The ‘secret sauce’ that drives the system

Friday, 5 July 2019
Adelaide, Australia
By Bernd Struben

  • Pity the oil bulls
  • Why gold’s back in the spotlight

I’ve spent a good bit of time this week writing to you about the ASX Algo-Edge trading series.

And for good reason.

The four-part trading series has the potential to change the way you trade forever. And the potential to amplify your returns by as much as 600% over a buy and hold strategy.

I won’t recap all of that today. If you’re tuning in for the first time this week, you can review the key details on the Port Phillip Insider website here. Just check the last three issues.

Anyhow, we’ll keep this part brief today.

The series is hosted by Agora Financial Australia’s (AFAU) publisher, James Woodburn. And it features former Morgan Stanley wealth manager, Tom Meyer.

Rather than bang on about the merits of Tom’s trading system, I’ll just show you this one chart today:



chart image
Source: Thomas Meyer
NOTE: Figures exclude trading fees, taxes and dividends
Click to enlarge

If you read Tuesday’s Port Phillip Insider, you’ll note it looks strikingly similar to the 10-year chart I showed you for Qantas.

Only this chart is for BHP Group Ltd [ASX:BHP].

As with the Qantas chart, the black line represents the returns you would have gotten if you’d bought BHP shares a decade ago and simply help onto them.

The green line is the hypothetical return you would have received (based on methodical back testing) using the methods Tom Meyers reveals in the ASX Algo-Edge. As you can see, that’s a potential outperformance of 152%.

The yellow line is the transition zone. What James likes to call ‘the secret sauce’ that drives the algorithm.

The transition zone appears to almost mirror the share price. But if you look closely you’ll see it’s sometimes higher and sometimes lower.

As Tom explains in the ASX Algo-Edge, this zone determines whether you should go long, go short, or go to cash and rest on the sidelines for a while.

Intrigued?

I was.

Although the series commenced yesterday, if you haven’t signed up there’s still time.

AFAU is archiving the first two parts of the series for a few days yet. If you register now you’ll be able to watch the first two parts before part three comes out tomorrow.

You can register to watch all four parts by clicking here. And remember, as a paying subscriber of Port Phillip Publishing, this won’t cost you anything.

Now a look at the markets…

Markets

Overnight, US markets were closed for the Independence Day holiday.

In Europe the Euro Stoxx 50 index finished up 3.52 points, or 0.10%. Meanwhile, the FTSE 100 lost 0.08%, and Germany’s DAX closed up 13.66 points, or 0.11%.

In Asian markets Japan’s Nikkei 225 is up 7.53 points, or 0.03%. China’s CSI 300 is up 0.10%.

In Australia, the S&P/ASX 200 is up 48.78 points, or 0.73%.

On the commodities markets, West Texas Intermediate crude oil is US$56.81 per barrel. Brent crude is US$63.31. per barrel.

Turning to gold, the yellow metal is trading for US$1,419.30 (AU$2,020.36) per troy ounce. Silver is US$15.30 (AU$21.78) per troy ounce.

One bitcoin is worth US$11,169.84.

The Aussie dollar is worth 70.25 US cents.

Pity the oil bulls

Oil bulls just can’t catch a break.

Both Brent and West Texas Intermediate crude are down since yesterday, with WTI falling 0.7%.

You probably remember the laundry list of issues that bullish analysts assured us would send oil back above US$100 per barrel this year. Hopefully you also remember that I called BS on their bullishness.

But the thing is, pretty much all of these issues worked out the way the bulls had hoped.

For example…

Venezuela’s oil exports remain embargoed by the US.

OPEC+ this week agreed to extend the cartel’s current production cuts by nine months…only to have oil fall 4.8%. That’s it’s worst decline following an OPEC meeting in more than four years, according to Bloomberg.

And Iran’s oil exports are getting squeezed to a trickle, also courtesy of the US.

Topping it off the drums of war are sounding louder in the oil rich Middle East.

The UK dialled up the heat yesterday when its military commandeered a supertanker in its territorial waters off Gibraltar. The tanker was hauling Iranian oil destined for Syria. The Iranians, as you’d expect, are less than pleased.

Historically in the lead up to Middle East conflicts — in 1991 and again in 2003 — oil prices rose strongly prior to the outbreak of war.

Yet history doesn’t appear to be repeating.

Reduced demand from slowing global economic growth and the flood of potential oil on tap are keeping a firm lid on prices.

Perhaps there’s also hope that the Iranian regime comes to its senses and returns to the negotiating table with the US. Hope that was fanned by Iran’s Intelligence Minister Mahmoud Alavi yesterday.

Unfortunately for Mahmoud Alavi, he looks to have let the cat out of the bag prematurely.

Yesterday, Iran’s state run IRNA news agency quoted Alavi as saying, ‘Negotiation between Iran and America will take place if the supreme leader [Ayatollah Ali Khamenei] gives the permission.

But it looks like the supreme leader wasn’t ready to reveal his hand yet.

From Bloomberg:

Major state-run news agencies, including IRNA, later simultaneously ran a statement from the intelligence ministry denying that there was any mention of negotiations by the minister.’

Methinks they dost protest too much.

Me also thinks we could be seeing Iran reach out to the US inside the next few months.

Europe, China, and Russia can join the renewed negotiations too, if they wish. But Trump has made it clear who wields the stick here.

And Trump is a strong proponent of cheap energy.

If Trump does reach a ‘great new deal’ with Iran, crude could be trading at fresh lows heading into 2020.

Why gold’s back in the spotlight

At US$1,419.30, gold is down US$1.15 per ounce since I wrote to you yesterday. But that’s still right near its six year highs.

And all signs — the known and largely unknown alike — point to a significant run higher from here.

Gold buff Mark Mobius highlighted the known tailwinds in an interview in Singapore.

From Bloomberg:

Veteran investor Mark Mobius says that gold’s set to push higher, potentially topping $1,500 an ounce, as interest rates head lower, central banks extend purchases, and uncertainty surrounding geopolitics and cryptocurrencies fans demand...

Mobius isn’t the only high-profile gold fan as prices climb. Billionaire trader Paul Tudor Jones has listed the metal as his favorite pick over the next 12-to-24 months, saying that prices could move to $1,700 once they breach $1,400. BlackRock Inc. said last month it expects bullion to end the year higher.’

Central banks (particularly in China and Russia) ramping up their gold purchases. Interest rates falling below the inflation rate — making them negative in real terms. And a turbulent geopolitical outlook.

These, in Donald Rumsfeld’s infamous words, are the ‘known knowns’ likely to send gold prices higher.

Sticking with Rumsfeld, there are also ‘known unknowns’ at play. Ones which could potentially supercharge gold’s gains and send it far beyond the US$1,700 touted by billionaire trader Paul Tudor Jones.

Our editorial director Greg Canavan believes he’s uncovered just such a known unknown. If he’s right it could send the gold price soaring. And see gold miners enjoying eye-popping share price gains not witnessed since the 1970s.

Greg’s put it all down in a new free special report. I understand that’s in its final proofing stages now.

Keep an eye open for that next week.

Cheers,
Bernd