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This Is Not a Drill

March 12, 2020 / / No Comments

The intent of this post is not to make any additional panic. I’ve been on the defense since the first half of February, and I hope you were too after posts Bonds, buy Bonds and Bumpy road ahead were published.

But things are getting serious, the virus is affecting the economy and the markets greatly as you have probably already noticed. I’m not an expert on viruses, but the markets are telling us this situation is not to be taken lightly. As I tweeted a few times in the past couple of weeks I prefer to “panic” sooner rather than later. Majority does the opposite, rather than prevent they’re forced to deal with the consequences.

As of writing the S&P 500 stock index is down more than 8% just today, or down more than 25% from the peak. This is on record the fastest 20% correction measured from the peak, including the 1929 meltdown.

We might be due for a snap back, a face ripper, rally. This may also be a historic buying opportunity, but as things stand, I wouldn’t exclude more downside further down the road, or, in best case scenario, a period of very high volatility with a range bound trading. There’s just an overwhelming supply waiting at higher prices.

I’ve been seeing so many “buy the dip” calls during this selloff. Everybody is so eager to buy the bottom because they’re sure the market will be higher a few weeks, months or years from now. But what if we don’t see a repeat of 2019? What if the EU and the US get into a complete lockdown? What if the selling is not over yet? What if the exchanges are forced to shut down for a prolonged period of time? Could you handle that?

However you might want to turn this around, this is a period when cash is king.

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Crash of 2020

March 9, 2020 / / No Comments

What a historic times! After relentless selling and the fastest correction on record according to Deutsche Bank, we’re seeing some crazy after-weekend moves in the over-night session. S&P 500 index futures are limit down (meaning, after a quick -5% move trading has been halted until the US opens), bond prices are surging and that oil… man, crude oil was down -30% from Friday’s close in just a matter of minutes!

Brent oil’s move at the moment stands as the 2nd largest one day move ever. On Jan 17th, 1991 Brent closed down -34.8% in a day. Let’s see where it closes at today, but the next largest move is -13.5%, so today’s move will be either the largest or second largest on record. Here’s a chart of WTI oil.

I don’t know how the stock market will react once the US session starts. Will we see a bounce, or a continuation of selling is anyone’s guess at this point. However, I hope you took precautionary measures in February when I posted Bumpy road ahead and Bonds, buy Bonds. Hope you’re safe and were able to limit you losses.

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Bumpy road ahead

February 2, 2020 / / No Comments

Markets fluctuate, they go up and they go down too. Our job is to make the most out of these fluctuations by going with, and not fighting, the tape.

Even though you could have pointed out many reasons why one should have been expecting a correction, or even a crash, we’ve been bullish for the most part of last year up until now. Looking back, that was the only right decision to be made.

However, we think now could be the time for becoming cautious going forward. We’re not becoming ‘the end of the world’ bearish yet, but the ride could become bumpier.

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Time for a value play

December 10, 2019 / / No Comments

I keep reading news that this stock market is over extended and we’re due for a major correction as if we didn’t have one just 12 months ago. It’s really hard to escape this trap, especially for a retail investor. People always find something why this market has to go everywhere but up, and if you present them some positive arguments, such as improving breadth worldwide, sentiment, not to mention record stock outflows among many others, they just disregard them.

In the previous post, Continuation of strength, I was focusing on the outperforming regions and sectors, those that continue to be in an up trend. Some are real beasts, such as health sector or $XLV ETF. In this one I’d like to present two value ideas that could start catching a bid after years of under-performance.

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Continuation of strength

November 26, 2019 / / No Comments

This time around last year I was warning that we could get a stock market sell-off into year end. How right it was to be selling stocks ahead of it. Many investors were caught off guard and became, consequently, very negative and fearful going forward. Despite the markets having rebounded nicely since then, sentiment didn’t change much even though we’re just starting to see breadth expansion with more and more breakouts higher out of roughly two year long bases, see Are you ready for a stock market rally?.

So, what if this year will be the total opposite of last Q4? Meaning, could we see a broad based rally into holiday season? Let’s dive straight into it.

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Are you ready for a stock market rally?

October 22, 2019 / / No Comments

Most are not. Well, except buy and hold crowd. And sentiment is reflecting that. Many sentiment measures and indicators are, with some variations, showing that people are sceptical about future expectations at best, where majority is very concerned and some are expecting a 2008 crisis style repeat.

I was talking to a director of a company the other day. Their business is closely linked to German industry, so he’s feeling the numbers coming from there. What fascinated me most was not his outlook, but the conviction he has. He’s absolutely sure we’re going down, there’s no doubt about it. He was pounding the table the markets will crash and not one single person could prove him wrong. Man, the conviction level was mind blowing.

If the meeting’s circumstances would be different, I’d invite him to take, under some conditions, an opposite side of a trade with me.

It’s hard to deny the current weak economic data coming from different parts of the world. There’s no doubt we are/were seeing an economic slowdown. However I’m trying to be open minded and am wondering if this was it, if data is about to start improving contrary to the popular belief that it’s going to get drastically worse.

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Major inflection point: recession or melt up?

August 5, 2019 / / No Comments

So many guys have been pounding the table with doom and gloom calls for so long but they were dead wrong. When the market finally turns down they’ll likely pat themselves on the back and say they weren’t wrong, just early. As PLB rightfully says if you get direction or timing wrong, the trade is wrong. This is one of the most important aspects of trading not understood by most.

The market has been trading in a range for the past 18 months where SPX has been between 2,550 and 2,950 with a short trip to 2,350 last winter. All this time we’ve been hearing bad news about trade wars, tariffs, Brexit, growth slowdown, earnings recession etc. Stocks have been creeping higher despite all of this and are sitting just below all time highs. If you’ve been trading the non price related data you’ve been most likely losing money and are eager to short this bad boy yet again, right?

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Risk on

July 3, 2019 / / No Comments

When reading financial headlines one could easily think the markets are selling off, we’re in a in severe downtrend where panic is just about to hit the main street. It’s really hard to find anything positive, and even if we get to read something that could sound a bit optimistic it’s accompanied by a word of caution, caution ahead of the next recession. Everyone’s obsessed about it.

I don’t know about you guys, but I like to stay open minded and being optimistic is a viable option too. It helps spending some time with family and friends during the Summer, and having the Adriatic sea at our fingertips is just a bonus.

Since the beginning of the year we’ve been bullish the stocks (Is it over?), bitcoin (Are cryptos trying to bottom?) as well as gold (Will gold bugs finally have their day?). It’s a ‘risk on’ environment, you know. However, is that about to change?

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How will the dollar affect stocks?

June 10, 2019 / / No Comments

I guess everyone knows the saying ‘fool me once…’. The market tries to fool us not once or twice, but much more often. If it was straight forward, risk management wouldn’t be as important as it is. In fact, it’s the most important aspect of trading in my opinion. I believe finding the best opportunities and making the most money out of them starts with great risk management and not other way around.

In a recent post Dollar about to rally? I was exploring the dollar bull thesis. Frequent readers know that I’ve been a dollar bear for a long time now, and exploring the opposite side of an investment thesis is a must if you want to manage risk effectively. While the dollar is still in a sideways trend, last week turned the table in favor of dollar bears once again, which is my preferred stance. But why is this important and how could this affect the stock market and economy?

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New all time highs is not a downtrend

April 30, 2019 / / No Comments

The S&P 500 index is back at new and fresh all time highs. Maybe this is not the best time to be writing a bullish post, it could backfire and we could see a 2015-16 bottom style retest. We have just seen an incredible 25% bounce in about 4 months, volatility is depressed and just about to burst. However let me remind you, I wrote a series of posts in October, starting with Winter coming?, warning you we could see a market crash, and then in Jan I flipped the side asking myself and my readers if Is it over?.

I was cautious along the way. The bounce could easily have been a bear market rally, but getting to fresh all time highs should reduce that likelihood, right? We were getting constructive signs along the way, let me just mention recent The most important market in the world right now post.

And while we’re back where we left it a good half a year ago, let’s discuss the current environment and why the party might not be over just yet.

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