(Bull) Market March 2021

[ducati916]

Gold.

The Bullish case from SPROTT:

Money managers have their lowest allocation. At some point (one might assume) they will start to buy again. Looking at this chart, you want them to be negative or short before you fade them. Still far too bullish.

Banks have reduced their short positions.

Open interest is low.

Reaching a technical area of support with a positive divergence. (I have to say that is not the strongest divergence I have ever seen).

Now my charts:

Interest rates are still moving higher. Rates need to stop going up. They don't necessarily need to go down, just stop going up.

Gold is still lagging the SPY. Stocks are (perceived) to be better.

Gold is rallying against DXY.

The Miners are outperforming gold. If you must be in gold atm. at least be in the Miners.

Silver has outperformed in the recent past.

But in the longer time frame, still lagging gold.

The Commercials are (have) propped up gold in the last week or so.

All-in-all, gold is not really the place to be currently. Is it bottoming? It doesn't look like it currently. At some point it will return to favour.

jog on
duc

 

[ducati916]

The start of a new week:

Stock sectors:

The all important Bond market

Commodities:

Gold & silver enjoying a bounce with a slide in rates.

And the 'Crypto':

Looking at the VIX: we are back down to the lower levels, but still elevated by comparison to earlier in the year. Will we stay there? Not so sure about that. I think that there is a higher expectancy that we have another bounce higher, than we continue much lower. The trend atm is lower, probability favours lower, but only marginally lower. Although the probability for higher, is lower, if we go higher, I think it will be a lot higher.

The reason: we are starting to get higher readings. Now this is Friday's close.

Mr flippe-floppe-flye:

Are we going to get lower trending rates?

No.

New supply:

Meanwhile Junk debt:

Currently, a more defensive posture overall is required, however you implement that.


jog on
duc

 

[Skate]

The trend atm is lower, probability favours lower, but only marginally lower. Although the probability for higher, is lower, if we go higher, I think it will be a lot higher.

The best summation I've ever read.

Skate.

 

[ducati916]

Some interesting machinations afoot:

So we have the VIX trending lower:

But a divergence within:

Which both indicate underlying weakness in the market.

The big boys are also moving 'defensive': although very early and may rotate back, given the nature of the current market, something to keep a close eye on.

The 10yr is yielding 1.62%. The Fed. sit tomorrow and my model indicates that the 10yr should be at 1.54%. Is the difference material? Probably not. I mention it merely as a curiosity.

Mr flippe-floppe-flye:

jog on
duc

 

[ducati916]

So the Fed. met. The news of the day is all 'inflation' based.

So this is essentially where the Fed. sits.

The big boys, who we have seen turn somewhat defensive:

Mr flippe-floppe-flye:

But the 10yr is about to take a breather. My model has 1.5%, currently as of yesterday's close, it was 1.62%. It's going to pullback:

Is inflation a 'thing' yet?

Probably not. Will it become a thing? We'll see.

With the 10yr pulling back (assuming for the moment that it does) then stocks will have a good run into the w/e. That should see Tech. which has the biggest issue with rising rates, outperforming into the w/e and making up some ground. As you can see, after the Fed. we had that spike higher.

jog on
duc

 

[martyjames]

Thanks for the ongoing insights Duc

 

[ducati916]

So today's story is the 10yr at 1.75%

Mr flippe-floppe-flye:

And Commodities are off across the board:

Stocks: Tech. down, financials up.

My model has the 10yr at 1.58%, which is 17 basis pts. lower.

What is DXY doing?

Worldwide, yields are anaemic to zero to negative. An approaching 2% safe yield, will I suspect be very attractive to Pension Funds etc worldwide. To buy that yield, they would have to buy the DXY.

You can see that the relationship, while far from exact or settled, does support the notion of a stronger DXY to rising yields.

So a rallying dollar, reduces 'inflation' via POO (priced in DXY) which are concurrently buying the 10yr and reducing yield. A virtuous circle.

Now today, with the media screaming Tech. wreck, the VIX:

Has hardly budged. It looks the same on the QQQs.

Which doesn't mean it can't or won't, but it looks possible that the larger macro forces are going to start moving against the 'inflation' trade, which means that the slide in Tech. is approaching a bottom of sorts:

Meanwhile NFTs and Crypto Art are also bubblicious:

jog on
duc

 

[qldfrog]

is this just me or : when I looked around 6ish this morning, POO was -6.something %, Mr Duc got it at -4% in his day state and when I just looked less than 1% fall, talk about a fast rebound; isnt this still very bullish for oil?

 

[ducati916]

So some charts to ponder:

BTC: with a divergence in (possible) play.

Then, consider this chart:

Staples at an inflection point?

I would say so:

Conclusion?

The markets are turning defensive. Tech. needs rates to fall. If they fall, it could well be due to DXY strength. Does DXY have anything to do with BTC?


jog on
duc

 

[qldfrog]

Does DXY have anything to do with BTC?

an interesting data would be: where do the buyers of BTC come from?;
will be a bit twisted to analyse as initial purchasers who spent $1 a BTC and are now swinging in gold coin baths were mostly americans so probably twisting the overall ownership toward US then founders are Chinese/russians..
But what about the new buyers? This could be where the answer is..but for each buyer, you need a seller...who might be majority US based..why isnt it easy
I buy BTC with my AUD, so look at the AUD price only;in AUD no falling price..
View attachment 121566
I messed up, sold 20% at 71k and missed the buy back by less than a $1k so still willing to buy to get back at least 1 BTC
The above the position of one among many small players outside the US i think. anecdotal I know..

 

[ducati916]

EOD charts:

From Mr flippe-floppe-flye:

Not so sure about that:

As previously mentioned, my 10yr model is indicating 1.53%. This doesn't happen overnight. This usually takes a little while to play out. That being said, the 10yr has run hard. I would expect a breather.

The falling 50EMA number should be a concern. We are not bouncing back into bull territory, rather we are failing at resistance points, indicating further pain.

NYMO is pretty self explanatory. In a lower VIX environment, we use the narrower bounds, which indicates that we (should) be closer to a bounce area for stocks.

The problem is when you start to get headlines in Barron's like this:

Now this is Wall St. This magazine along with the Wall St Journal carries weight. The Fed. is engaged in a psychological battle as much as anything tangible: I'm not sure they (Fed. Chair etc) want a return of or even a hint of a return of the Bond Vigilantes. The risk is (for a truly dangerous inflation) that the Fed. is prompted (through these types of headlines) to suppress the yield curve. If they do, all-in-gold.

Now Gold itself is getting spanked, but the Miners have been exhibiting a little strength into the maelstrom of the 10yr.

Even gold itself is fighting. Why?

jog on
duc

 

[ducati916]

The end of another week.

Pretty flat. Market went essentially nowhere.

Top sub-sector:

Bottom sub-sector:

Mr flippe-floppe-flye:

And some psychology:

Potentially we sell-off into the close for the w/e, which, with this week's market wouldn't surprise me at all.

The market that requires a close eye is the 10yr. Whether you call it inflation, or it's a risk to over leveraged corporates, the reason or causation is unimportant to us as traders, what is important will be the ramifications.

A rising DXY does no particular damage to stocks:

The effect of rising rates and DXY is less clear, the time lags involved make the relationship difficult to really see. However (generally, with a lag) rising rates, lead to a rising DXY.

In the past it could be argued that that inflow, flowed into stocks. This time, I think that the yield hogs are so starved of yield, that DXY inflows could tamp down the 10yr.

That will happen IF the world economy remains disinflationary. A rising DXY will tamp down POO, after all the Arabs have plenty currently and throw in Venezuela and there is more than enough until TSLA consumes the world.

Therefore, potentially, as the media ramps up the inflation meme, inflation could well (as far as markets are concerned) be yesterday's news, which would potentially signal a rotation (back) out of value and defensive stocks and a return to growth and bubblicious.

If it does occur, it will take a little time to develop. The question is: do (re) entries into growth names get you a great entry or get you killed? These names are not names you can just 'hold', if they break, they'll break badly and possibly take years to come back.

jog on
duc

 

[ducati916]

And Oil News:

Friday, March 19th, 2021

Crude oil plunged by more than 7% on Thursday, the worst single-day loss since April 2020, and is set to close out the week down by the most since October. The decline is the result of a combination of bearish factors – profit-taking by overly long speculators, a stronger dollar, and diminished hopes surrounding vaccinations in Europe. “There have been some bearish headlines over the last two weeks,” Helge Andre Martinsen, senior oil analyst at DNB Bank ASA, told Bloomberg. “But it’s surprising that it happened in just one day.”

Vaccine hiccups could prevent 1 mb/d of oil demand. According to Rystad Energy, a lengthier vaccine campaign in Europe – due to delays and increased hesitancy – could delay the recovery of 1 mb/d of oil demand this year.

China buys more Iranian and Venezuelan oil. China is expected to import 918,000 bpd of oil from Iran in March, the highest since U.S. sanctions went into place two years ago. The purchases have reduced the incentive for Iran to negotiate analysts say. Imports from Venezuela are also on the rise.

U.S. coal generation falls below nuclear. U.S. coal plants generated 774 million MWh in 2020, less than natural gas (1.6 billion MWh) and even nuclear (790 million MWh). Coal slipped into third place last year for the first time since at least 1949.

U.S. refining capacity still not fully restored. U.S. refining capacity is sitting at about 80% of levels seen before the Texas grid crisis in February. An estimated 1.2 mb/d of refining capacity remains offline, according to IHS Markit, due to spring maintenance and ongoing repairs.

U.S. government wants EV metals mined in Canada. The U.S. Department of Commerce held a closed-door virtual meeting with miners and battery manufacturers to discuss ways to boost Canadian production of EV materials, according to documents seen by Reuters.

Automaker shares surge on EV excitement. Tesla (NASDAQ: TSLA) surged this year, but now traditional automakers are seeing their share prices rise as well. Ford (NYSE: F) and GM (NYSE: GM) are up more than 40% this year. VW (ETR: VOW3) saw its shares spike nearly 30% on a single-day this week after its Power Day event (more below). Analysts see Tesla’s premium wearing off as old school automakers plunge deeper into the EV race.

Texas freeze leads to plastics shortage. Prices for polyethylene and polypropylene and other chemicals are rising due to the outage of multiple petrochemical plants in Texas. That could lead to cost increases and delays for automakers. Honda Motor Co. said Wednesday it would halt production at most of its U.S. and Canadian car factories next week.

VW soars 29%. VW (ETR: VOW3) soared 29% on Tuesday after the company announced detailed plans to scale up EV manufacturing. VW wants to become the global EV leader by 2025. “Volkswagen is turning electric, poised to overtake Tesla’s battery-electric vehicle crown in 2023 and catch up on software by 2025, a view the market is only now developing,” Michael Dean, a Bloomberg Intelligence analyst, wrote in a report

Biden weighs new Nord Stream 2 sanctions. Under pressure from Republicans in Congress to stiffen penalties on Nord Stream 2, the Biden administration says it is formulating new sanctions.

IEA: Gasoline demand peaked, but not crude oil. Despite speculation that oil demand peaked in 2019, before the global pandemic hit the industry hard, a new IEA report suggests this assumption may have been overstated as demand is set to continue increasing until 2026.

3 commodities set to boom. Wall Street is now predicting a new commodity bull market that will rival the oil price spikes of the 1970s or the China-driven boom of the 2000s. Here are 3 key commodities that can act as an inflation hedge and also as a nice play in the emerging commodity supercycle.

Rystad: Renewables spending hits record. Global CAPEX on renewables will hit a record of around $243 billion this year, according to Rystad Energy, closing the gap with oil and gas, which is expected to remain flat at $311 billion.

First shale IPO flops. The first U.S. shale public offering in five years was launched this week, and judging by the result, investors are still largely steering clear of the sector. Vine Energy (NYSE: VEI) raised around $300 million, short of its goal of $360 million.

India considers a net-zero goal. Top Indian government officials are mulling a net-zero mid-century goal. India is expected to account for the largest source of new oil demand in the coming decades, so policies to curtail fossil fuel use would have global implications.

Cenovus announces layoffs. Cenovus (TSE: CVE) is laying off 1,000 workers, the second round of layoffs after taking over Husky Energy.

China busts $770 million smuggling ring. China foiled criminals seeking to smuggle nearly 1 million tonnes of refined oil worth 5 billion yuan ($770 million), according to Reuters.

The U.S. to step up climate finance scrutiny. The Commodity Futures Trading Commission said it would establish a Climate Risk Unit to scrutinize complex financial derivatives and their exposure to climate-related disasters. The Securities and Exchange Commission also is seeking input on potential new rules for requiring companies to disclose of climate risk.

Schlumberger to launch a Nevada lithium plant. Schlumberger’s (NYSE: SLB) New Energy division said it would launch a lithium extraction plant in Nevada.

jog on
duc

 

[ducati916]

A survey of Hedge Fund managers found:

That inflation is their bete noir currently.

They could be looking at this:

Which implies a 4% inflation rate 4 months from now. 4% on the CPI. That is higher prices for us, higher profits for Corps. assuming that the PPI doesn't jump more (or more than expected).

That this is their assessment of risk (right or wrong), that is an indication that rates on the 10yr could continue to climb. There is plently of selling pressure:

And only the Fed. buying.

As previously argued, I think the rally in the DXY signals are momentary reversal of that trend and foreign buyers of yield come back to the market while the 10yr sits at 1.7%.

The big risk in the fixed income market (to date) has been duration.

As to consumer driven inflation:

Nil.

The unemployment numbers are misleading. Recurring claims are in recession figures. Not that it will make much if any difference to the markets.

So Gold is catching a bid from the Commercials:

And the Miners are turning the corner?

The thing with having many balls in the air concurrently, is that the market can chop and change rapidly. Trends appear and disappear very quickly. Holding positions becomes harder to do. The impact on trader psychology is to increasingly grab quick profits. It becomes habit forming and that much harder to sit in a trade for the big(ger) gains that are available in catching a good trend.

Whatever the reason, the Miners look as if they could be entering a sustained trend higher. ATM it is a bounce from basically oversold (in the shorter time frame charts). The longer term chart will, if a trend develops, let us know.

jog on
duc

 

[Skate]

The thing with having many balls in the air concurrently, is that the market can chop and change rapidly. Trends appear and disappear very quickly. Holding positions becomes harder to do. The impact on trader psychology is to increasingly grab quick profits. It becomes habit forming and that much harder to sit in a trade for the big(ger) gains that are available in catching a good trend.

Perfect (this grab is off to the "Dump it here" thread)
This sums up trading not only in "general terms" but adds special meaning, especially with the current market conditions. This calendar year trading has been a tough gig. Meaning, with current trading conditions, sticking with your trading plan becomes difficult if not impossible for most.

Skate.

 

[ducati916]

So the 'Repo' market is again showing signs of stress:

A negative rate, which implies too low a supply of Treasuries of long duration because someone (the banks) have been selling them short, which accounts for the really rapid rise in Treasury yields:

Now this is the 30yr. The 30yr (apart from the 1970's) has probably never moved like this.

The Fed. is not and has not been active in the Repo market for some time, not since mid 2020.

The Fed has been purchasing 120B/month in Treasuries. So if the Fed. has been purchasing and yields have risen to such an extent and the Repo rate is negative, the only conclusion is that someone (the banks) are active in short selling Treasuries (or Hedge Funds).

So you remember GME and the short squeeze?

So the rest of the world has negative rates. The 10yr and 30yr are yielding (by comparison) a mouthwatering risk free rate. To get them, they buy DXY, which brings DXY higher and pushes down rates. Possibly, the lack of Treasury collateral in the Eurodollar market, creates a short squeeze not only in Treasury paper, but DXY as well.

Either way, we potentially have a short squeeze building in the long duration market: 10yr and longer as the crazy rates (by comparison to the rest of the world) are very attractive to yield hogs everywhere.

So why is Gold and the Gold Miners signalling a buy in the face of rising yields? Because that market (Treasury) is potentially getting ready to blow the f**k up with dislocations and imbalances creating a powder keg.

This is a strange, mad, bad and dangerous market currently. The disconnect could be explained by the number of new retail traders who have been conditioned into BTD as opposed to more savvy traders who are rotating out of high risk into low(er) risk defensives, counter cyclical (gold) or simply exiting the market.

This is another one of those unique instances, as when oil traded into negative numbers. That was a buy signal. This could well be the buy signal for the 30yr and DXY. The problem is that a short squeeze into the Treasury market could have some really serious repercussions for all other markets.

jog on
duc

 

[peter2]

The thing with having many balls in the air concurrently, is that the market can chop and change rapidly. Trends appear and disappear very quickly. Holding positions becomes harder to do. The impact on trader psychology is to increasingly grab quick profits. It becomes habit forming and that much harder to sit in a trade for the big(ger) gains that are available in catching a good trend.

Reading through @ducati916 comments and charts, the quoted comment resonated with me. This is a significant observation that I've been considering with my trading. There's nothing wrong with moving to a shorter time frame trading style as it suits my risk tolerance. However it is habit forming. Also, short term trading requires more work and becomes tiring. Mistakes happen when tired, bored or frustrated leading to the observation that it would have been better to have held the initial position or be more patient and wait for better conditions.

All my equity portfolios are in a holding pattern (lower activity) as the markets continue sideways or drift down.

Had a chuckle seeing that @Skate also thought the Duc's comment was significant.

 

[Value Hunter]

Personally although I find the thread very interesting to read, personally as a primarily long-term bottom up investor most of this type of stuff is all short-term noise to me and has little impact on the intrinsic value of individual companies (i.e. what I am interested in).

 

[basilio]

I think Monday will see some pretty sharp movements across currency markets and stock exchanges as financial analysts digest what is happening in Turkey. Knock on effects could be interesting as well.

Reserve Bank governor sacked. Reversal of policy decisions by government appointee.

'As bad as Brexit': Turkey faces currency crisis after ErdoÄan sacks bank chief

Lira could plunge 15%, analysts warn, after Turkeyâs president risks destabilising fragile economy with removal of governor

www.theguardian.com

 

[ducati916]

Personally although I find the thread very interesting to read, personally as a primarily long-term bottom up investor most of this type of stuff is all short-term noise to me and has little impact on the intrinsic value of individual companies (i.e. what I am interested in).

Markets always generate a significant amount of noise. The trick is to (try) filter the signal from the noise. So we certainly agree on that.

Re. 'intrinsic value': there are a number of methods of calculating intrinsic value. You don't mention which methodology (ies) that you favour, however: (a) interest rates will have an impact on valuations under whichever method that you employ. Further, depending on the industry and the company capitalisation, whether its business includes a significant volume of exports, (b) currency movements can have a significant effect on earning power or realised profits. Finally, again dependent on its industry, manufacturers can be impacted by (c) commodity prices as (this can) impact significantly the 'Cost of Goods' line. Finally (again industry dependent) (d) transport costs are a factor. I had a chart showing container costs (shipping) are through the roof, rail rates, trucking etc are costs that can impact the bottom line. From an accounting (GAAP) point of view, some of these may be recorded in the unusual/non-recurring costs line, but, are they?

My point, is that even if you are undertaking a micro (bottom-up) analysis, a macro (top down) analysis provides the comparator as to whether your calculations are realistic moving forward, as your numbers are always historical. The basic premise of value investing is that the future will resemble the past.

Is that still true when taking into consideration the effects of:

(i) network effects (AMZN);
(ii) globalisation (China + emerging economies);
(iii) increased government intervention, (where huge corps buy favour);
(iv) other

jog on
duc