Oil and Sugar fall, Credit Agricole and the Franc strong.

Daily Analysis - 12/01/2018

GBP gives back what it gained yesterday against the Franc while crude is falling after reaching 3 year high.

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Oil is finally taking a breather after very sharp rises of late. The Swiss Franc is finding a bit of backbone particularly against the British Pound. French bank Credit Agricole has really found investor confidence that has driven the price nicely upwards while sugar continues to fall and be a profitable trade.

Oil correcting down.


As Frank Sinatra would often sing, “…how high the sky”, we ask about the price of crude oil today. After hitting a three year high of $64.77 yesterday it is breaking lower and therefore presents a good trading opportunity to sell it short. This is however hardly a long term recommendation as the price of the commodity visible on the daily chart is clearly up. Remember, in the capital markets the tendency for prices to trend, which means their natural inclination to continue going in the direction that they are going is well founded, documented and understood. This is not to say that the trend always continues or that all trends have specific lengths of time. No. Let’s not get carried away to trader fantasy land. Rather, the herd instinct is wired into humans as well as birds flocking, livestock on the hoof or fish schooling. The herd instinct is arguably the most important psychological characteristic of capital markets. It must be understood and mastered to capitalize and maximize profits when trading. It is the subject of a longer exposition that will be presented here so suffice to say that the persistence of price to continue in a direction is often times a good position to stake out when trading. That the oil price does so only reinforces the point because, fundamentally, meaning the factors present in a market for a good (fundamentals), as opposed to the technicalities of the movement of its price (techincals) overall demand for crude is and has been on the decline for quite some time. Electric cars and more efficient transport engine technology assure this. Yet in short spans of time, days or weeks, within the longer trend there are reversals of that longer trend, called corrections, where you take the opposite direction from the long term prevailing trend and make money on “the reversal”. This is such a time in the oil patch. While the OPEC production ceiling has had some effect that drove and perhaps will continue to drive prices up, we are in a correction that will drive prices down for a bit of time. Maybe a week, maybe to return to its long term decline. Currently, Oil DOWN.

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Credit Agricole vigorously up.


There are several factors driving Credit Agricole the French banking house up so strongly. As we are fond of pointing out, pundits who pretend to explain price movements as if there is a single or definitive reason for tens of thousands of traders acting the way they do are not only full of themselves they are full of #$%^ because there is rarely a simple or unified reason for traders doing much at all in a unified, lockstep way. These are free markets with the freedom to do whatever you like for whatever reason you see fit. That the net effect of that freedom may drive prices strongly in one direction or the other hardly implies that there is a singular reason for the movement. This is not to say that there aren’t reason traders thinking what they do. Here are some reasons. They may drive you to think that the price movement is indeed justified. You could just look at the chart and say, yes, that is a strong trend that I want to profit from. First is that Credit Agricole has recently completed acquiring three Italian savings banks. The French bank imposed several serious preconditions on the acquisitions and having been met, the investments look to be good ones. Second the ECB recently decided that the capital adequacy requirements for Agricole are currently sufficient and need not be increased. This means that there is no need to put more cash aside and that the bank is strong and well run. Credit Agricole UP.

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GBPCHF


The Swiss Franc, often considered a “safe haven”, not unlike Gold, sort of, (the whole “safe haven” bit has always been somewhat shrouded in smoke and mirrors) nonetheless has clawed back losses accumulated yesterday against the Sterling. Not surprising for what we consider two fundamental reasons. Remember that a fundamental in the capital markets, is a truth that transcends price movements. In other words it is a fact of life in the environment or Eco space s moderns like to call the characteristics surrounding an asset. This as opposed to a technical characteristic which is the behavior of the price movement. Technical behavior usually goes hand in hand with fundamental truths, butt can and often does deviated from them. This ain’t science ladies and gentlemen. This is Social science. Humans are involved here. Never lose sight of that. The first fundamental truth concerning the GBPCHF pair is Brexit. This is indeed a fundamental reality with truly transitional effect. The Brexit has and will continue to produce seismic volatility in the GBP pound for at least the next year and likely for some time after that. The phenomenon is profound. The second fundamental is the Safe haven bit referred to above. While we maintain that this is both in the case of gold and the Swiss, a not entirely clear function, nonetheless traders reliably think otherwise. As the US dollar weakens the Swiss way more often than not responds with strength. As the Ripley people like to say, “believe it or not”. We are trend followers and therefore… GBPCHF DOWN.

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Sugar souring.


Selling sugar short has been a good trade for us and our followers for over a year now. Huge oversupplies in the sugar market thanks largely to the fundamental (and highly ridiculous) government policies of heavily subsidizing the producers of sugar beets to the point of overproduction and price reduction. Does this stop the farm welfare? Surely not. Does this make for a trade that is reliable and profitable? You bet it does. Sugar DOWN

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