“Tracking is identifying an animal by the footprints the animal left on the ground, by it’s scat, and by the environment surrounding those footprints. By identifying the animal in question, a person can know whether to pursue the animal or evade it. ” – Native American Indian
Needless to say tracking is essentially what we do as traders, attempting to identify the footprints of various participants, analyze them, and decide whether to pursue or evade a particular security. Sometimes however, footprints are hard to detect, for example a 10 million dollar purchase in the T-bond market by an extremely knowledgable participant will likely go unnoticed as the T bond market is simply too deep.
But what if this same knowledgable participant would also trade a smaller, less liquid related markets?
This brings us to the Israel / Iran constant war rumor fest.
If we assume that such potential conflict will not be pre-announced as the U.S. Iraq war was for example, (it is simply not Israel “style,” ) and if we assume that such conflict will have an immediate impact on crude and equity markets, we as traders should be on a mission to look out for footprints.
But since crude and equities markets are extremely deep, looking at a smaller related market might provide an early mover advantage.
One such market is potentially the Israeli Shekel (ILS) which curiously enough is at a technical inflection point, following a decent decline (inverse chart) versus the USD, a breakout of the pennant formation below might provide a decent trading opportunity regardless of the reasons (the currency could be weak for unrelated economic reasons for all I know…)
Acceleration in the decline or in the currency’s volatility, might provide a great indication that “something” is going on, enough to get our antennas up, potentially tighten our stops in crude and other related markets, buy volatility etc…