reaction post-FOMC, as well as discuss an alternative way to set up this trade.
Firstly, let’s review the post-FOMC/employment data reaction.
- Nonfarm Payrolls surprised to the upside, as over half a million jobs were added way above the estimates of a sub 200K number.
- Unemployment rate continues to fall further, reaching a 53-year low of 3.4%
A clear re-pricing has occurred since last Friday’s better-than-expected jobs data and Wednesday’s Federal Reserve meeting. With markets now expecting 1 more rate hike in May, bringing the peak rate up from the 475 -500 bps range to the 500-525 bps range.
Keeping this in mind, we go back to our analysis last week to understand this situation and historical precedence.
While the time for a pause in rate hike seems to be pushed back, in the grand scheme of things, we think that this has only kept the window of opportunity for this trade open for longer and at a more attractive entry point now.
Without repeating ourselves too much, we encourage readers to take a look at our idea last week which explores the historical correlation between the peaking of yield curve inversion and the pause in Fed rate hikes.
Link to our last week’s idea:
This week, let’s tap into a different instrument. Here, we aim to take a short position on the 2Y-10Y yield differential by creating a portfolio of Treasury futures to express this view.
To do so, we would have to first select the 2 instruments, the 2-Yr Treasury futures is a straightforward choice for the short end. But for the 10-Yr leg, we have a choice of the '10-Yr Treasury Note Futures' vs the 'Ultra 10-Yr Treasury Note Futures'. Digging into the contract specification, the 'Ultra 10-Yr Treasury Note Futures' provide a better proxy for the true 10-year duration exposure as the delivery requirements are for Treasuries with maturities between 9year 5 months and 10 years. In comparison, the underlying of '10-Yr Treasury Note Futures' has a maturity between 6 year 6 months and 10 years.
With contract selection out of the way, the next step is to calculate the Dollar Neutral spread. This requires us to identify the DV01 of the front and back legs of the spread and try to match them. This is to ensure that the entire position remains as close to dollar neutral as possible, so we can get a 'purer' exposure to the yield difference between the front and back legs, and parallel moves are negated. CME publishes articles on this topic to explain the setting up of a DV01 spread clearer than we can explain. You can find them attached in the reference section below.
You can handily find the DV01 of the Cheapest To Deliver (CTD) securities on CME’s website.
In this case, we are looking at the 2Yr and Ultra 10Yr Treasury Futures to set up the trade. With the DV01 of the 2Yr at 34.04 and the DV01 of the Ultra 10Yr at 96.26.
The spread ratio can be calculated as 96.26/34.04 = 2.83. Rounding this to the nearest whole number, we would need 3 lots of2-Yr Treasury Future and 1 lot of Ultra 10-Yr Treasury Future, to keep the DV01 equal (neutral) for both legs of this portfolio.
Given our view of the 2Yr-10Yr yield spread turning lower, we want to short the yield spread. Yield and prices move inversely, hence, to short the yield spread, we long the Treasury Futures spread as it is quoted in price. We can long 3 ZTH3 Futures (2Y Treasury Future) and short 1 TNH3 futures (Ultra 10Y Treasury Future) to complete 1 set of the spread. However, since the 2-Yr Treasury Futures has a notional value of 200,000 while the Ultra 10Y Treasury Futures a notional of $100,000, the price ratio will be 6:1 when the position/leg ratio in the spread trade is 3:1. As such the current level would provide us with an entry point of roughly 494 with a minimal move in Ultra 10yrs representing 15.625 USD and that in 2Y representing 7.8125 USD.
While slightly more complex in setting up, this trade allows us another alternative to express the same view on the yield curve spread differential. Being able to execute the trade via different instruments allows you to pick the most liquid markets to trade or take advantage of mispricing in the markets.
The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Disclaimer:
The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description.
Reference
www.cmegroup.com
www.cmegroup.com
www.cmegroup.com
www.cmegroup.com
Nasdaq: Short-term bull Long-term rangeWhy market is entering into short-term bullishness again and latter uncertainty or range?
We will do both technical and fundamental analysis in this video tutorial, and we will see how both analyses can affirm each other.
Refer to the related video link, I explained at greater length. Or you can always visit my YouTube channel.
Content:
. Why market is entering into a short-term bullishness? (Fundamental & Technical studies)
. Subsequently the market will enter into a range (Fundamental & Technical studies)
CME Micro Nasdaq Futures
Minimum fluctuation
0.25 = $0.50
1 = $2
10 = $20
100 = $200
1000 = $2,000
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
The yield curve has to un-invert eventually… right?Those who have been reading our past 2 ideas will know we’ve been harping on and on about expected rate path and policy timelines. Why the recent obsession you ask? Because we think we’re on the cusp of major turning points.
So, for the third time, let’s look at the market’s expected policy rate path.
With FOMC coming up this week, we are expecting a 25bps hike followed by some commentary/guidance on the next cause of action. Based on CME’s Fedwatch tool, markets are expecting a last hike of 25bps in the March FOMC before a pause in the hiking cycle. Now keep that in mind.
One interesting relationship we can try to observe is how the 2Yr-10Yr yield spread behaves in relation to where the Fed’s rate is. We note a few things here.
Firstly, the ‘peak’ point of the 2Yr-10Yr spread seems to happen right around the point when rate hikes are paused. With the Fed likely to pause as soon as March, we seem to be on the same path, setting up for a potential decline in the spread.
Secondly, the average of the past 3 inversions lasted for around 455 days, and if you count just the start of the inversion to the peak, we’re looking at an average of 215 Days. Based on historical averages, we are past the middle mark and have also likely peaked, with current inversion roughly 260 days deep.
Looking at the shorter end of the yield curve, we can apply the same analysis on the 3M-10Yr yield spread.
The ‘peak’ point of the 3M-10Yr yield spread is marked closer to the point when the Fed cuts, except in 2006, while the average number of days in inversion was 219 days and the average number of days to ‘peak’ inversion was 138 days. With the current inversion at 105 days for the 3M-10Yr Yield spread, we are likely halfway, but the peak is likely not yet in. (Although eerily close to when the Fed is likely to announce its last hike, March FOMC, 51 days away).
Comparing the 2 yield curve spreads, we think a stronger case can be made for the 2Yr-10Yr spread having peaked and likely to un-invert soon.
Handily, CME has the Micro Treasury Yield Futures, quoted in yield terms, which allows us to express this view in a straightforward manner allaying the complications with DV01 calculation. We create the short yield spread position by taking a short position in the Micro 2-Yr Yield Futures and a long position in the Micro 10-Yr Yield Futures, at an entry-level of 0.623, with 1 basis point move equal to 10 USD.
The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Disclaimer:
The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description.
Reference:
www.cmegroup.com
www.cmegroup.com
Bitcoin CME Report for Tuesday 17 Jan 2023 to Tuesday 24 Jan 202CME Overview:
Bitcoin and crypto, in general, have had a major run starting most significantly since the start of the new year. BTC1! Is the Bitcoin Chicago Mercantile Exchange Futures trading and comprises significant institutional trading of Bitcoin. The most significant data we use in this report are from the Dealer and Intermediaries which are the Exchanges and Brokerages as well as the Asset Managers the latter of which has been longing the 2021 all-time high and subsequent bear market to their peril.
The report that comes out on Fridays shows the actions that occurred by position from the previous Tuesday to the Tuesday before that. This current report shows a week-long snapshot of CME positions on Bitcoin from Tuesday the 17th of January to Tuesday the 24th of January. New reports are released on the following Friday after the market closes.
Bitcoin CME Report for Tuesday 17 Jan 2023 to Tuesday 24 Jan 2023
From the 17th to the 20th of January price increased from $21.2k to $22.4k before a 2-day break for the weekend. Most notably from Monday the 23rd and Tuesday the 24th the CME gapped up, meaning that the close price from Friday (CME closes for weekend trading) the price of Bitcoin increased from $22.4k and opened on Monday at $22.6k. This creates a “Gap”, and by rule, gaps do not have to be filled however probability says they have a higher fill rate than not. That weekend gap has now been taken out completely however a gap from the 14th and 15th of January largely still exists between $19.9k and $20.4k with a massive and older gap from the 12th and 13th of June 2022 above us at $27.4k and $29.1k.
Dealers and Intermediaries are Extremely Short
Short Positions:
In the current reporting period, we see that Dealers and Intermediaries (The Exchanges / Brokerages) increased their longs by 101 positions bringing their total long positions to 304 while still adding 726 short positions bringing their total short positions to 4,346. This is very different from what usually occurs in relation to lower timeframe price action as we see Dealers and Intermediaries usually adjusting their positions more regularly to catch the Major Moves.
As the price has increased in this period this is the most significant adding of short positions by the Dealers and Intermediaries that we have seen since the end of March 2022 when Dealers and Intermediaries massively shorted to force a Q2 open underneath the Q1 open and thereby wrecking quarterly options. Dealers and Intermediaries are now 93.4% short.
Asset Managers are still largely out of Position and Entirely Long
Long Positions:
The other interesting figure from a more accurate perspective is how out of position the Asset Managers have been in the last year plus as they began heavily building longs at the highs in the fall of 2021 and now they have begun to heavily increase their positions in this weeklong period by a further 644 positions to a total of 7,671 long positions and closed 243 short positions leaving only 63 short positions total for asset managers. This means that compared to short positions Asset Managers and Institutions are 99.2% Long with relatively zero shorts.
Summary
This most recent COT report is interesting as it shows Asset Managers and Institutionals are only long at the same time as we have had good market movement to the upside with each level creating support. The Asset Managers and Institutionals are entirely in Long positions as they added massive longs that are/were out of position going back to November of 2021 and throughout the 2022 bear market.
Bitcoin is still holding key levels however, the extreme bearish sentiment is starting to dissipate as Bears are being and have been punished in every range and consolidation period. Every continuous move-up was met by heavy shorting from retail thus providing more liquidity to move price upwards. This is now starting to change as Retail is beginning to add longs in this previous weekly range while shorts were squeezed out of position on Wednesday.
The gap down at $19.9k to $20.4k is still in place and breaking any significant structure above still allows the market to capitalize on taking out later longs that got into position over $20k which have yet to be punished. The upside move is still in play until support is broken, a new gap that could be formed come the Monday open on Jan 30th would potentially provide an incentive for market movement as we open the week.
Late Longs have not been significantly punished as heavier liquidity is building below us. That being said the weekend trading can decide quite a bit if we start closing 4hr or daily levels below the Weekly Open at $22.6k. The confirmed loss of this level will potentially allow us to short higher up and at the failure of the structure. Shorts have also already been punished and Longs have been by all accounts allowed to keep positions as heavy support still exists.
All eyes are on the FOMC interest rate decision on Wednesday the 1st of February, with the forecast being an increase of .25% from 4.5% to 4.75% which should be a catalyst to move the market should the forecast not meet the decision.
Retail is starting to flip their bias long just as the Asset Managers have both of whom have been largely on the wrong side of the market for well over a year. Conversely, the Dealers and Intermediaries have been largely correct in their positions and their massive adding of shorts in this area which should not be taken lightly as they have been right throughout the bear market.
Our thoughts about the Dealers and Intermediaries are simple, don’t bet against them, they have all the data and see all the positions.
When downside volatility becomes an advantage.It’s been a while since we looked at the Russell 2000. For the uninitiated, the Russell 2000 index is a small-cap stock market index that is made up of the smallest 2000 stocks in the Russell 3000 Index.
The small-cap nature means a few things, volatility tends to be higher for one. And capturing this downside volatility using the Russell 2000 as compared with the S&P 500 has almost always proven more fruitful.
When to take this trade you may ask? The recession bellwether indicator of the 2Y – 10Y yield spread is a simple place to start. With the benefit of hindsight, shorting each of the indexes at the peak ‘inversion’ points proves to be a decently successful strategy. Especially so using the Russell 2000.
So the next question to ask is if we are near the peak point of inversion?
To answer this, we have to circle back to research from last week, where we discussed the expected rate path for the Federal Reserve (Fed).
In short, markets seem to be pricing in a Fed pause, followed by a pivot in the coming year. Looking back at the charts, this shift in stance (or pause) highlighted in the top chart generally marks the turning points for the 2y-10y yield curve inversion, highlighted in the bottom chart. Therefore, with markets expecting a pause as early as the first quarter, we suspect that the turning point for the yield curve inversion is just around the corner.
On price action, the 1900 level proves to be of significant resistance, with multiple attempts to break through being rejected. As prices creep towards this resistance level once again, we think this might just provide another attractive opportunity for trading.
Zooming out to a daily timeframe, the 0.382 Fibonacci levels marked by the previous high and low, also coincide close to the resistance levels on the shorter timeframe.
The proven downside volatility, along with the coming turning point in the yield curve inversion, keeps us bearish on the Russell 2000. Additionally, the price action points to significant resistance overhead, around the 1900 level. Setting our stop at 2035 level (one Average True Range away & close to the next resistance level) and take the profit level at 1690, with each 1-point increment in the Russell 2000 futures contract equal to 50$.
The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Disclaimer:
The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description.
BTC CME Weekly Breaks 200 EMABTC IS way overbought on the daily time-frame, but on CME Weekly Chart Overbought is not hit till $29955 and trading above the top side Bollinger Band on the Weekly which still shows strength. Just Crossed the Weekly 200 EMA today on CME. but... BTC Daily did kiss the 200 Simple today, so... pull-back to the 23.6 or 38.2 could be expected, below 38.2 watch for point of control at $19150 approx... on TradingView.. Chefrusty will publish my convoluted chart
Potential Head & Shoulders in play on BTC so watch out Potential Head & Shoulders in play on BTC so watch out
We could be looking at dropping down to $21k this week with a head & shoulders forming. IT would make about sense with that heading back to the CME gap along with an unfilled weekly pivot.
CME close as minor S/R levels.Not a great deal of excitement to be had from bitcoin lately. However here's a recurring pattern i have been observing lately since we've been stuck in so many tight ranges. Quite simply the horizontal lines here correspond to recent CME weekly close prices. The whole gap filling thing is well known so i won't go into that but what is more interesting is how many times these lines have provided minor supports and resistances when viewed in shorter time frames. Last week's close level has provided us 6 small bounces since tuesday, perhaps more if we zoom into even lower timeframes from last weekend. This is not an isolated case either.
Obviously this is mainly of interest for scalping while the market is so tightly bound but it's useful to note that some like the 18th and 25th Nov closes lower down have also given us so larger bounces.
To clarify the price i'm using is the actual weekly close from the CME futures regardless of any divergence it has from the spot price at that same time. Initially i was just looking at them for gap fill targets but it seems they continue to be useful even after that. Worth taking the time to explore this while the market is sideways. I expect this idea will become obsolete whenever btc starts to show signs of a trending direction, either up or down. Of course, we may be waiting some for that to happen.
Bitcoin CME Report for 10 Jan to 17 Jan and AnalysisCME Overview:
Bitcoin and crypto, in general, have had a major run starting most significantly since the start of the new year. BTC1! Is the Bitcoin Chicago Merchantile Exchange Futures trading and comprises institutional trading of Bitcoin.
The report that comes out on Fridays shows the actions that occurred by position from the previous Tuesday to the Tuesday before that. Basically, showing a week-long snapshot of institutional positions on Bitcoin and in this idea post from Tuesday 10 Jan to Tuesday 17 Jan which is back-dated by 3 days.
Bitcoin CME Report for Tuesday 10 Jan 2023 to Tuesday 17 Jan 2023:
From the 10th to the 13th of January price increased from $17.1k to $19.9k before a 2-day break for the weekend. Most notably from Monday the 16th and Tuesday the 17th the CME gapped up, meaning that the close price from Friday (CME closes for weekend trading) the price of Bitcoin increased from $19.9k and opened on Monday at $20.9k. This creates a “Gap”, and by rule, gaps do not have to be filled how ever probability says they have a higher fill rate than not fill rate. That gap has now been reduced from $20.4k to $19.9k but largely still exists.
In this period we see that Dealers and Intermediaries (The Exchanges / Brokerages) reduced their longs by 100 positions while still maintaining 3600 short positions. This is very different from what usually occurs in relation to lower timeframe price action as we see Dealers and Intermediaries usually adjusting their positions more regularly to catch the Major Moves
Asset Managers still largely out of Position:
The other interesting figure from a more accurate perspective is how out of position the Asset Managers have been in the last year plus as they began heavily building longs at the highs in the fall of 2021 and now they have begun to heavily increase their positions in this weeklong period by a further 800 positions. This means that compared to short positions Asset Managers and Institutions are 95.8% Long.
Dealers and Intermediaries are still Short:
To bring this into perspective Dealers and Intermediaries are still 94.69% Short having heavily shorted in the fall of 2021 and then built and continuously added major shorts from April and from the Summer of 2022, continuously increasing their positions until now.
Summary:
This most recent COT report is interesting as it shows Asset Managers and Institutionals building longs at the same time as we have good market movement to the upside. This means that we are potentially seeing Asset Managers and Institutionals breaking their losing streak of being out of position consistently in the past 18 months or so.
The major move-up in Crypto has been driven by extreme bearish sentiment and heavy shorting in the market as every continuous move-up is met by heavy shorting from retail actors thus providing more liquidity to move price upwards.
The gap is down at $19.9k and is still in place and breaking any significant structure above still gives the opportunity for the market to capitalize on taking out later longs that got into position over $20k. The upside move is still in play until support is broken, a new gap that could be formed come the Monday open on Jan 23rd would potentially provide an incentive for market movement as we open the week. Our recommendation is simple, the upside should continue until we have a significant break of structure. Late Longs have not been significantly punished as heavier liquidity is building below us.
#BTCUSDT - Short YOLO Opportunity#BTCUSDT - Short YOLO Opportunity
Lots of Bearish indicators going on here now. Can go for a bit of a yolo BTC short here. Might pay off really well. Although we are seeing some random BTC pumps coming in although it is looking like people are starting to realise some profit now.
Entry Conditions:
- Bearish Divergence
- 200EM Daily Rejection
- Ascending Wedge Breakdown
- Bearish CME Gap
- Bearish Weekly Pivot
Interest rate up to at least 6.5% in 2023, why?The Fed chairman has given the market a very important clue on 13 Dec 22.
At what level will he consider an interest rate cut?
He said “I wouldn't see us considering rate cuts until the committee is confident that inflation is moving down to 2% in a sustained way,” meaning only if CPI is heading nearing 2% then it is hopeful to see a rate cut.
Market consensus for CPI to range between 5% to 8% for this year. If this is the case in 2023, the Fed is likely to continue to hike the rate moderately at 0.25% in each meeting just to bring inflation down.
I am seeing this as the best case scenario.
We can participate in hedging the market and trading the interest rate in this example.
CME Micro 30 Year Yield Futures
Minimum fluctuation
0.001 point = $1
0.01 point = $10
0.1 point = $100
1 point = $1,000
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
I hope this tutorial will be helpful, in enabling you to read into the market with greater clarity.
Stay-tune for the video version shortly, we will do more in-depth study.
The Entry - Sell Today, we will do a few case studies on how we can make a market entry, this technique can be applied both the long-term or the short-term trades.
Today’s content:
1. 25 Nov 21 - Entry signal to short (transiting into today’s bear)
2. 13 Oct 22 - Entry signal to go long (for this bear rebound)
3. Today – Entry signal – Sell
If you have been following, today’s is the 5th tutorial in our Trading Series:
1. “The buy strategy”
2. “The sell strategy”
3. “Developing long & short-term view”
4. “Choosing between the time frame”
5. “The entry”
E-Mini Dow Jones Futures
Minimum fluctuation
1 point = $5
10 points = $50
100 points = $500
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Still Waters Run Deep - Bitcoin Set To Go Bullish?BACKGROUND
Bitcoin (BTC) price has been in decline for the past year with price crashing as much as 20% on a single day in June. Still, the low set of $17,750 on 18 June (Saturday & hence unseen on CME chart) has turned out to be a resilient support level.
BITCOIN PRICES RESILIENT RELATIVE TO S&P500 (SPX) and NASDAQ-100 (NDX)
NDX and SPX with which BTC is generally correlated have both set new lows since June while BTC has been traded within the same range (of $18k - $20k). This again shows remarkable price resilience. Analysis from market experts points to significant deleveraging within the crypto industry and hence the perception that crypto prices might have bottomed out.
SHRINKING IMPLIED VOLATILITY
Thirty-day forward implied volatility is at record low. Low premiums to acquire call options to secure outsized gains from price break-out is seen on non-traditional crypto derivatives exchanges. Call-put ratio of 2.09 on Deribit points to 2.09 calls for every 1 put, underscoring the bullishness in BTC. However, call-put ratio on CME is 0.362 at the time of this writing.
BULLISH ONCHAIN SIGNALS
Turning our attention to on-chain analysis, we notice that Long Term Holders GLASSNODE:BTC_ACTIVE1Y (those who held BTC for at least 12 months) now represent nearly two-thirds of total BTC supply. This again points to further selling pressure being limited.
BULLISH TECHNICAL INDICATORS
Talking of technicals, BTC/USD is showing a falling wedge formation, suggesting the possibility of a breakout.
BTC has retested its June support at DXY local maximum. As the USD is the primary base currency against which BTC is traded, the value of the Dollar strongly impacts BTC price. The DXY has been rallying all year with an unprecedented rate hiking cycle. However, the DXY has started to show a broadening ascending wedge formation, signaling the softening of rate hiking cycle. The CME FedWatch tool currently suggests three more rate hikes are likely by 22nd March 2023. Anticipation is that each of these upcoming hikes will be incrementally lower relative to the last four outsized rate rises.
TRADE SET-UP
CME’s Bitcoin futures for December are currently discounted relative to spot at the time of this writing, offering investors an opportunity for a long position - amid a macroeconomic backdrop which poses a significant threat to risk assets such as BTC. With that backdrop, an entry around $20,770 with a stop loss at $17.7k (the June low) might provide a compelling trade set-up. Profit could be taken at previous bear market rally highs of $22.7k and $25k delivering a risk reward ratio of 1.38 and 0.63, respectively.
CASE STUDY WITH 1 LOT OF CME Micro Bitcoin Futures
One lot CME Micro Bitcoin Futures provides exposure to 0.10 BTC. CME Micro Bitcoin Futures expiring January 2023 requires a maintenance margin of USD 528 per lot.
Entry at $20,770 and take profit at $22,700 would result in $193 in profits with a return on capital of 36.5%. However, if the trade turns sour triggering a stop-loss at $17,700, it would lead to a loss of $307 amounting to a loss of 58%.
Investors must take note that when prices plunge sharply, stop-losses might be triggered at levels way below the set levels inflating realised losses.
CME Real-time Market Data help identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
DISCLAIMER
Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
This material has been published for general education and circulation only. It does not offer or solicit to buy or sell and does not address specific investment or risk management objectives, financial situation or particular needs of any person.
Advice should be sought from a financial advisor regarding the suitability of any investment or risk management product before investing or adopting any investment or hedging strategies. Past performance is not indicative of the future performance.
All examples used in this workshop are hypothetical and are used for explanation purposes only. Contents in this material is not investment advice and/or may or may not be the results of actual market experience.
Mint Finance does not endorse or shall not be liable for the content of information provided by third parties. Use of and/or reliance on such information is entirely at the reader’s own risk.
These materials are not intended for distribution to, or for use by or to be acted on by any person or entity located in any jurisdiction where such distribution, use or action would be contrary to applicable laws or regulations or would subject Mint Finance to any registration or licensing requirement.
Is the Santa Claus rally real?As we approach Christmas, for yet another year, we wonder if Santa is real, or rather if the Santa Claus Rally is real.
Some hypotheses about the Santa Claus rally include the lowered Institutional liquidity as traders go on holiday (just like us, soon!). That leaves the retail crowd, proven to be bullish on just about anything, pushing markets higher. There have been many studies on this effect on the US markets with results ranging from slightly better than a coinflip chance to none at all.
We thought to experiment with this idea and look at the same effect but on another market instead.
With the massive benefit of hindsight, a simple, buy the Nikkei 225 in the middle of December and sell at the high/low before March comes around strategy, giving a win rate of 70% and an average win return of 10.3%, while the average loss was -11.3%. Interesting, but nothing much better than a coin toss with some variance.
Now as a Trader, we always try to position ourselves in highly expected value situations and find a unique edge where others might not look.
In this instance, how we can re-position ourselves is perhaps by looking at the spread between the US Index against the Japanese Index, before trying to identify the seasonal factor (Santa Claus Rally). But before we go further, it’s often good to think about how or why this trade might just work out:
1) Holiday impact – generally the Christmas holiday holds greater cultural importance in the US, hence it is likely that more will be on holiday in the US during this season.
2) Diverging monetary policies - The Bank of Japan remains one of the last central banks which stick to its negative interest rate policy (NIRP) even as inflation creeps higher. While the US Federal Reserve has led the world with its ultra-hawkish stance, raising its policy rates in a steadfast manner. The differences in monetary policies could nurture different directions for equities in respective markets, namely hawkish or tight conditions for the US vs dovish easing condition for the Japanese market.
3) Difference in accounting/Financial years – Differing accounting practices and book closure dates mean flows will differ for each market as institutional traders prepare to close their positions for their financial year.
4) Investors trying to front-run the January effect, where investors re-establish their positions after tax loss harvesting in December.
These factors combined drive the Japanese and US markets differently, especially over this, year-end, holiday season.
On to specifics, one way to look at the spread between the US and Japanese market could be to use the S&P500 Futures and Nikkei 225 Futures as proxy for the individual markets. Adjusting each Futures contract by the point value, $50 USD x S&P 500 Index point for the S&P500 Futures and $5 USD x Nikkei Stock Average for the Nikkei 225 Futures allows us to compare the two on a contract value/dollar for dollar basis.
Applying the same, buy in the middle of December and sell before March strategy, gives a similar 60% win rate, but the average win now returns 71.4% while the average loss is -18.3%. A very rough back of the napkin expected value calculation gives this strategy a rough 35% expected return while the strategy on the Nikkei 225 alone returns roughly 4%.
While one could try this strategy, we intend to provide a starting point to reflect on how we could creatively pair products to extract more value out of decades-old strategy. For example, on CME the listed Japanese Index Futures suite alone consists of products, such as the Dollar & Yen denominated Nikkei 225 (NIY/NKD) and Topix (TPY/TPD), all of which could be used to form variants of the above strategy. Something to think about as we head into the holiday season and prepare ourselves for an even better trading year ahead.
And just like that, we are on our last piece for the year. We will be taking the rest of the year off and back in January with more! Merry Christmas and Happy Holidays everyone!
The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Disclaimer:
The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description.
Sources:
www.jstor.org
www.fool.com
www.cmegroup.com
www.cmegroup.com
www.cmegroup.com
www.cmegroup.com
Short-term trading beat long-termWhy short-term trading into the US market beats the long-term investing in the year 2023?
As much as the Fed wanted to dial down the interest hike for the rest of the coming meetings, but they have limited control. It all depends on the forthcoming data, especially the CPI and the employment numbers.
If these data continue to have a higher number, the Fed may not have a choice, but to resume back to its massive rate hike.
There are 4 types of investor or traders, they are:
1. Long term investor
2. Short term investor
3. Short term trader
4. Intra-day trader
Greater volatility is expected in 2023 and why the 2,3, and 4 may works better in 2023.
This is what we will be discussing today:
Content:
• Investing types & its time-frame
• Short-term trading strategy
CME Micro E-Mini S&P Futures
Minimum fluctuation
0.25 point = $1.25
1 point = $5
10 points = $50
100 points = $100
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
For Bitcoin, Investing and Hedging Go Side-by-SideBITSTAMP:BTCUSD Bitcoin (BTCUSD) fell below the psychologically important $30,000 level in the beginning of June, after it briefly reached $31,800 on May 30th. In early May, the leading cryptocurrency touched bottom around $25,000 amid the US stock market selloff.
Extreme price volatility is the trademark of Bitcoin throughout its history. Crypto investors’ optimism is short-lived, as the worst is not yet behind us. At $29,850, current Bitcoin price is -57% off the all-time high of $69,215 on November 8th, 2021.
A 1-year chart clearly shows an unstoppable downtrend. The Russia-Ukraine conflict is ongoing. China’s Zero-Covid policy and lockdowns slow down its economy and cloak up global supply chain. US inflation and gasoline price are at record-high, even after two rounds of Fed rate actions. On top of these, we never know when Elon Musk might send a tweet and spook the crypto market.
Long-term investors may “Buy and Forget” about the daily volatility and hope to see $100K Bitcoin in a few years. For Crypto asset, you don’t want to forget about it completely, as you might not remember how to retrieve it later. I have the unfortunate experience of losing a few ETHs when my iPhone 7 suddenly died. The unique word-combination required to unlock my wallet sits quietly in a safe in Wuhan, where I have not been able to return to since COVID first broke out there in January 2020.
For investors holding Bitcoin asset, hedging the downside risk is critical to successful investment. Usually, investors could lock in the price by shorting Bitcoin Futures. However, most of us do not want to give away the upside potential, so this strategy is not ideal.
I suggest buying CME Bitcoin Put Options instead. A Long Put gives you the right to sell at strike price during the life of the Options (American) or at contract expiration (European). When Bitcoin Futures trades below the Strike, you could exercise the options and pocket the price difference. Profit from options trade helps offset the loss incurred by holding the Bitcoin asset.
Let’s use the case below to illustrate: (1) On May 30, you buy an out-of-the-money Put with a Strike of 29000 on June 2022 CME Micro Bitcoin Futures. The option premium is $60 per contract. (2) At contract expiration, Bitcoin falls to 28000. You exercise the Put and receive a Short Futures position on CME Micro Bitcoin. (3) You immediately buy back a futures contract to close out your Short position. This trade earns you $1,000, which is the difference between market price and strike price. Minus the $60 premium, your options trading profit is $940. If you use the $60 as a cost base, your investment return will be 1567%.
What if Bitcoin rises above the Strike? Your investment in Bitcoin asset will increase in value. The premium you paid upfront is the maximum loss from the options trade. I consider this a low-cost insurance contract for protecting my Bitcoin asset.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
