facts & thought

In 2019, the ratio between stocks and commodities hit a 100-year low. As we end 2019, the ratio has contracted some but can shrink much more in 2020. Since 1979, inflation has remained muted. Given statements by Steven Kaplan, the President of the Dallas Reserve, that interest rates will remain low and the future of the dollar as the world’s reserve currency is questionable, the best trades for 2020 could be in commodities.

The Fear Of Missing Out (FOMO) appears to be showing up in recent days.

 $SPX and other major indices are roaring ahead, despite a relatively narrow number of stocks participating.
The seasonal period ("Santa Claus Rally" and the end of the post-Thanksgiving seasonal) runs through Friday, January 3rd. That doesn't mean the market will abruptly fall at that time, but it does mean that it won't have the benefit of seasonality after that date.
In summary, the outlook is bullish. A market like this can produce complacency, but that is the one thing we can control. We can and must avoid becoming complacent. But, for now, enjoy the ride.

The market could hardly be stronger.

Equity-only put-call ratios are in very overbought territory, but they haven't been able to generate strong sell signals (as yet).

Market breadth has improved, and breadth oscillators are on buy signals and are in modestly overbought territory.

Volatility remains in the bullish camp. First, the $VIX "spike peak" signal from December 4th remains in place. Second, the trend of $VIX is sideways-to-down, and that is bullish as well.

In summary, we are bullish based on the indicators. However, the massive number of overbought conditions is once again worrisome, so we would not ignore sell signals, should they appear. Meanwhile, tighten trailing stops where appropriate and enjoy the ride while it lasts.

Curve steepens, puts aside recession fears.

                 The FED is still pumping,  balance sheet is again on the rapid raise.

Worth noticing that almost 80% of SP-500 stocks are above their 200 day moving average. That has happened three times in the last five years, and every time it has happened the market has pulled back.

"People are never more insecure than when they become obsessed with their fears at the expense of their dreams."

The global risk rally ran out of steam today following four bullish sessions. Volatility remains very low on Wall Street, despite the British Prime Minister Boris Johnson's announcement to limit the transition period of the Brexit process, which could increase the risk of a 'hard-Brexit' yet again.

"The cost of borrowing cash overnight on the last day of the year has surged despite the US Federal Reserve’s injection of billions of dollars into markets in an attempt to ease the strain, raising concerns that investors may be in for a volatile final few weeks of 2019."

                                      For now a pause, an inside day for small caps

In summary, the $SP-500 chart is strongly bullish. The only sell signals are from put- call ratios. So if long, stay long and use trailing stops.

Volatility has remained mostly bullish, $VIX remains below 16 on a closing basis and that is bullish.

“When you can’t control what’s happening, challenge yourself to control how you respond to what’s happening. That’s where your power is.”

Stocks ending week with power following roller-coaster ride.

"The government jobs report was nothing short of spectacular for stock investors, pointing to a textbook 'goldilocks economy' with solid growth and low inflation. Non-farm payrolls increased by 266,000 in November, well above the consensus estimate of 181,000 and last month's revised reading of 156,000. The positive revision in itself is a huge plus for bulls, and the fact that wage growth was a tad lower-than-expected confirms the muted inflationary pressures. The unemployment rate unexpectedly declined to 3.5% as well, matching the measure's recent multi-decade low, thanks to the healthy trends in the labour market."

"Politics will pose the biggest risk to financial markets in December, as the U. S.-Chinese relations could have a crucial effect on risk assets, the impeachment process will also enter its next phase, and the British elections could also cause turmoil in the usually quiet month. The strong rally of the past two months could mean that a choppier period is ahead for stocks, and even an orderly pullback may be in the cards despite the positive seasonality statistics of December. The OPEC meeting, which is scheduled for the first week of the month will likely be a tumultuous one, as Saudi Arabia is trying to pressure the cartel to increase the support of the price of oil ahead of the Initial Public Offering (IPO) of the state owned giant, Aramco."

“Most professionals agree that novices and amateurs spend far too much time studying entry techniques in relation to their true importance to successful trading. It is risk management, they agree, that really separates the winners and losers. Since the markets are not very predictable anyway, you can have a far greater impact on your bottom line by applying proper risk management techniques than by finding a new and better way to anticipate the next market top or bottom.”

for bottom fishing operators; new signal generated

we have a swing low detection, a higher low and an inside day

"Sometimes traders can feel alone in their experiences – particularly when stupid errors and large losses occur and during long, flat periods. Believe me, I have made every mistake in the book, have suffered through many sleepless nights and have had conversations with the higher powers that be. Through it all, I have never wanted to leave the trading business. I don’t love trading and I don’t hate it; it is just what I do. I love working."

Small speculators are the only one holding net long at the moment. Both commercial speculators and large speculators are now net short Russell 2000.

The market could “go either way”

“Sam’s fatal flaw...is that he had a preconceived idea of where the market would go...when conditions changed...Sam refused to accept the new evidence...Instead, Sam began to search for shreds of evidence to support his bearish case. This is a very common trait of stock market investors. Psychologists would call it ‘selective perception’. One sees only what one wants to see. Unfortunately, in the stock market, there is always some bearish evidence and some bullish evidence. You never have difficulties unearthing clues to back your viewpoint...I could argue that a year after I had turned bullish the market was higher. I could argue that I was not wrong, just ‘early’. I could stubbornly insist that I was right and the market was wrong...The fact is, I was just plain wrong, I knew deep in my bones I was wrong, but my ego got the best of me…” - Martin Zweig in Winning on Wall Street

Russell

One of my favorite scenes...

Markets state in summary, the $SPX and volatility charts are bullish, while other indicators are on or near sell signals, or are in very overbought states. That's not as bullish as things were a week or few ago, but it's still bullish.

Risks to market in 2020

Commodities Historically Undervalued Relative To Stocks

The trend is up for now.

                                 observe participation, volume

"Global Stagnation"

Now in sync with other central banks, Chinese markets leaped as its central bank cut its one-year interest rate for the first time in three years to relieve a worsening liquidity situation in the local bond market.
Over in Europe, GDP in the EU grew by a scant 0.2% in the last quarter ended September while the European Union Commission cut its forecasts for growth and inflation, warning that the worst is still to come for the euro zone economy. The Commission said growth will stay sluggish through 2021, at a forecast 1.2% with inflation to stay around 1.3%, well below the ECB's 2% target, with just a scant 0.7% in France and 0.3% in Italy.
Christine Lagarde now heads the ECB. She has lambasted Germany, the Netherlands, and other EU countries for not running a looser fiscal policy. Expect the ECB to continue to accelerate QE.
Over the last decade, rates in some countries have been cut to 0% or negative percent where quantitative easing was initiated through almost every fixed income asset available. In 2018, the central banks tried to unwind QE. Markets reacted badly. In December 2018, Fed Chair Powell reversed course and gave the markets what they wanted- more QE. The month of December 2018 was the low for major U.S. exchanges. Other central banks had no choice but to follow the same course, driving their balance sheets to record levels. 

Lagarde says the ECB should boost their fiscal spending, using their budget surpluses to fund investments that would help stimulate the economy. But given the current state of the economy, this is one of the last things that central banks and governments can do to spur some growth. If that does not work, we move on to helicopter money. It seems central bankers are willing to send rates to even more negative levels if it means kicking the can on a global, populist uprising. Indeed, Lagarde noted, "We should be happier to have a job than to have our savings protected." 
Meanwhile, US debt has grown from $19 trillion to $22 trillion under Trump, despite his election promises of going to bring the US budget deficit down 'bigly'.
Adding insult to injury as concerns global growth, agreement between the U.S. and China on trade issues appeared to be closing in on the first phase of a deal, but that was an illusion, and the countries have disappointed numerous times, so material progress could still be a long way off if both countries continue to play hard ball. China could play the waiting game of seeing whether or not Trump is re-elected in 2020 while Trump could see his reelection as secure thus demand more than China is willing to give.

Will exponential-growth technologies save the day or at least mitigate the depths of the next recession? Stay tuned.

The basics of technical analysis.

Don't over think. Sit on your hands. Let the trade come to you.

                                                                Miro

"‘No profession requires more hard work, intelligence, patience, and mental discipline than successful speculation."

A stronger than expected reading of the October jobs report provided more bullish fodder for stocks, as the S&P 500 sat higher by nearly 1% late in the session to close at a new record high.

The trend is up now, no hedges on. Risk on.

Stocks finally broke through, with the S&P maintaining early gains throughout the day to finish at a new high and up 21.25% year-to-date.

"Risk-taking is an inevitable ingredient in investing, and in life, but never take a risk you do not have to take."

The market is still exploring around the top side of the range.

The trend is still down, but only half hedges are on as of today.

The trend is still down, full hedges on.

What ? four 1% swings in four hours !

Edge of your seat or under your seat may both be good spots to watch the U.S.-China trade talk-show getting under way today.

Stocks caught a bid with the S&P 500 rising nearly 1% to erase the bulk of yesterday’s losses.

Volatility has returned to the stage, as the broad index has now moved up or down more than 50 basis points in five of the past six trading sessions.

Recap Oct. 8

Stocks were hammered with the S&P 500 falling more than 1.5%, as the broad index now sits more than 4% below its July 26 high-water mark. The VIX jumped above 20.

All in one day, from risk on to risk off. The trend is now down, full hedges on.

“There’s an old adage, ‘don’t fight the Fed.’ Means that if the Fed is on a tightening course, don’t be long. And if the Fed is lowering rates, as now, don’t be short. Doesn’t always hold true, but often enough to [not] ignore. The Fed has a lot of tools to achieve its objectives.”

A mid-day report that the White House is considering steps to limit investor flows into Chinese equities helped the bears keep control, as the S&P 500 finished the week 1% lower for its worst close since Sept. 4.

Risk is still on. The trend is still up, no hedges on.

This afternoon, the crypto complex absorbed an intense downdraft, with the price of bitcoin falling roughly $1,000 and settling at $8,560.

Stocks came under pressure with the S&P 500 dropping 80 basis points, to narrow its 2019 advance to 18.4%. 

"Acceptance"

For many of us, acceptance is a hard thing to swallow. Especially when things go against us. Yet when it comes to trading, accepting the outcomes of all your trades, not just the good ones, is going to be key to your longevity.

There will always be situations out of our control that are going to see us giving back some profits. Or taking a loss. Yet just as we are happy to give ourselves a pat on the back for our wins, we also need to accept responsibility for our losses. After all it was us that pulled the trigger.

Here are a few tips and reality checks towards accepting everything that we do in our trading. Whether the outcomes end up being in our favour or not.

1. Failure can follow success / Success can follow failure

It’s easy to get over confident when you have a few winning trades in a row. It’s also easy to get down on yourself following a few losses. Yet this is the name of the game. Accept that there are ups and down in this business. So long as you have a solid methodology, don’t allow your psychology to second guess it.

2. Understand that there are risks in every trade

Everything in life is a risk. You can wrap yourself in cotton wool and never go outside the house to lower your risk of failure. Yet that is not what life is about. After you have taken a trade, if you are constantly looking at your phone and swearing at it when your trade goes against you, then you have not accepted the consequences of risk. When you do accept these consequences, sure you might swear about your loss. Yet you’ll get over it quickly and move onto the next trade.

3. Markets WILL move against you

Even your best trades will spend time back filling before moving forward again. It is the nature of the market. Accept the process and don’t panic yourself out of perfectly executed trades.

4. No one knows what the markets are going to do at any given moment

We say this a lot, yet as soon as we accept this fact as traders, life suddenly becomes a whole lot easier. Add this one to your affirmations and a weight will be lifted off your shoulders. Ego is about thinking that you know. Trading is about processes. And the discipline to follow those processes no matter what so called experts are yelling at you.

5. You are going to be wrong – A LOT

Accepting that trading is different to nearly every other profession is important. For one, you don’t have to be right most of the time to keep your job. Some of the most profitable and successful traders only win half the time.

Yesterday the Fed came in with a .25% rate cut, this rate cut should put a floor until big cap stocks pay out dividends equal to the 10 year note or higher.

The trend is now up, no hedges on. Risk on.

Stocks caught another bid, with the S&P 500 extending its gain for the week to 1.2% and pushing the broad index to within a few basis points of its July 26 high.

"Recap Sept. 3"

A dip below 50 in the August ISM Manufacturing PMI (its lowest since August 2016) helped the bears get the upper hand as the S&P 500 lost a bit less than 1%, while Treasurys rallied again with the 10-year yield falling below 1.47%.  Gold rose above $1,550 intraday for the first time since April 2013, while WTI crude fell back below $54 a barrel and the VIX finished at 20.

"There always remains an opportunity to make a new start."

Though it may not seem so when you first encounter a serious blow, you can never lose two of the most important assets you have. These are the power of your mind and your freedom to use it. Once you have turned them to understanding what laid you low, you can begin forming new plans. You may not have the money you once had; you may lack the allies you had cultivated. But you still have the benefit of a universe that eventually rewards honest effort, as well as gaining the experience of mistakes you will never make again. Remember, no matter where you are now, whatever you can conceive and believe, you can achieve.

"Success is not the key to happiness. Happiness is the key to success. If you love what you are doing, you will be successful."

"Recap Aug. 30"

Stocks drifted sideways to finish the week higher by a healthy 2.7% on the S&P 500, leaving the broad index near the upper end of its August range and within 3.5% of its high-water mark.  The highest close for the Dollar Index since May 2017 helped pressure commodities, as WTI crude and gold finished at $55 a barrel and $1,523 an ounce, respectively, and Treasurys ended little changed with the two- and 10-year yields both settling near 1.5%.  The VIX closed at 18.5.

The trend is still down, full hedges on.

"Recap Aug. 22"

Stocks shook off early losses to leave the S&P 500 little changed for the day, as the broad index sits near the upper end of its two-week range and green by 17% year-to-date. Treasury yields ticked higher across the board, with both the two- and 10-year yields settling near 1.62% (the three-month vs. 10-year spread remains inverted by more than 35 basis points).  WTI crude and gold settled at $55 a barrel and $1,499 an ounce, respectively, and the VIX rose 6% to 16.70. Meanwhile, economic data continue to indicate trouble, as this morning’s reading of the Markit Manufacturing PMI for August fell below 50 (indicating contraction) for the first time since September 2009.

Market Intelligence Report Overview

The market is oversold and made a momentum low...........but possibly not the price low. 

Volatility... staying with us for a while.

Investors... full hedges on.

Traders... to each his own.

Hedges did their work today. Moving down the stops on the short hedges and enjoying the ride.

"An overnight devaluation of the Chinese Renminbi pushed the exchange rate to more than seven per dollar for the first time since 2008 and spurred another sharp selloff, as the S&P 500 sank 3% for its worst one-day showing of the year.  The broad index saw its year-to-date gains whittled to 13.5%, and sits 6% below its July 26 highs

Treasurys ripped in near lockstep with yields declining 11 or 12 basis points across the curve and the 10-year falling to 1.72%, 35 basis points above its record close in July 2016. WTI crude fell back below $55 a barrel, while gold rose to $1,463 an ounce, its best close since May 2013.  The VIX finished above 24 and has nearly doubled in the last five sessions." 

Socks had another rough day, fell for a fifth straight day, with the S&P 500 wrapping up the week down a meaty 3%.

The hedging model is downtrend, full hedges on. Risk off.

"Recap July 31"

Stocks took a tumble with the S&P 500 finishing red by more than 1%, but well off its worst levels of the day.  The Treasury curve saw notable flattening, with the two-year yield rising two basis points and the long bond dropping five, and gold lost more than 1% to settle at $1,416 an ounce.  The VIX jumped to more than 16 and is up 33% so far this week.

Earlier today, the July Chicago PMI collapsed to 44.4, its worst reading since Dec. 2015. 

"The ISM-Chicago Business Survey, a regional view of the national economy, is a time-tested, market-moving report. The CHICAGO Report is available to subscribers 3 minutes before its release to the public 8:45 a.m. CT on the last working day each month. The Chicago Business Barometer, summarizing current business activity, also is known as Chicago Purchasing Manager Index or Chicago PMI. The Barometer is considered to be a leading indicator of the USA economy."

"We mustn’t give up. Ever.”

“How much of what I know, what I’ve been culturally attuned to believe, feels like the set of a play on a strange stage I’ve wandered onto without knowing why I’m here. I don’t know the lines, I don’t know what part I’m playing, I don’t even know what the play’s about or what it’s called. I’m just here onstage, stuck in a dream, lights shining in my eyes. Is anyone out there watching? The play stumbles ahead, feels like artifice, mistakes, frippery, an endless series of false starts, bad assumptions, all the while shadowed with the constant horror that something unforeseen could drop down on me from above or lurch in from the wings at any moment, that the floor could open beneath me and instantly erase even this small, pitiful existence, put out the lights for good...There’s only one redeeming feeling I can cling to...when it’s all stripped away and you realise you’re the only one who can put the pieces of yourself together, by yourself, alone...I’m noticing it has a tendency to focus and sharpen the mind, and strengthen the will to live constantly with all my senses wide-open to the here and now. One clear idea emerges from that crucible...We mustn’t give up. Ever.” - Mark Frost in Twin Peaks: The Final Dossier

"Recap July 26"

Another blistering rally left the S&P 500 higher by nearly 2% for the week and 21% year-to-date, as the bulls can seemingly do no wrong at the moment.  Gold managed to eke out a modest gain and WTI crude held at $56 a barrel, and Treasury yields inched lower.  The VIX closed just above 12, its lowest weekly finish since April. 

"Recap July 25"

Stocks lost ground, with the S&P 500 falling 50 basis points to narrow its gains for the week to less than 1% with one session remaining.  The VIX popped back toward 14 and gold extended its recent pullback to sink to $1,415 an ounce while WTI crude held at $56 a barrel. Treasurys came under notable pressure, with the 10-year yield rising back to 2.08%.

"Who has a lot of money, can speculate. Who has little money, must not speculate. Who has no money, has to speculate."

A decent day for stocks with a weak opening that lasted until mid-day when buyers came in and bid stocks up filling the morning’s gap down. Most stocks closed positively with Chip stocks leading the way with huge gains on negative earnings from last year this time. This usually doesn’t last long as shorts are covering en masse as they are trapped at these levels.

"In your search for the secret of the method, do not look for a miracle, because you will not find it. You will find only the eternal laws of nature."

The trend is still up , no hedges on.

"Recap July 19"

Stocks came under pressure, with the S&P 500 finishing the week with a 1.1% decline. While Treasury yields rose with the short end under performing as expectations of a 50 basis point rate cut largely evaporated. This afternoon’s news that Iran seized a British oil tanker in the Straight of Hormuz spurred a bounce in oil prices with WTI rising above $56 a barrel, while gold pulled back more than 1% to finish at $1,425 an ounce.  The VIX finished at 14.25, the high of the day.

"Recap July 17"

Stocks came under pressure, with the S&P 500 finishing at session lows to extend its losses for the week to 1% so far. Treasurys caught a sharp bid, with the 10-year yield dropping back below 2.05%. Energy and metals prices saw a notable divergence.

Make a note that stocks opened strong and stayed that way for a few hours yesterday and then they started to fade for the rest of the day with just a few holding gains such as Amazon, Facebook and Beyond Meat.

Enjoy the ride!

                                             The trend is up, no hedges on.

Interest rate futures continue to price 100% odds of a rate cut at the next Fed meeting on July 31.

Stocks edged lower for a second straight session today and today was the second lowest volume day of the year on NYSE.

“Optimistic people tend to succeed not simply because they believe everything will turn out right, but because the expectation of success makes them work harder. If you expect little, you will not be motivated even to try.”

"Recap July 1"

Risk appetite reigned, as an announced “trade truce” from this weekend’s G-20 meeting in Osaka helped the S&P 500 reach a fresh record close, while WTI crude edged back to $59 a barrel.  By the same token, Treasury yields rose across the curve, gold got smacked by 2% to finish at $1,384 an ounce, and the VIX fell to 14, its lowest close in nearly two months.   

                                              I miss my girl, Moonshine.

Start of a new quarter.

Best June performance for SP-500 since 1955, and the best DJ-30 performance for the month of June since 1938.

Stocks caught a solid bid, narrowing the week’s losses to 0.3% on the S&P 500 and leaving the broad index higher by more than 17% year-to-date through the second quarter, its best first half performance since 1997.

Hey !

End of quarter.

Yesterday was a tough day for momentum stocks especially software stocks which took the biggest hit of the day though a few stocks did make some minor gains. The last week in June is often tough as we end the quarter and have the Russell indexes rebalancing. The first few weeks in July are usually better with earnings starting around July 20th.

Gold since 1920

                                    Source: The Bloomberg

From the book: Trade Like a Stock Market Wizard

• “I never go against the long-term trend.”
• “You can’t predict the market any more than you can predict where the ball will drop during the next spin of a roulette wheel.”
• “...I would never bet on my fundamental ideas alone without confirmation from the actual price action of the underlying stock.”
• “Let the strength of the market tell you where to put your money, not your personal opinion…”
• “Markets are far more often correct than are personal opinions or even expert forecasts.”
• “If the stock doesn’t act as expected, that’s a major red flag.”
• “A stop-loss regime is essential.”
• “Inevitably, however, a good stop-loss practice will shake you out of some winning stocks.”

Another impressive rally in stocks pushed the S&P 500 to a fresh closing high, up 18% year-to-date.

 

So-called quadruple witching options expiration tomorrow could yield some early volatility.

Max, 10 weeks old. Yesterday was his first time out behind the house, waking by the river.

"Recap June 19"

The Fed didn’t cut rates, but price action suggested they may as well have. Most notable was another panic bid in short term Treasurys, as the two-year yield dived lower by 11 basis points to 1.74%, down from 2.39% two months ago.  Stocks enjoyed a late lift, with the S&P 500 drawing closer to its April 30 peak, and gold continued its hot streak by pushing to $1,360 an ounce, its highest since July 2016.  The VIX reversed early gains, falling 5% to 14.3.

One to watch, weakest of them all.

Today was the lightest volume day of the year for NYSE.

Hello ! My name is Maximus Decimus Meridius. They call me Max.

Risk on.

                                                  Now, the trend is up, no hedges on.

Fifth day up for stocks and half hedges taken off.

           The trend is still down, need other half hedges off to get into risk on mode.