The Four Horsemen

Updated: Jun 25

Hello again traders - its been a while :).

I intend to start being more active on Twitter in the coming days and weeks and thought I´d kick off by taking a look at the bigger picture before I start to post some trade levels for the indices where we can try and make some money. That's why we´re all here right? To trade and make money in whatever conditions :).

So lets take a look at where we are at from a few thousand feet before we get down into the day trading trenches in the coming days and weeks.

Whilst not wishing to state the obvious, you´ll have noticed a certain degree of nervousness in the equity markets of late. In all asset markets for that matter due to the seeming paradigm shift we have seen of late basically from a very prolonged period of loose economic policy since the GFC of 2009 to a rapidly evolving much tighter monetary environment.

This appears on the face of it perfectly warranted in standard economics terms. Inflation is out of control so must be tamed by higher rates - but the big difference in this authors opinion is that we seem to be tightening into the face of a looming recession.

Indeed not just a recession but rate hikes are taking place at a time when the global economy has been hit for six in the past couple of years not just by Pestilence (our first lone rider) but is now joined by War, in the heart of Europe, which has every chance of loosing the other two, Famine and Death!

I know, I get it - it sounds a bit too bleak when put in those terms and none of us hopes that all four pale riders will strike at once which could cause untold damage to our ability to contain the onslaught. But dear reader, this appears to me to be a simple statement of fact rather than an overly pessimistic piece of doom mongering.

Spiraling inflation, potential stagflation, personal consumption demand boost from pent up savings built up during Covid lessening, the Russia Ukraine conflict, sky high Fuel prices and the threat of food shortages as a further consequence are of course all linked but no less real.

This combined with the threat of Russian aggression spilling over into a wider European (world?) conflict and the possibilities that might bring forth are all in the mix right now and seem to me will have a major impact on our ability to deal with them and the subsequent damage they could unleash on our economic systems.

I should state at this point, I am an eternal optimist. Always have been. We will figure out a solution, we always do, but right now things do look pretty dark. I cant think of time in the past 40 years when all four Horsemen ( ok give me a bit of artistic license to make my point ) look to be capable of hitting us all at once!

The next question from our traders perspective is what will be the impact on asset and derivative prices and how should we be framing our overview for trading decisions, and, more importantly, how will we deal with it when our preferred solution of turning on the liquidity taps has effectively been shut off by the need to control the inflation beast?

It seems we can´t head them off at the pass this time by untold Central Bank support. So, if that's the case, we´re headed towards recession - just a matter of when. According to a survey from the beginning of June of 49 leading US macroeconomics experts, this is likely to hit (in the US) sometime next year 2023, probably in the first 2 quarters. For Europe (and I include the UK here - call me Brexit denier lol) - who knows - but certainly things don´t look great.

It is with this global economic backdrop then that we trade through to the end of this year.

Of course this doesn't mean from our perspective that trading needs to be all doom and gloom. Quite the opposite in fact as we just need to be aware of what's going on, frame our trades accordingly and try to make hay when the rest of the world burns - possibly (hopefully not). I´ll not get into the ethics question of profiting from others misfortune - its just the way the world is. We are traders - our job is to make money - however and whatsoever is happening elsewhere.

So where does this leave us?. Well I guess the one thing I´ll have in mind until such time as evidence (and or the charts) point otherwise is that I´d not be thinking of riding a bull market as a swing trader right now. As it happens and as most of you know, I am not a swing or position trader. I am a day trader / scalper and the above for what its worth is just my take on the overview of current conditions.

To be practical, (as we always must) it wont really effect what I do day in day out one bit although I might be careful riding longs and more relaxed on the short side for now. But hey, we will take it day by day as ever and take our shots where they arise.

In summary, the above is by way of trying to paint a picture of where we are starting from this summer in terms of the global economic perspective and setting my mind frame accordingly. I hope the worst case does not come into play - who knows where it could lead from the markets perspective let alone for our overall wellbeing. But whatever happens there looks like being plenty of trading volatility ahead which means only one thing for us - opportunity!

Catch you all later via twitter with some DAX, NDX, DOW and SPX levels and trade opps. As for the Four Horsemen - fuck ´ em - we can trade anything!

Keep smiling!

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