The only six trades you’ll ever need to make

Wednesday, 3 July 2019
Adelaide, Australia
By Bernd Struben

  • A peak behind the curtain
  • Gold’s big move higher

Yesterday I wrote to you about our upcoming trading series titled, ‘The ASX Algo-Edge’.

It’s being offered free to paid subscribers of Port Phillip Publishing courtesy of our sister company, Agora Financial Australia (AFAU). That’s right. It will cost you nothing to attend…save an hour or two of your time.

The four part series kicks off tomorrow, 4 July, at 1pm AEST.

As a reminder, if you’re a buy and hold investor this probably isn’t for you. But traders, you’d be mad not to tune in.

If you missed yesterday’s Port Phillip Insider, you should read that first to get up to speed. You can find that in your email inbox. Or here.

I’ll assume now that you recall or have just reviewed how the methods about to be revealed in the Algo-Edge trading series could supercharge your returns. And how in rigorous back testing this method delivered a hypothetical overall gain of 298% on Qantas stock over the past decade. Which beats buy and hold investors by a whopping 195%.

There’s a reason I profiled Qantas, by the way. It’s one of the six ‘stocks’ targeted by the Algo-Edge.

The other five are BHP Group, Commonwealth Bank, Telstra, the gold market and the ASX 200.

You’ll note those last two aren’t exactly stocks. No worries though. Both gold’s performance and the ASX 200 are closely tracked by highly liquid exchange traded funds (ETFs). You can buy and sell shares in these just as you would in any listed company.

Now two points here.

First, high liquidity is essential to the success of the Algo-Edge trading system. It won’t work consistently with small-cap stocks.

Second, back testing this method on the other five ‘stocks’ also demonstrated massive outperformance over buy and hold investors.

I won’t go into the specifics today. All of that is covered in the upcoming trading series.

You’ll also discover why, depending on your personal circumstances, these could be the only six Australian markets you ever need to trade again. And most of the time, you’ll only need to adjust your trading positions once per week…if at all.

That’s it. Six trades a week offering up seven times the potential gains compared to simply holding onto these stocks.

It’s a bold claim, I know. Even with the caveat that there are obviously no guarantees in the stock market.

A peak behind the curtain

So let’s look at the brains offering to give you this ‘Wall Street edge’ in your trading.

His name is Tom Meyer. Like my wife, he stems from Texas. Unlike my wife, he spent 25 years working the trading desk at Morgan Stanley.

Rather than my telling you anymore though, I’ll share the email Tom sent to me and a few of our editorial staff yesterday:

Hello all and greetings from Texas!

It’s nice to meet you, even if it’s just by email. As you’ll learn over the next several days, I became involved in algorithmic trading after the dot com crash in 2000 (that’s almost 20 years ago now, I must be ancient).

I was with Morgan Stanley at the time. They, and the other brokers, were quick to tell their clients when to buy, but never told them when to sell. It was a bloodbath. I was living in Austin at the time (still have my house there) which is a big technology center. 

I met a group of people working on trading with algorithms and became involved heavily in the research and the practical trading applications. The algorithms appealed to me for two reasons. 

1) The programs are a self-contained investment methodology

2) They have a built-in discipline that forces us to override the emotions and cognitive behaviors that hurt us as investors. The algorithms allow us to stay in winning trades longer and exit losing trades more quickly. 

On a practical basis, I believe that… [the Algo-Edge method] is a natural fit for those of you who pick stocks using fundamental analysis. We know that most investors like to use different methodologies and… [this] should be able to complement what your readers are already doing with you.

Feel free to follow up with any questions you might have.

Thank you for all of your efforts.  Hopefully, we’ll have the opportunity to meet in the near future.

Best regards,

Tom

Tom’s trading series — hosted by AFAU’s publisher James Woodburn — is available free to our paying subscribers here at Port Phillip Publishing. To join in, you just need to register with your email address.

And then tune in at 1pm AEST tomorrow.

You can register with your email address here.

Now a look at the markets…

Markets

Overnight, the Dow Jones Industrial Average closed up 69.25 points, or 0.26%.

The S&P 500 closed up 8.68 points, or 0.29%.

In Europe the Euro Stoxx 50 index finished up 10.39 points, or 0.30%. Meanwhile, the FTSE 100 gained 0.82%, and Germany’s DAX closed up 5.34 points, or 0.04%.

In Asian markets Japan’s Nikkei 225 is down 167.07 points, or 0.77%. China’s CSI 300 is down 0.54%.

In Australia, the S&P/ASX 200 is up 38.79 points, or 0.58%.

On the commodities markets, West Texas Intermediate crude oil is US$56.58 per barrel. Brent crude is US$62.80. per barrel.

That’s a 3.6% fall in WTI since I wrote to you yesterday…when it was down 1.4% over the previous day.

It’s almost as if OPEC+ didn’t just tell the world they’re sticking to their output cuts for another nine months. And it goes a long way to showing you how toothless the cartel has become.

The mainstream financial media is pointing the finger at demand worries. Trump and Xi may have hit the pause button in the China-US trade dispute, but the world’s two largest economies appear no closer to reaching an agreement.

To be sure, slowing global trade and economic growth crimping demand is part of the picture. But the real story here, as I’ve written many times before, is the massive uptick in crude supply.

From the AFR:

“It was the bare minimum OPEC could agree on in order to prevent a major meltdown in prices. Member countries noted that global oil demand growth for this year has fallen to 1.14 mbpd (million barrels per day) whilst non-OPEC supply is expected to grow by 2.14 mbpd,” PVM analyst Tamas Varga wrote in a note.

That’s 2.14 million barrels more oil hitting the markets each day than a year ago. 2.14 million barrels outside of OPEC’s control, no less. And production from the US and other non-OPEC nations is only expected to increase.

With those figures in mind, it’s going to be mighty tempting for member states to fudge the figures on their allotted quotas. If the renewed agreement begins to unravel, I’d expect WTI to drop to US$40 per barrel…or less.

While oil tanked gold surged overnight, up more than 3.1%. The yellow metal is trading for US$1,434.96 (AU$2,051.70) per troy ounce. Silver is US$15.37 (AU$21.98) per troy ounce. (More on gold below…)

One bitcoin is worth US$10,745.49.

The Aussie dollar is worth 69.94 US cents.

Gold’s big move higher

When you’re talking about assets like bitcoin, a 3.1% overnight price rise is almost negligible. Bitcoin can gain 10% or more in hours…only to lose that much the next day.

But when you’re talking about an asset like gold, a 3.1% rise is big. Really big.

You can see just how quickly gold appreciated in the chart below:



chart image
Source: kitco.com
Click to enlarge

At US$1,434.96 gold is again trading at more than six-year highs in US dollars.

And at AU$2,051.70, that’s also right around a new record close in Aussie dollar terms.

Gold’s current price surge is largely thanks to its haven status. When uncertainty rises, investors tend to turn to gold.

And there are plenty of uncertainties brewing around the world. From potential escalations in the US-China trade war, to potential hot wars in the Middle East, Ukraine, or the South China Sea, things could turn ugly in a heartbeat.

Then we have the central banks.

As you know, the RBA cut interest rates to a new record low 1.0% yesterday. And the bank is considering dipping its toes into QE. That’s where central banks buy bonds to inject billions of dollars into the system.

And the RBA has company. Lots of it. Central banks in the US, Europe, Japan and China (to name a few) are all eyeing further rate cuts and considering reigniting their own QE efforts.

That’s a clear signal that all is not well in the global economy. It’s also a signal that the days of earning a decent return on your cash holdings are fast disappearing in the rearview mirror.

All these factors are supporting a continued run higher for gold.

But there’s something even bigger brewing behind the scenes. Something the mainstream looks to be wholly missing that could send gold soaring to new record highs, not only in Aussie dollars but in US dollar terms as well.

As I mentioned earlier this week, our editorial director, Greg Canavan unearthed this angle during one of his marathon research stints. He’s spent the past few weeks getting it all down on paper.

Greg tells me that special report is in its final stages now. Keep an eye out for that next week.

Cheers,
Bernd