Lies, Damn Lies: Bulls In Charge Edition
Every day I go through roughly 200 stocks/indices/indicators, several times per day, looking for signals, attempting to connect dots and ultimately, hoping to find risk/reward situations that create outperformance. The title Lies, Damn Lies seems appropriate as when the markets want to reveal any kind of truth, they first do so through blatant lies. Conversely, whenever truth appears apparent, there is likely to be deception involved. These are simply thoughts (some completely random) as I attempt to connect the dots: During selloffs it's important to watch how risk off assets behave for an accurate gauge of sentiment. Yesterday, as the market opened lower, there was piling in of assets into fixed income and gold names. As the day wore on, the treasury market was relentless on the upside, while gold stalled a bit. Nevertheless, this appetite for US Treasuries despite recession fears basically being eliminated at this point tells of not only a lot of misallocated capital that will require equity exposure at some point in the near future, but also of a generally bearish undertone in decision making. Speaking of rates, the interest rate on the 10 year makes the earnings yield on the S&P look increasingly attractive, especially as treasuries are being bought as stocks sell off. With earnings not being as poor as many expected, there is an increasingly significant likelihood that investors will take notice of this discrepancy sooner rather than later. Semis look like they want upside. This may be THE sector for 2019, along with software related names. The earnings they have released have largely dispelled bearish theories. With that, they are mostly well below their 2018 highs. AMZN just has the looks have a laggard in 2019. With everything developing the way it is for Bezos, the stock may find itself hard up for consistent bidders. The owner and the company are inextricably tied here. And the personal problems/battles of the owner only seem to be gaining steam. The current selloff shouldn't be much more than multi-day affair. It's certainly hurrying through the motions as it negatively affects investor spirit. Next week trade talks with China resume and it's option expiration so expect the market to zig after everyone has been conditioned by zag over the past couple of days. The gap down this morning, which is below yesterday's low on the NDX is a pretty classic trap. We're gapping right onto a very significant support area. Good spot for a reversal either today or Monday. Yield on the ten year is also sitting on significant support levels. This is about as low as it should get for the month of February....
Lies, Damn Lies: If You Don’t Know, Now You Know Edition
Every day I go through roughly 200 stocks/indices/indicators, several times per day, looking for signals, attempting to connect dots and ultimately, hoping to find risk/reward situations that create outperformance. The title Lies, Damn Lies seems appropriate as when the markets want to reveal any kind of truth, they first do so through blatant lies. Conversely, whenever truth appears apparent, there is likely to be deception involved. These are simply thoughts (some completely random) as I attempt to connect the dots: The bears, of which I counted myself as one until about mid-week, had a chance to capture the flag and recapture their glory. Instead, a Fed induced rally completely dismantled the bear case from a technical perspective. The jobs report on Friday, followed by the ISM report, both came in much better than expected. The case for a recession anywhere in the near-term is a non-starter at this point. Anyone tooting that horn needs to be medicated and put down at once. Rotation taking place here is pretty impressive. Financials are resting while technology is resuming its leadership role. I have taken note, adding to our tech holdings on Friday, with plans to continue buying in the week ahead. Bond yields are mispriced to the point of absurdity here. Much like during the first part of January, I've taken a large position on the long side of yields. The current pace of economic growth paired with an indecisive Fed may translate into inflationary pressures that surprise both the Fed and Wall Street. Inflation or not, a ten year below 3% at this stage of the expansion will be rectified in what should be relatively short order. Gold and silver look extremely susceptible to weakness in the next few weeks. Investors have embraced the sector with great excitement in recent weeks. A resumption of the uptrend in equities should lead to a general "risk on" type sentiment among investors. Higher interest rates should create some tailwinds in the US Dollar, as well. In any case, a rinse in some capacity is due to take place. Currently short KL in the sector. One positive divergence that took place for equities was how strong crude oil was into the end of the week. I've been talking about the positive correlation between crude and equities for sometime now. Seeing oil continue its strength on the upside should provide support to U.S. equities, in general. Another positive divergence was how strong the Semiconductor Index (SOX) was to close out last week. Healthy tech rallies are always led by semis and we're seeing that at present. Hate to say this because I have such an...
Lies, Damn Lies: Traps In Technology and Financials Edition
Every day I go through roughly 200 stocks/indices/indicators, several times per day, looking for signals, attempting to connect dots and ultimately, hoping to find risk/reward situations that create outperformance. The title Lies, Damn Lies seems appropriate as when the markets want to reveal any kind of truth, they first do so through blatant lies. Conversely, whenever truth appears apparent, there is likely to be deception involved. These are simply thoughts (some completely random) as I attempt to connect the dots: AAPL looks like a trash can on legs. The lag it has experienced has now become so pronounced that it requires a dose of fundamental steroids in order to move substantially forward. Of course, that dose could come via earnings. However, somehow it doesn't seem like a highly probable conclusion to the current chapter of the AAPL saga for it to overcome a downturn in the iphone cycle in a few weeks. I actually wouldn't mind buying into it, but it would have to be substantially lower. Volume across the board is somewhat concerning here. The participation at this stage of the rally is negligible. Either the market needs a substantial fundamental event to get buyers interested again or the market will roll. Semis were all the rage today after XLNX and LRCX reported. Of course, INTC came in after the close today, adding a little zig to today's zag. This isn't 2017. What that means is that chasing positive fundamental developments simply because they make you feel good is a trap. Bringing me to my next bullet point: This is a market where investors want to buy discomfort and sell comfort. This will be an ongoing theme in 2019, just as the theme I was pounding the table on last year was that everything changed in 2018. In late December/early January it was extremely uncomfortable to buy stocks. In late January it has become exponentially more comfortable to buy stocks as we have found that earnings were nowhere near as nasty and vile as advertised by a market that fell into the abyss. The comfort levels here for investors are begging to be taken advantage of. The market will not waste time in doing so in the weeks ahead, once again instilling doubt in the minds of the ravenous masses. Financials are especially guilt of providing the aura of absolute warmth and comfort with last week's onslaught of positive reports. It has provided those who liquidated during December in a recency bias induced coma of reliving 2008 with the emotional wherewithal to jump back in. After all, the water is once again warm. The mirage of comfort in...
Lies, Damn Lies: Pre-Market Gin & Juice Edition
Every day I go through roughly 200 stocks/indices/indicators, several times per day, looking for signals, attempting to connect dots and ultimately, hoping to find risk/reward situations that create outperformance. The title Lies, Damn Lies seems appropriate as when the markets want to reveal any kind of truth, they first do so through blatant lies. Conversely, whenever truth appears apparent, there is likely to be deception involved. These are simply thoughts (some completely random) as I attempt to connect the dots: There has been a pretty distinct pattern taking shape in the markets during January: Gaps down are met by buying pressure throughout the day. Earnings seem to be protracting this trend further into the month. It seems that macro pressures build overnight, led by news related to China, which is then met by a bullish onslaught of fundamental micro information related to the overall health of the U.S. economy, recession be damned, culminating in an upward resolution of the gap down. I've been dwelling on the metals complex quite a bit. It occupies my thoughts fairly consistently as I'm monstrously bullish on it long-term. However, I've come to realize that I have to compartmentalize that bullish fervor if I want to trade the complex with any semblance of competence. I've been back and forth on it. As it pertains to the short to intermediate term, it has become clear that there are a lot of bearish investors hiding in metals from the Q4 macro, recessionary boogie man onslaught. Typically, during a resumption of a secular bull market, there will be a clearing out process of all the crevasses that investors tend to rely on to soothe their fears. The metals complex should be no exception during the first half of 2019. May be good for some trades on the short side as a result. Attempted to short the market last week on a relatively light basis with some QQQ. Failed miserably as I covered on Friday. My work has this as an area of volatility, with the potential for a very short-term top that lasts no more than a few days. I'm not sure if it's even worth attempting another hit on the QQQ. There are several individual short opportunities setting up in sectors like financials and retail. Short-term opportunities, however, there is enough bang for the buck there to make them worth a swing. After last week we now know how terribly off everyone was on the financial sector. The Wall Street asset management and analyst community are basically trend following algos in suits with advanced degrees and complimentary sales skills. Other than that, they know nothing about...
Lies, Damn Lies: Skeptics and Steamrollers Edition
Every day I go through roughly 200 stocks/indices/indicators, several times per day, looking for signals, attempting to connect dots and ultimately, hoping to find risk/reward situations that create outperformance. The title Lies, Damn Lies seems appropriate as when the markets want to reveal any kind of truth, they first do so through blatant lies. Conversely, whenever truth appears apparent, there is likely to be deception involved. These are simply thoughts (some completely random) as I attempt to connect the dots: Watching the price action in the markets you realize how skeptical investors continue to be by observing the relationship between the US Treasuries and equities. For every downtick that occurs in the market, there is a disproportionate reaction into fixed income. It's as if investor are expecting a bearzombie apocalypse at any minute. Conversely, for every uptick that occurs in equities, bond investors are relatively slow to react proportionate to their buying activities. Apple supplier, SWKS, cut sales and profit forecasts in their earnings report today. The stock was up 5% afterhours as a result. There will be some cuts to guidance at a greater rate than investors happen to be used to. However, it's important to keep in mind that markets look forward and what they might be seeing some months down the road is a lot better than most realize. Crude oil is leading the market. It led on the way down as equities and crude topped almost simultaneously in October and it has led with the most recent breakout. Again, crude is rallying overnight on a bullish data release and equities are following with Dow futures up 120. NVDA has been unusually weak. It may pick up into the end of the week. However, if it remains an underperformer, there may be something devious brewing beneath the surface for the company specifically. Might even worth a shot on the short side at some point. Meb Faber had a tweet today that said the following: Every single 2019 investment outlook: Returns stunk in 18,Economy in 9th inning, The Fed, Recession on horizon, US stocks expensive, Value vs growth, Volatility is increasing, Too much debt, Credit spreads are low, Something about China's economy, Emerging markets cheap. Being a staunch contrarian, it feels like all of these are a fade. However, there is one thing about contrarian theory that must be remembered: Many of the above theories are grounded in sound analysis that will likely end up being correct. However, the route the markets take to get there will be much different than everyone excepts. I agree that emerging markets are cheap. I agree that value is a better bet...
Lies, Damn Lies: Market On A Warpath Edition
Every day I go through roughly 200 stocks/indices/indicators, several times per day, looking for signals, attempting to connect dots and ultimately, hoping to find risk/reward situations that create outperformance. The title Lies, Damn Lies seems appropriate as when the markets want to reveal any kind of truth, they first do so through blatant lies. Conversely, whenever truth appears apparent, there is likely to be deception involved. These are simply thoughts (some completely random) as I attempt to connect the dots: As detailed in yesterday's note, I have cut all of our exposure to gold/silver names. I continue to believe metals offer some of the best long-term risk/reward setups out there today. However, the current market is so rich with trading opportunities due to the newfound surge in volatility that I need firepower. At a near 80% allocation to metals that I took on in November-early December, that firepower would best be served elsewhere for the time being. I want true "risk on" assets here. I want beta to the general markets. At some point this year I will revisit the metals thesis. With charts like this, you have to take gold seriously given the potential for exponential upside performance in the years ahead. You know why you want "risk on" assets here? The chart below sums it up. Global equity outflows are past the point of the 2008 financial crisis. The difference between now and 2008 is we are in a secular bull market that has been greeted with its first cyclical bear raid since it started in 2013. Let me say that again for the purpose of clarity and emphasis: We are in a secular bull market that has been greeted with its first cyclical bear raid since it started in 2013. That's important because when investors panic during secular bull markets (right now), it is a completely different beast than when investors panic during secular bear markets (2008). The market doesn't take its time in coming back as the foundation of the market is rebuilt during secular bulls. Instead, the market rip that comes typically only leaves bear scrotums behind as evidence they existed in the first place. In other words, it happens so fast that most investors who are attempting to intellectually and emotionally digest this monster will be left holding their tails instead of stock. The current market has forced investors into cash, giving it all the sidelined firepower it needs to move to new highs before the middle of 2019, as those investors come to the slow realization they have been played. One more demonstration of how badly investors have had their minds completely...