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(Bull) Market Feb. 2021

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Thank you again. I will do some more research and look into the links provided . I guess I stuck with the vanguard ETF for the low maintenance cost/s. I read through the little book of common sense investing and they were suggesting the low costs over time would be the winner. But at 2% I guess there are better choices out there, thanks heaps.
 
The big move is in the 10yr.

That is a big move.

What is not so clear currently is why such a big move. There is bad weather, oil/gas prices moving higher, but weather comes and goes. If that is all it is - fine, prices will come back down again in the energy sector and yields will fall.

However, yields are moving higher on a secular basis (unless the Fed. steps in) and my model now indicates 1.5%. The DXY seems to have stalled. It doesn't go lower yet, I think it trades sideways for a while. However, again, the trend seems to be lower for the moment.

With yields jumping as they did today, Gold (obviously) is not doing great. Even the Miners, which looked (reasonably) bullish have turned down on the jump.




The overall market is in 'hold' while this sorts itself out. Energy and Financials are doing well (obviously) as conditions currently give them a tail wind.






Commodity super-cycle.

The Arabs flooded the market when demand was almost non-existent, destroying the US Shale production. Now on the brink of world trade re-opening and bad weather, they are restricting supply, or at least not increasing it at the margin.

Is there something political occurring? The obvious answer is yes. The what and why are simply speculations currently. Tied into EVs and green tech?

In summary, the SPY doesn't really follow the DXY, but interest rates, DXY and commodities are all correlated. With 3/4 heading in the wrong direction, that doesn't bode well for the markets. There are already existing some serious divergencies in the SPY. Divergencies take time to play out. They are a good warning sign. Financials leading are another warning sign as is energy.

Re. energy: as is currently being demonstrated by the weather, green energy cannot currently replace fossil energy. Energy is what makes the economy run. If energy prices rise too high (PPI inflation) everybody feels the pain. Too many dollars chasing too little supply will have the 10yr heading to 3% pretty fast. 3% (I think) is crash territory for the SPY.


jog on
duc
 
First off: BTC

Blackrock starting to dabble. Probably the reason it broke through the $50K mark.





Meanwhile stocks are off. This is not yet a BTD moment: that divergence that has been sitting for a while might now be coming into play.



Plenty of space below still.



DXY weakening, CRB strengthening. This is PPI inflation. It is why rates are increasing from the 5yr - 30yr. The 10yr is now headed for 1.5%. It will likely make 2% (although my model isn't indicating that currently) and that number could be a point where the Fed. steps in to manage rates.

If they (Fed.) do, that is an all-in buy on gold/silver.



Banks will (should) run hot on this news.

Also, I'm guessing the outright speculation via RH etc may get a further boost in the arm from either (a) trying to make up losses or (b) make enough to pay off mortgages etc. The style is pure momentum: buy the winners (to date) which is an incredibly (a) risky strategy or (b) needs market experience to implement successfully, which they don't seem to have.






And Mr flippe-floppe-flye:



jog on
duc
 
This is still not BTD territory:

VIX is up, but still plenty of space to run higher atm.



It is not a crash either: credit spreads are normal (falling) currently. Credit spreads and Repos are almost always in on a crash.



This is just a pullback. It could be a deeper pullback to the 50EMA (we have not even reached the 20EMA yet) or go nowhere at all.

Money market funds have seen tremendous drawdown and re-investment into the market:



Now that flood of money is/will slow. It has added to the surge in stock prices over the past year. Now we will need to see if Corps. continue to repurchase equity, as that is a big driver of higher prices and is essentially a massive carry trade.

A bit of schadenfreude: but a $100M win is still pretty good.



And Mr flippe-floppe-flye:



The defensive sectors are holding up today:



jog on
duc
 
So as we reach the end of the trading week:


PPI inflation comes in higher than expected.



Which has triggered a surge in the 10yr to offset rising commodity prices and a weak dollar.



VIX higher:



And likely (next week) to continue higher. We are closer to the start than the finish.

Energy and Financials did ok. Everything else, meh.



Mr flippe-floppe-flye:



So the only thing that has really caught the attention of the speculators: is BTC.

Central Bank digital currencies are coming and probably a lot sooner than thought. That is now a given. They will be no different to fiat, except that the CB can track you that much more easily. So whether they come sooner or later, the ultimate difference is slight to nil as far as the desirability of holding BTC or gold/silver.

The issue is that only 1 crypto can emerge as a money. Probably BTC, all the others are irrelevant. Simply because otherwise you simply replicate the fiat issue.

Investing:

Then you have all the issues re. internet: hacking, DOS attacks, etc. Just how safe is it really. N. Korea was in the news again, hackers stealing $1.9B in BTC, so very definitely not inviolable.

Divisibility is an issue. What good is a coin worth $50K or $100K etc? It cannot be used as money easily.

Acceptability is a further issue. For BTC to become money, it will have to universally acceptable as such. Putting aside government taxes, acceptable by sellers of goods and services. You need a doctor, does he accept BTC? You want to buy a property, does the vendor accept BTC?

Doesn't its ultimate value reside in BTC becoming a de facto money? If it doesn't or can't, what is its ultimate value?

Trading:

It has just breached its long term resistance. This is very far from a confirmation. Many initial BO are invalidated. Almost invariably (by definition) we will have a test of that BO point. BTC has also drifted far from its 50EMA. On its first run up, it also got far ahead of itself and came back. My money would be on the same again.

Ultimately, it will have to pass the test of history. There will be something that tests its limits. If it breaks, it was an interesting experiment. If it passes, it passes and will continue as an additional financial asset.



jog on
duc
 
Just one point Mr Ducati @ducati916 , BTC can easily be divided.
So i pay fees when trading it in the order of 0.000xxx.
But i do agree that it is counter intuitive to pay some goods 0.000467 BTC.a psychological issue
I mentioned this previously so i see it as a storage of wealth : gold like and people will just convert chunks of it into fiat currencies
(or maybe even a ripple like
crypto for day to day purchase but I doubt.)
Otherwise agree with BTC, Ethereum maybe as only cryptos worthy in the long term.
The legislative risk is imho the highest and akind to asset seizure.
BTC becoming illegal and replaced by fiat crypos owned by reserve banks and adding tracking and control: worse than paper currencies..
 
So a recap of where we are:

Most sectors are overbought. Which generally means a bit of a correction.



This is also confirmed by how far prices have stretched from the 50day.



Here, divergencies are important: if sector prices are high, but participation is low, then there will be issues.



Another looking at sector divergences.



You want to be in rising sectors. Again, divergences are important. An important pair here are Consumer Discretionary/Staples. If they flippe-floppe, the market is turning defensive (add in Utilities).




The market is definitely due a correction, which we have already seen the start of. It will be (at some point) a BTD. Just not yet.

Oil News:

Friday, February 19th, 2021

The Texas electricity crisis is easing, but the outages, damage, and human toll were historic. As of Friday morning, Texas grid operator ERCOT said that it would be emerging from “emergency conditions” later in the day. After a crazy week, WTI fell just a bit but held onto gains close to $60, a price not seen since January 2020.

Texas outage eases. As of Tuesday, around 45 gigawatts of electricity generation from renewables, coal, and natural gas were offline. More than 4 million people lost power. By Friday, most of those people saw power restored. The crisis has once again focused attention on several grid policy questions – the lack of weatherization at Texas power generation assets, the lack of a capacity market, and the state grid’s isolation from the rest of the country.

U.S. oil production impacted. Around 4 mb/d of U.S. oil production was sidelined due to power outages, wellhead freeze overs, and other equipment failures. Most of the outages were in the Permian Basin. Restarting frozen or shuttered wells is not necessarily straightforward, and some restarts could take weeks.

Texas bans shipment of natural gas out of state. Texas Governor Greg Abbott took the drastic move of banning the export of natural gas from the state in order to conserve supply. The move is highly controversial and potentially illegal, although most analysts note that any legal challenges would be moot because the order will have expired by the time a judge reviews them. The Governor also personally sent requests to several LNG exporters to halt operations.

LNG cargoes canceled. At least 10 LNG cargoes were canceled because of the grid crisis, according to Bloomberg.

Refinery restarts could take weeks. Four of Texas’ largest oil refineries saw widespread damage from the cold snap and could take weeks to repair, according to Bloomberg. The outages could reduce demand for crude, but cut the supply of refined products. The four refineries include ExxonMobil’s (NYSE: XOM) Baytown and Beaumont plants, Marathon Petroleum’s (NYSE: MPC) Galveston Bay refinery, and Total’s (NYSE: TOT) Port Arthur facility. The result could be $3-per-gallon gasoline by May.

The U.S. wants to reopen talks with Iran. The U.S. government said it would accept an invitation from the EU to hold talks with Iran. Iran did not exactly jump at the news, saying it would “immediately reverse” recent actions on its nuclear program, but only after the U.S. lifted sanctions.

Gas companies hit “jackpot” on Texas deep freeze. While Texans are struggling to keep the lights and the heating on, gas producers in the Lone Star state, or at least those whose wellheads did not freeze, are having a blast.

Saudi Arabia to increase output. Saudi Arabia is poised to reverse its 1-mb/d voluntary production cut in the coming weeks, according to the Wall Street Journal, with the returned barrels hitting the market in April. “A Saudi increase in production…makes perfect sense given the tightness that is starting to emerge in the market,” Ole Hansen, head of commodity strategy at London-based Saxo Bank, told the WSJ. “The market will probably take it quite well.”

Shell to sell Alberta assets for $900 million. Royal Dutch Shell (NYSE: RDS.A) will sell its Duvernay shale assets in Alberta for $900 million to Crescent Point Energy Corp. (TSE: CPG).

Maersk plans carbon-neutral shipping containers. Shipping giant A.P. Moller Maersk A/S is accelerating plans to transition to carbon-neutral operations, including plans to add the first container ship running on biofuels.

U.S. shale sticks with restraint, for now. With WTI surging to $60 per barrel, the U.S. shale industry could be in a better financial position than previously expected. Recent comments from shale executives suggest that drillers won’t return to aggressive spending plans, instead focusing on cash generation.

Canadian gas drilling on the rise. Canadian shale gas drilling has increased rapidly this year, and Canadian gas exports to the U.S. is also on the rise. Canada’s drillers are hoping to capture more market share as U.S. drillers have cut back.

Texas freeze raises the cost of charging a Tesla to $900. The electricity shortage in Texas amid the cold snap has sent spot electricity prices soaring so much that the surge in power prices equals a cost of $900 for charging a Tesla.

$100 oil possible on commodity supercycle. Several investment bank analysts say that oil could spike to $100 per barrel because we could be at the beginning of a new commodity supercycle.

Egypt to restart a second LNG plant. Egypt is close to restarting a second LNG facility after being closed for eight years. The restart boosts Egypt’s hopes of developing a major natural gas hub and LNG export industry.

Shell’s Nigerian accounts frozen in a court dispute. A Nigerian court restricted Royal Dutch Shell’s (NYSE: RDS.A) access to its bank accounts in the country over a years-long legal dispute.


Then we have the old canard: Silver outperforming Gold on another thread:





Hardly. Silver (relative to Gold) is (historically) underpriced. In true PM bull markets, Silver does perform (relatively) better than Gold. Silver is definitely looking like it may warm-up a bit, but then again, maybe not.



jog on
duc
 
Some EOD charts:

Breadth re. 50EMA is falling, bearish.



Interest rates have been on fire recently. Gold may catch a counter-trend bounce if rates consolidate for a period.



Shorter time frame:

That period of consolidation might be fairly short, if, rates adhere to that trend line.



Calls are heavily overweighted. They have been (probably) caught on the wrong side of the market. If they reverse and PUTS are purchased, as we have seen over the last year, they can add some additional volume to the mix.



VIX low and threatening higher, which could accelerate the sell-off.



Still lots of room below.





Is this THE top? Categorically no. It is currently a short-term top and pullback. But it is far too early to be buying the dip. To buy the dip, ideally we would like to catch all of those overbought areas in their oversold areas.

Interest rates are moving higher. My target is now 1.5%. The area that might indicate a serious market spasm lie in the 2%-3% range. We still have a ways to go.

DXY:

Bearish.

Which fits the narrative of strong up-trending commodity prices, driving the 10yr higher. A stronger DXY will reverse those trends. I don't see that happening currently.



jog on
duc
 
So the market still showing weakness.

Subjective bubble analysis:



Certainly there is an increasing probability of further (short term) weakness:



Cryptos selling off hard.



The question is how hard, how far?

At least to the 50EMA. Whether they go tp the 200EMA, I guess we'll find out.



ATM I would say that the 200EMA is a distinct possibility.



Mr flippe-floppe-flye:



The rising 10yr puts pressure on mortgage rates. The housing sector has been red-hot. An area of the economy that has been positive during the C19 issues.

For the moment, this in stocks, is just a run-of-the-mill selloff from overbought to oversold. Nothing more.

jog on
duc
 
Oil news:

- The Texas blackouts came from a steep drop in generation from gas, coal, wind and nuclear power.

- Natural gas typically can supply 40 GW of capacity at peak periods, but frozen gas lines, wellheads, and other damage to infrastructure led to widespread outages.

- The mismatch between supply and demand grew to as much as 30 GW on February 15.

Market Movers

- SunPower (NASDAQ: SPWR) was downgraded by Credit Suisse to Underperform. The solar company’s stock sank by 9.6% during midday trading on Monday.

- Electric truck maker Xos will go public with a blank-check SPAC, valued at $2 billion.

- Mizuho Securities downgraded Sunoco (NYSE: SUN) to Neutral from Buy.

Tuesday, February 23, 2021

Oil prices were off a bit in early trading on Tuesday, but are nonetheless trading close to more than one-year highs after soaring on Monday. The price hike comes shortly after Goldman Sachs forecast that oil prices would climb into the $70s over the next few months and after it became clear that U.S. oil production and refineries will take a bit of time to resume their normal level of output after the Texas Freeze knocked out oil refineries and oil production.

Texas refineries restarting. Motiva, the U.S.’ largest oil refinery, began to restart operations in Port Arthur, TX after a weeklong shutdown. A handful of other large refineries announced a return of operations. Still, a full recovery could be weeks away, which could push up gasoline prices.

Texas crisis was historic. Gas traders said the volatility was historic. “I’ve been through a lot: The ‘98 and ‘99 power spikes in the Midwest, the California crisis” of 2000-2001, Cody Moore, head of gas and power trading at Mercuria Energy America, told Bloomberg. “Nothing was as broadly shocking as this week.” Some traders likened it to a Lehman Brothers moment.

Texas blackouts leave winners and losers. Some high-profile companies, such as Comstock Resources (NYSE: CRK), saw a windfall for their natural gas when Texas market prices went haywire last week. But buyers of gas were slammed. Atmos Energy (NYSE: ATO), a distributor of gas, said it needs to raise cash after spending $3.5 billion to secure fuel during last week’s crisis. Canada-based Just Energy Group (NYSE: JE) lost $250 million and may have trouble continuing as a going concern. Its shares were down by nearly 25%.

Texas oil production restart could take weeks. It could take at least two weeks to restart the more than 2 mb/d of Texas oil production shut-in from last week’s cold snap. “With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note. “I think it will be a while before things get better out in the field,” one executive at a Permian producer told Reuters.

Diamondback says it lost 4-5 days of production. Diamondback Energy (NASDAQ: FANG) said that it lost four to five days’ worth of total production from the Texas blackouts, sending its shares down 4% in late trading on Monday. Cimarex (NYSE: XEC) said it could lose up to 7% of its first-quarter production.

OPEC cuts U.S. shale forecast. OPEC downgraded its assessment of U.S. shale production for 2021, expecting a contraction of 140,000 bpd, a bit deeper than what the EIA foresees. The lack of shale growth gives OPEC+ more room and leverage to unwind production cuts and regain market share.

Bullish forecasts start to multiply. Several investment banks came out with bullish crude oil forecasts. Goldman sees Brent averaging $70 in the second quarter and $75 in the third quarter. Morgan Stanley sees $70 by the third quarter. Socar Trading SA says oil could hit $80 this year.

Saudi and Russia disagree on strategy. OPEC+ will soon decide on the next steps regarding their massive production cuts, and Riyadh and Moscow disagree on the strategy. The Saudis want to mostly stay the course and allow prices to rise, while Russia is keen to increase production. At the same time, Saudi Arabia suggested it would reverse the 1 mb/d of voluntary cuts it announced in January.

Eni aims for net-zero by 2050. Eni (NYSE: E) said it would fully decarbonize by 2050, but will still increase oil and gas production through the mid-2020s.

Exxon pressured to announce net-zero goal. Activist investor Engine No. 1 called on ExxonMobil (NYSE: XOM) to revamp its board and announce a net-zero goal. “This is not just a climate issue but a fundamental investor issue—no different than capital allocation or management compensation—given the immense risk to Exxon Mobil’s current business model in a rapidly changing world,” San Francisco-based Engine No. 1 wrote in a letter sent to the company.

Petrobras sinks after Bolsonaro sacks CEO. Brazilian President Jair Bolsonaro fired the chief executive of state-owned Petrobras (NYSE: PBR), scapegoating him for rising domestic fuel prices. Investors did not like the move – Petrobras’ stock was down more than 22% as markets opened on Monday. Investors are interpreting the move as an abandonment of the market-based stewardship of Petrobras.

Is another LNG glut looming? A tight LNG market could prompt a new wave of an investment super-cycle in LNG projects. However, a possible new wave of strong investment in LNG could create a massive glut later this decade if most of the planned or proposed projects move forward.

Occidental posts large loss. Occidental Petroleum (NYSE: OXY) reported a $731 million loss for the fourth quarter, compared to a $269 million loss from a year earlier. Its shares fell 4% in after-hours trading.



jog on
duc
 
There is so much news/opinion out there today:

Start with Rosie:

David Rosenberg: «We’re Getting Closer to a Breaking Point»

David Rosenberg, Chief Economist & Strategist of Rosenberg Research, worries that the surge in bond yields threatens the economic recovery. He warns of the consequences of today’s massive debt volumes and explains why he spots investment opportunities in the commodity sector and in Asia.
themarket.ch

Definitely one of the better economists out there.

The BTD are out in full force today. Are they right?



Hard to say definitively. VIX may bounce higher or break lower. Your choice.

PUT buying higher:



Energy still leading



This is the important chart re. is it a correction or the top?



It is a correction.

Mr flippe-floppe-flye:



Is (obviously) of the opinion that this is now time to BTD.

I'm agnostic at this point.



But based on Corporates:



Time to jump back in.

jog on
duc
 
There has been and will likely continue to be a significant rotation:

Value shares are outperforming growth shares. This is (likely) due to the building inflationary pressures which have had the 10yr hit 1.3% and moving (fast) towards 1.5% and likely on to 2%.



As such MOMO is also under pressure:

Which is most responsible for the current correction.



jog on
duc
 
THE CORRECTION JUST BECAME MORE SERIOUS: TIME TO FULLY HEDGE OR EXIT


Short term yields have jumped 43%.

Something is seriously amiss. The 10yr has already hit 1.5%.





Signs of stress everywhere:




She was one of the Go-Go managers. Looking ugly.

My model for the 10yr is now showing 1.6%. At this rate, that could be tomorrow. Whether there has been a credit event, as yet undisclosed or just a sudden risk off, can't say, but it doesn't really matter, the effect is the same.

Now is the time to play defence.

Meanwhile, Mr flippe-floppe-flye




jog on
duc
 
ducati916 said:
THE CORRECTION JUST BECAME MORE SERIOUS: TIME TO FULLY HEDGE OR EXIT
Click to expand...
Just clarifying what kind of serious you're referring to?

Serious as in you're thinking the major stock indices drop modestly, say 10%, then it's on with the bull?

Or serious as in the bull's over, here comes a test of the lows from 2020 kind of serious?

Just not sure how to interpret your comment really....
 


Serious.

When short term rates jump to that degree, there is (usually) a major issue hiding somewhere. It doesn't always appear immediately, but with the 10yr marching lower relentlessly, something seems to be seriously amiss.

I have been 100% market neutral for weeks now as the underlying breadth has been deteriorating, but that is simply a correction in an ongoing bull market.

This current jump in short term rates is (potentially) something else again, essentially a credit event.



The big Mutual Funds can't go short, so they move to the defensive end of the market:




There is some serious risk off happening today.

Market crash? Distinctly possible.

jog on
duc
 
Mr Ducati,
What is your view on the USD vs AUD/NZD?
For year i have successfully edged my ASX shares focussed system with USD exposure and PM
Roughly: ASX down , USD up.
And overall wealth ok
Last 2 weeks ,even before last night has been a disaster with USD crashing coupled with both mistakes and "bad luck". So a shxxy week from finance to just life.Sxxt happens, but got it in truckload in the last 10 days...
I winged about it in my journal....

More seriously, in the current context, i am really puzzled by the currency play
AUD was 58c at the end of March 2020 and 80c yesterday
That is a 37% increase in less than a year...
Noone seems to really notice.not in the news or yahoo finance..all about Zoom and Tesla
US market did well in the past year hardly break even with USD fall
Hopefully it will revert if we have a crash as people flee to so called USD safety, but not a given with the abysmal US deficit.
What is your take?
As a note
I always see wealth not within a country context but in a world context.

And by default so far, this means USD
So RE+shares+cash+PM(+BTC?) in USD
Hope this is still relevant to your thread.if not ask me and i will delete
 


The AUD is a commodities based currency. When commodities are moving higher so are AUD/CAD. DXY moves inversely or lower.

In a market crash, usually, DXY trades higher.

If we are going to get a 'crash' event, it is likely around an inflation based fear, which may mean DXY does not rally and AUD/CAD continue higher. A credit event would normally see DXY rally. I have no idea of the 'why' currently. Shoot first ask questions later.

jog on
duc
 
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