≈ Reve-ve-ve-ve-ve-VENGE! ≈
“You wear a mask for so long, you forget who you were beneath it.”Alan Moore, V for Vendetta —
As traders, we tend to think the markets are prone to rhymes and plagiarism and that historical correlations will maintain themselves over time, no matter what. In other words, by looking at the past, you can infer that the future will somehow be the same.
That’s when the rearview mirror problem sets in. You can’t hit the road and expect to arrive at your destination by merely looking at the rearview mirror. Don’t assume there will be a clean and straight road ahead of you just because you are seeing one through the rearview mirror.
A shaken and volatile market like this one proves the point. When a huge correction happens the correlation of the assets tends to 1. They are all in the same boat moving together with the tide.
- Gold vs. the market: 1
- Silver vs. the market: 1
- Real Estate vs. the market: 1
- Utilities vs. the market: 1
- Japanese Yen vs. the market: 1
- Swiss Franc vs. the market: 1
There are no safe havens in a house fire.
The solution: Arbitrage time and take advantage of psychological distortions, typical in moments like this. Start by posing yourself the following question: Do you think the Corona Day will last 5 months or 5 years?
While people sell and make correlations between uncorrelated assets merge into the same number, you project the future and un-correlate them back again.
The markets can recover in a V-shape, in a double V-shape (W) or in a Reve-ve-ve-venge-shape (like Ken’s in “A Fish Called Wanda”). Whatever the case, as a trader, enjoy the V for Volatility and avoid the V for Vendetta.
Recommended reading: “My Thoughts About the Coronavirus” by Ray Dalio.
Chart of the Day
Looks like the market recovery will assume the V for Reve-ve-ve-ve-ve-VENGE shape.
Video of the day
Ken’s Revenge (A Fish Called Wanda, 1988)
V is for Reve-ve-ve-ve-ve-VENGE!
Today’s line up
Traders Lounge 11 PM EST
Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.
The Coaches Show Replay
If you missed last night’s episode where Coaches Markt Justice and Noah Davidson talked about Battling Narratives: The Fed vs Coronavirus or would like to watch it again, check it out in the video below.
Tackle 25 MasterMind Group 8:30 PM EST
Join and learn how to better use the Covered Call System with the Tackle 25.
Halftime Report 12:30 PM EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.
Trading Justice Podcast Episode 363: Coronavirus Update
In this episode of the Trading Justice Podcast, Matt, Tim, and Mark get together to discuss the recent market volatility and massive sell-off that occurred last week in stocks. Listen to the episode in the player below:
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