2017 was starting really well for markets. On first day of trading in Japan, every single stock in my portfolio went up as Japan market caught up to a solid first day in US and Europe. No real surprise to see my pending purchase orders in Europe hit. I did a little more work in preparing for January 2017 (20th) option expiry date and I noticed a few warning signs of rumbles in currency markets emerge in my trade portfolio. 

https://s19.postimg.org/s44rggecj/Jan4_5_Trades.png

<h3>Bought</h3>

**Royal Dutch Shell** (RDSA.AS) Dec 21 Call Options 32 strike.  Dec 2021 options have just been listed. My view is that Royal Dutch Shell has lagged behind the US listed oil companies purely because it is listed in Europe. The buy:sell chart of buy Exxon Mobil (XOM) and Sell Royal Dutch Shell (RDS/A) shows XOM was outperforming and has now turned over. 

https://s19.postimg.org/ts3wv3s83/170104XOMvsRDSA.jpg

[Note: this chart uses the US listed ADR for RDS/A - so there is no currency impact. The shares I own in RDSA.AS are listed in Amsterdam] I have been positioning for this for a while. I already hold shares and December 2020 calls at 24 and 28 strikes. Current price is over €26. I am not expecting the oil price to fall from current levels and am comfortable that Royal Dutch Shell will continue to make profits at these oil price levels. 

**Zurich Insurance** (ZURN.VX). Added December 2021 Call 320 options. These are the first listings of 2021 options. This is part of a theme of investing in European Insurance companies which remain valued below Price to Book Value of 1.

**Aegon Insurance** (AGN.AS) Added December 2021 Call 6.4. I was hit on a bid for Call 7.2 last week - this is the intermediate strike price in the options staircase I am building. Current price is €5.6.  This is also part of a theme of investing in European Insurance companies

<h3>Sold</h3>

**SPDR Financial Select Sector ETF** (XLF1) Sold Jan 18 Call 24 for a 212% profit since July 2016 (I love asymmetric trades). This ETF spun off their real estate assets from the financial sector assets. This option contract is a blend of the two assets.  I believe that the Real Estate assets will behave differently to the Financial assets. I do not really like blended assets. I prefer to focus on the Financial assets for now. 

**Global X Argentina ETF** (ARGT) Sold Jan 17 Call 23 for a 5.2% loss since July 2016.  I was burned in January 2016 with a slew of options contracts that expired worthless. I have a bunch of January 17 contracts which expire on Jan 20. I do not want to get caught out again with expiries, rather take action to get some cash back and invest elsewhere. I had bought into Argentina as an idea in July 2016. 

Let's explore this as an investment idea. I had identified that Brazil was showing signs of recovery after the dual hits of a falling oil price and the corruption scandal. The buy:sell chart of the S&P 500 (represented by the SPY ETF) vs iShares Brazil ETF (EWZ) shows Brazil starting to outperform S&P500 in early 2016.  

https://s19.postimg.org/tdxzhriqr/170104SPYvsEWZ.jpg

I bought into Brazil via this ETF and a Brazil Small Caps ETF (BRF) in April after the turnover was confirmed. I was not really thinking about Argentina as the structure of the two economies are quite different - Brazil is much more resource based (including oil) than Argentina. Argentina came onto the radar screen when my investing coach identified that a bunch of Argentinian companies were starting to make new highs. Rather than invest in specific companies, I did what I always try to do first - find an ETF that tracks the idea. 

The buy:sell chart for S&P 500 vs Argentina (as represented by the Global X Argentina ETF (ARGT)) looks similar to Brazil - turned over in late 2015 with confirmation in early 2016. 

https://s19.postimg.org/x91dkc1wj/170104SPYvsARGT.jpg

The thought was that Argentina would follow Brazil. The next step is to identify ways to express the view.  For my core portfolio I bought the Arentina ETF directly at $22.50 in July 2016.  

https://s19.postimg.org/lg3kg45gj/170104ARGT.jpg

For an asymmetric trade, I looked at options.  I could buy a January 17 23 call for $0.96. This is one strike out the money (means: the current price is below the strike price) and was as far out in time as I could get options. The test then is to eyeball the charts and decide whether price will get to breakeven ($23.96 - the middle green line) and to 100% profit ($24.92 - the top green line) before time runs out (the vertical green line).  What I like to do is look back in time to see what sort of price moves have happened in the past. In this case, this ETF had been higher than the 100% target in 2012. Hindsight tells me that this was a stretch (not enough time to make 100%) but it was a perfectly good stock investment.

The next test is whether I should have sold the day I did or waited longer. I made an impulse decision to sell as close to breakeven as I could get - because I was feeling uncomfortable about the market reaction in emerging markets to Trump rhetoric. I do believe that the world economy is heading for growth which is good for emerging markets - and Argentina will benefit. However with a January 20, 2017 expiry date the short term market moves outweigh long term logic. So I sold and made a 5% loss - just got to believe that with the 95% I now have in cash I can find a better idea. 

Going one level deeper I have added Bollinger Bands to the chart.  These lines measure the standard deviation around a 20 day moving average.  

https://s19.postimg.org/rib76ltwj/170104ARGT_BB.jpg

I did have two chances to consider exit earlier - incidentally before the US election (marked with blue arrows). Recent price moves have gone through the center line and had reached the top of the bands the day I sold. Another lesson from hindsight - should not have sold that day. There is a cautionary tale here though - we were never to know what was going to happen in currency markets on January 5, 2017 when we looked at the charts on January 4 (or January 3 which is when I set up the trade)

I am going to do one more hindsight chart to look specifically at Brazil vs Argentina  on a Buy:Sell chart. 

https://s19.postimg.org/cav7m921v/170104EWZvsARGT.jpg

This shows that Brazil underperformed Argentina until early 2016 and since then has been outperforming Argentina. This tells me that I would have been better off staying focused on Brasil for all of 2016 and ignoring Argentina completely. I will review whether I sell the shares I hold in ARGT to focus on Brazil. The good news is I did add to Brazil positions during 2016 (through Small Caps ETF (BRF) and the large Brazil oil company - Petrobras. (PBR)).

<h3>Currency Trades</h3>

No new trades on January 4 or 5. I was stopped out on short XAUUSD on January 4. I had expected dollar strength to work through to a lower gold price.  This stop was a big warning sign which I only partly grasped at the time. The trade on Gold stopped out yet my trades that were short the EUR and CHF and JPY did not. What was the warning you might ask? 

This gets a little complicated. Commodity prices are all priced in USD. Normally what happens when the USD gets stronger for interest rate reasons, commodity prices go down.  There are two occasions when this does not happen. 
1. When demand for commodities is rising the price will rise. We have seen commodity prices rise from the June 2016 lows and certainly since the US election. 
2. When investors are looking for a safe haven. I had a feeling that something like this was going on late on January 4. When my USDJPY trade stopped out in the early trade of Janaury 5, I knew that something big was afoot.

The headline from Bloomberg today tells the story. 

https://s19.postimg.org/t3v2c5tib/170105ChinaHeadline.jpg

I was seeing the early shots in the massive action being played out in currency markets by China as they seek to protect their capital flows.  Here is a chart showing what happened to short term Chinese interest rates as China took action to stem capital outflows. 

https://s19.postimg.org/5qx0tnder/170105ChinaRates.png

https://www.bloomberg.com/news/articles/2017-01-05/bears-scramble-for-yuan-as-china-chokes-flows-supports-currency 

This action caught out very many traders (like me) who are banking on continued US Dollar strength. The lesson here is to be wary of mixing fundamental investing views and technical trading views. The technical indicators were all good but a (key) market participant stepped in to change the fundamentals. 

**Cautions:** This is not financial advice. You need to consider your own financial position and take your own advice before you follow any of my ideas, some of which are quite advanced. I do participate in an investing group - some of the ideas flow from there.

**Images:** I own the rights to use and edit the Buy Sell image. The China interest rate chart is credited below the image. All other images are created using my various trading and charting platforms. They are all my own work

January 6, 2016