If you had written a movie script about a former TV personality, a businessman and a convicted felon to boot, rising to become one of the most powerful men in the world.
Who would then embark on a multi trillion dollar game of chicken, with the future of the world’s economy as the stakes. You would likely have been laughed out of the Hollywood studios, for being too far fetched.
And yet that is exactly what has happened inside 6-months.
Giving life to Mark Twain’s celebrated quip
“ That the truth is stranger than fiction”
The second part of that quote goes like this:
“But it is because Fiction is obliged to stick to possibilities; Truth isn't”
The earth has literally moved under our feet and continues to do so daily.
Old assumptions and relationships, which the markets, and their participants relied on, have been cast onto the scrap heap of history.
And it's not yet clear if they will ever be retrieved and recycled.
At the recent IX trader show I cautioned the audience at my presentation to beware of bear market rallies which can be very sharp but very short lived.
I think it’s fair to say that what we saw on Wednesday evening, when the White House said it would pause reciprocal tariffs for 90 days, for those countries who had not retaliated ......
The subtext to this announcement was “we are looking at you China” creating a clash of the Global Trade Titans.
Bear market rally?
Source: Barchart.com
Many of us would like to have believed that the whole “horror show” had gone away.
But at best it's just been deferred, at worst it’s just going to play out in slow motion (?) over a 90 day time frame.
Emotions can create and or feed irrational behaviour.
That’s bad enough in real life but extremely dangerous in trading (and as it turns out far far worse in global geopolitics).
We saw that play out in real time on Thursday morning in the FTSE 100, and specifically in the share price of Barclays Bank ( BARC LN).
Following Wednesday evenings 90 day reprieve and bear market rally in US indices
Barclays were called to open higher by some +25.0% in early indications that circulate around the market ahead of the opening auctions.
In fact if we look at the graphic below, from Google Finance, captured shortly after the auction, the stock opened up by more than +28.00%.
Just let that sink the share price of one of the UKs biggest banks jumped by more than a quarter on the opening trade.
That in itself would be bonkers enough, but it’s even more bizarre because it should never have happened in the first palace. It was demonstrably wrong.
Opening prints
Source: Google Finance
Some sort of relief rally was inevitable of course given events on Wall Street the previous evening.
However it should be obvious to all that a +28.0% jump couldn’t be justified.
Not least because Barclays ADRs (effectively the UK stock repackaged for US investors) closed up by +11.00%, in the states on Wednesday evening.
There was no additional news and no reason to assume that Barclays should trade any higher in London, than that ADR close.
Well the penny eventually dropped, and by 8.17 am on Thursday morning, they were only up by just +15.91%.
Source: Google Finance
And by the time I posted this image, at 9.17 am, they were up by just over +11.00%.
Source: Google Finance
Barclays finished Thursday’s session up by just +7.70%.at 260.25p
They are down at 251.80p as I type off by -3.29%.
This is just one of many war stories from the market this week.
However what I find shocking is that the opening auction, which is meant to aid price discovery, did exactly the opposite.
Now it's easy to imagine that a crowd of retail traders got over enthusiastic, and their buy orders drove the price up by +28.0%, but the whole point of the auction is to try to avoid that sort of imbalance.
It’s also true to say that the auction is usually the preserve of market makers, hedge funds and other institutional traders.
Where were they when such an obvious selling opportunity presented itself?
This is the kind of set up that we should be on the lookout for in the current climate.
Price moves that make no sense, where emotion has overruled logic and simple maths.
I don't know if anybody took the trade and if they did, did they stay in until the lows?
Source: Barchart.com
The potential rewards available are clear for all to see in the HLOC data above and the price chart below.
Source: Barchart.com
This is not just a one off either.
At the trader show I also encouraged the audience to look at stocks that are being driven by things other than tariffs.
Yes there are other drivers, cast your mind back a couple of weeks and you will recall that Russia is at war with Ukraine, and that the US has indicated that it’s no longer interested in providing security for Western Europe .
European countries have been forced to up their defence spending by hundred of billions of euros as result ,
Rheinmetall RHM GR makes tanks, very good tanks by all accounts.
Germany is going to be spending an additional €500.00 billion on defence, and a fair chunk of that will come Rheinmetall’s way. Regardless of what happens in the tariff war between the US and the rest of the world.
So how can we explain this move on Monday the 7th of April, when the stock traded down to a low of €910.00 before ralling to close at €1252.00.
RHM isn’t the most liquid stock. So I can only assume that there was an aggressive seller in the market, perhaps as a result of a liquidation or fire sale.
And that their aggression forced the price down.
Emotional behaviour that left €340.00 euros per share up for grabs.
What was needed here was Patience not PANIC.
And, as the poet Rudyard Kipling wrote
“If you can keep your head when all about you are losing theirs...... the yours is the earth “
The earth might be stretching it a bit, but there are certainly opportunities out there in these torrid times.
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