Menu
Menu
✓ Entry price: 12.62 ✘ Exit price: 27.25 ▲ Theoretical gain: 115.95%
The broad dollar weakness of 2020 provided an ideal scenario to leverage precious metals. In March, we flagged the RSI on the gold/silver ratio was back to 55-year highs and suggested we enter one of our favorite trades. In May we watched the outperformance of silver vs gold, feeding our narrative of economic recovery and a move towards “value”.
In August we called the exit, advocating taking partial profit on longs at 27.25.
What Happened Next?
From August 18th to September 18th, 2020, Silver dropped 3.2% from our exit price, supporting our views on the long trade’s timing.
✓ Entry price: 12,790.49 ✘ Exit price: 10,356.7 ▲ Theoretical gain: 21.23%
2020 brought with it a favorable outlook for tangible assets (the commodity play). In April, after continued dollar weakness we made the call to enter the trade; selling USD against our favored cross – AUD.
While our theory on USD weakness was on the money, the odds of a corrective dip emerged in October. The onset of some highly erratic price action followed. In January 2021 we tightened our stops, exiting the trade at 0.7769.
What Happened Next?
From January 7th 2021, until the end of the month, AUD/USD held steady, dropping 0.01% from our exit price, reinforcing our conviction on the trade’s timing.
✓ Entry price: 83.88 ✘ Exit price: 60.56 ▲ Theoretical gain: 27.80%
Our analysis of the KBW Bank Index and the S&P REIT Index (BKX/REIT) showed that it tends to track US 10yr yields. In March 2020, the divergence was at the lows of late 2008, just before the BKX dropped 56%.
March 5, 2020, we made the call to enter the trade at 87.86. Ultimately, we feared that US banks would remain expensive versus their global peers and, given the collapse in yields, would eventually go a lot lower. Less than three weeks later, we called the exit at 60.56.
What Happened Next?
From March 20th, 2020 to May 20th, 2020 BKX appreciated 14.05% from our exit price, reinforcing our conviction on the short trade’s timing.
✓ Entry price: 86.04 ✘ Exit price: 69.75 ▲ Theoretical gain: 18.93%
February 2020, HYG was holding up remarkably; only down 3% from the highs despite a pretty substantial drop in shares outstanding.
February 28, we made the call to enter the trade at 86.04. Yet, we believed there was a downside; especially if (as we feared) recessionary risks started to rise. By March 5, credit had become the weak link in the trade. Just two weeks later, on March 20, we suggested exiting at 69.75.
What Happened Next?
From March 20th, 2020 to May 20th, 2020 HYG gained 16.2% from our exit price, reinforcing our conviction on the short trade’s timing.
✓ Entry price: 1275.52 ✘ Exit price: 1499.15 ▲ Theoretical gain: 17.5%
Precious metals are a play on a weaker dollar, inflation, and, in April 2019, were sitting close to 20-year, relative lows. Following our call to enter the trade on April 10, Gold responded rapidly to the prospect of US monetary easing. We saw Gold strengthen against a range of currencies, including the USD.
By September 9 prices had surged since we first suggested buying Gold. However, they had become vulnerable to a bout of reflation. We called the exit at a price of 1499.13.
What Happened Next?
From September 9th, 2019 to November 9th, 2019 XAU slumped 2.68% off our exit price, reinforcing our conviction on the long trade’s timing.
✓ Entry price: 12,790.49 ✘ Exit price: 10,356.7 ▲ Theoretical gain: 21.23%
Earlier this year, the DAX was breaking key support of a major wedge that had held the market since the end of Q3 2019. February 25, we made the call to enter the trade at 12,790.
In terms of the potential size of the fall, we watched the divergence between the DAX and Siemens stock. Given current levels, we targeted a fall in the DAX to just under 11,000.
By March 12 we were staying the course, moving the stop to a close above 10,780 before suggesting an exit on April 6.
What Happened Next?
From April 6th, 2020 to June 6th, 2020 DAX appreciated 27.52% from our exit price, reinforcing our conviction on the short trade’s timing.
500 S. Frontage Rd. E., #112 Vail, CO 81657
© MI2 Partners 2021