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The New Bull Market

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Financials had a good day at the office:



Not so much Mr flippe-floppe-flye



The VIX this morning was down 13%. It ended up +2%. That is a really significant turnaround:




So I'm expecting selling to come back into the market.

Think of it this way: the MM hold stock as inventory. Now that the election is over, a vaccine is mooted to be on the way, everyone is suddenly bullish and wanting stock, but you have just sold a lot of your inventory to today's buyers. You are low. What to do? Drop the market like a motherf***er and watch the volume of sellers wanting to exit deliver you stock. Systems will exit, stops triggered, keep it dropping until you have the inventory to see you through January next year, then, bounce it higher, squeeze any short-sellers dumb enough to short new positions and rocket the market to new highs.

Now I don't have a trend line on the VIX. This long squeeze will re-establish a second point that will form our new trend line moving forward.


jog on
duc
 
This seems like the point where we move into stage two of the bull market, the end of the beginning:



The graph above shows the economic cycle in blue, the stock market cycle in orange and the best performing sectors at the top. The blue economic cycle corresponds to the business cycle shown above. The centerline marks the contraction/expansion threshold for the economy. Notice how the orange market cycle leads the business cycle. The market turns up and crosses the centerline before the economic cycle turns. Similarly, the market turns down and crosses below the centerline ahead of the economic cycle.

The technology sector is the first to turn up in anticipation of a bottom in the economy. Consumer discretionary stocks are not far behind. These two groups are the big leaders at the beginning of a bull run in the stock market.

The top of the market cycle is marked by relative strength in materials and energy. These sectors benefit from a rise in commodity prices and a rise in demand from an expanding economy. The tipping point for the market comes when leadership shifts from energy to consumer staples. This is a sign that commodity prices are starting to hurt the economy.

The market peak and downturn are followed by a contraction in the economy. At this stage, the Fed starts to lower interest rates and the yield curve steepens. Falling interest rates benefit debt-laden utilities and business at banks. The steepening yield curve also improves profitability at banks and encourages lending. Low interest rates and easy money eventually lead to a market bottom and the cycle repeats itself.

So where are we?







I have all my positions hedged atm. I am expecting a decline in the broad market before we take the next leg higher.

jog on
duc
 
So two big 'news' events (stories) have been under consideration by the market over the last 3 days. The thinking is possibly: how does this effect the inflation meme? Some data:



Stocks love low inflation the mostest.



Confirmed.

Current:



But, if there is a viable vaccine, does inflation pick up? The Fed. has been operating on the premise of COVID destroying the economy. Does the Fed. raise in a vaccine based scenario, hold off, inflation? What about the $US?



Dollar currently in a holding pattern with the Euro. Europe has/is going into lockdown. Effects?

Gold has been pretty quiet recently:



Falling in response to rising yields. That trend looks set to continue.


What does all of the above add up to = Uncertainty.

Markets hate uncertainty. Generally they shoot first, ask questions later.


jog on
duc
 
It's all about the Bonds....



There is something afoot in the Bond market which is spilling over (slowly) to stocks. Take your pick as to causation, the result and consequences are all that matter.



Still early days, but this could be like a duc on a pond: calm above, roiling below. We'll see.

Meanwhile, Mr flippe-floppe-flye continues to amaze:



jog on
duc
 
The nature of the market in stocks, is being dictated currently by the Bond market. The nature of that relationship seems to have reversed circa August. Now Bonds rise in yield, Stocks rise: yields fall, Stocks fall. Why might that be?

Growth stocks (GOOG, AMZN, FB, MSFT veterans and upstarts ZM, TSLA, etc) have their cash flows (no dividends largely) valued (more) highly when yields are non-existent. The period June - July saw those growth stories explode in a low yield (getting lower) environment.




Currently we are seeing a rotation out of growth into value. Why would that make any difference to the Bond/Stock relationship? Yes you would expect to see declining valuations on the big growth stocks and this has been picked up on:



But it does not explain this current situation. A problem for another day. Anyone who knows, feel free to provide the answer.

Have a look at the sectors:



Energy = inflation. Something to keep a close eye on.

Meanwhile Mr flippe-floppe-flye has a mug or two that he would like to sell you:




I have taken the uptick today to add to my hedges to go net 'short'. As that implies, I'm not loving this market atm.

jog on
duc
 
Some very positive headlines:



Yet the market is only ho-hum






Energy looking strong, which could be stoking inflation fears in the Bond market as yields are higher again.



The impending move of the 50 over the 200 however has 'technical' implications. A return to 1.9% yield? Is that an issue?

Study confirms the PPT



With the publication of the study...and rising yields...an issue?

I am holding for the moment, my net short position. The undercurrents in the market are insidious currently. They may well work themselves out. Until they do however, I'll hold net short. Usually (almost always) in a bull market, which we have, I would hold only a neutral hedge if I felt a decline were on the cards. The past 2 weeks (decline followed by huge snap back) to the current situation, where really good news hardly moves the needle...has me concerned.

Mr flippe-floppe-flye:



We'll see how the week develops.

jog on
duc
 
Just looking at the macro-picture:



Fundamentally, not an attractive picture. Of course the fundamentals are very slow moving and can become even more stretched than they are currently. However, with the split through Congress & Senate, the hoped for stimulus is going to be a lot less than it would have been with a Blue Wave type of victory. How important is (a) the size of the stimulus to the market, (b) timing of the release of the vaccine, (c) movement in Treasury and Corporate Bond markets? These are now (at least) 3 questions that will have a medium term (next 3 months) impact on the market, with the potential to create a much longer term impact (trend).

Then, a question for another day: the effect of the 2020 election moving forward.

jog on
duc
 
So gold:



Seems to have gone quiet on the forum of late. Anyway, it is reaching an inflection point (probably in the next day or four) which will see the continuation or resumption of it's uptrend or a break of that trend and further price depreciation. Gold (my prediction) continues to decline because interest yields (10yr) will continue to rise to at least 1% and potentially 1.1% - 1.3% from where we are currently 0.88%.

Which is a contradictory position if we are discussing either inflation, disinflation or deflation. Of the 3, deflation (a liquidation of corporate debt) carries the most risk because that would lead to a hyper-inflation, when, the Fed. would declare its liabilities as legal tender. With a falling POG, the market would be saying that this risk is receding. A rise in yields (move out of Treasuries) carries the same message. Personally I hope that is true, but, I'm hardly convinced.

Of the 2 remaining, disinflation will continue to predominate at least until the vaccine is up and running with world economies re-opening with a return to 'normal', although normal may be slightly different to pre-pandemic, it won't be that different. The big driver of disinflation will likely be the drastically reduced stimulus coming out of Washington, due to the split Congress & Senate and (possibly) the view that a vaccine in the pipeline reduces the need for a hefty stimulus.

Will stocks in the short term be impressed? Likely not. So currently we have the countervailing forces: bullish on vaccine and first term of a new President: disappointment at the lack of a stimulus to boost earnings and with high valuations, possibly a reason for a breather. As of today, the concurrent move into the new issuance of corporate debt has been significant. It is essentially all BBB rated (junk). Defaults in the Junk market are already high and getting higher, although it doesn't seem to have hit the media radar yet.

The Options market:



Bullish. Not yet at an extreme, but volatile and apt to change position very quickly. The chart is from yesterday and will not reflect todays lower open.

For the moment at least, I remain net short.

jog on
duc
 
I just increased the cash portion of my US portfolio;
as i was doing this, one position actually surprised me on the upside:

This ETF was first mentioned here and is really compatible with the Great Reset expected winners;
I understand Mr Duc is not playing that long term here
but being in a "stock" with a government backed future (as is DFEN) can not be bad and big money is quite happy with an hydrogen future from Mrs Harris: bombs and truck
Boys, the swamp is BACK and Mr flippe-floppe-flye should rejoice
 
This is one of those rather perplexing market periods. We have lots of good news from the headlines, but, the underlying economic fundamentals are slowing. The good news, will, one would think, eventually help the fundamentals. The question is (I guess) do they dip before rising? So first the fundamentals:



Nothing that shouldn't be expected. But markets are forward looking and just having been through an earnings cycle, will be looking at next reporting quarter to try and guess how they will be impacted.

Then we have the good news:






And good news for AMZN (not such great news for everybody else). Yet, on confirmation of a second vaccine the market is ho-hum and AMZN is actually down a tad.



I'll post my normal charts up later after EOD, but, everything is streeeeeetched to extremes, which combined with an irresponsive market to positive news and reasonable economic data, should be a concern.

Mr flippe-floppe-flye:



A warning from the Turkey-gods. Another market indicator that holds market moving power that probably is not that well known. You will find out significantly more as it starts to exert its seasonal power.

@qldfrog: yes, missed the alternative power ETF. I'll try and grab it on the next downturn. I really like the 'government' supported aspect!

I remain net-short. I feel that it is one of those Taleb moments: "Yes, the market could go higher and it probably will, but if it does it will only be by about 1%, whereas it could go lower and it could be by a lot." Not an exact quote, but you get the gist.

And last Bitcoin:



Bitcoin and gold seem to have diverged, which is odd as they are in purpose, essentially the same thing. A hedge, an insurance policy, whatever. Gold is meandering, Bitcoin is ripping. Why?

jog on
duc
 
About Gold vs Bitcoin:
Gold is extremely influenced not to say manipulated by big money and Fed banks of the world, Bitcoin far less and represents more truly the investors' sentiment,not to say the true world.My way of seeing this divergence...
 
So now the market has closed for the day, updated EOD charts:

The correlation twixt BTC/GLD/US $



There is a divergence: higher 50 EMA advancing, lower high on market: always an ugly indication.



PUT buyers back in force.




My 'trend' indicator. The trend is still favouring the Bears.



Longer term view:



A more granular look:



The trend line as drawn? Valid? This enters into a discussion of T/A principles. Provide your thoughts.

An alternative:



Again, even valid?

Not a good look for the bulls (below):



My gauge of inflation. Zero. Disinflationary still.



jog on
duc
 
Today I'll start with 2 views of the same ETF:



So above we have SPY x3 long. Would you (on this chart) want to go long (which is long the market)?

Below:



Would you prefer to go long this chart (which is short the market)?

The market generally, looks like this currently:




Bit of a move back to Treasuries, out of commodities, out of stocks. Now a 1 day fluctuation is nothing to get excited about one way or another. Except below, we have Bond vol. Which looks different to stock vol.



Stock vol. has an indeterminate trend line, one iteration could almost be argued to be supportive of lower vol. going forward (see yesterday's charts). Not so with Bond vol. Bond vol. always trumps stock vol.




So, if this is accurate, a lot of vol. can be and is being, generated by the Bond market via Options, which we have seen. There are larger than average swings in PUT/CALL ratios recently, which added to the Robinhood traders, has generated some pretty big moves.

What does Mr flippe-floppe-flye think today?



Back to Tech.

As we stand as of the moment:



Approaching the w/e which would you rather be? I remain, net short.

jog on
duc
 
POTUS would seem to be undertaking a scorched earth policy, this was released 8.15pm US time (obviously after the markets are closed):



Now looking at the VIX. Observe the 2 blue boxes:



We have had this type of market quite recently. It didn't end well. Now it is not exactly the same, but as Twain opined, history doesn't repeat but it does rhyme.



jog on
duc
 
Typically the markets are in a general bullish trend, im actually now as if friday 94% cash, knowing that before it could be like the aftermath of 2009 we had a one of the longest bullish runs till Feb 2020, altho logic dictates that with all the right news and vaccines getting released we are in that general trend.
Tho my theory is quite hypothetical:
Im now going to day trade quite lightly till Jan 26th, my theory could be totally wrong, but would it be obsurd to think that the long winter with massive covid numbers would spike alot especially with thanks giving coming in the u.s,
It could be possible that old joe when he takes office would he shut down the economy?
This is my thinking? Could be totally wrong?
Any thought's?
And really would any 1 take a vaccine only 2months on trial, maybe only putin's daughter,
Any thoughts ?
 


1. Re. Bull/Bear markets: I will seek to differentiate a bull environment from a bear using (a) macro-economic conditions and (b) technical studies for the market. ATM, there is nothing to suggest that the secular bull is dead. However, you can also have cyclical bears contained within the bull, which is where (possibly) we are currently. If that is true, I would expect it to resolve by January, with a new Presidential cycle being superimposed on the seasonality. As the chart demonstrates, we can have a bad Nov/Dec.



2. Re. spike in C19 and shutdowns: who knows. Certainly the numbers are spiking currently. Would Biden close the economy and even if he did, how successful might that be? If successful, how much damage? And most importantly how would the market react? All unknown. Staying nimble in this type of situation is to be prudent.

3. Re. vaccine: As I am NZ based, I have the luxury of watching others step up to be test rabbits. I think it will be ok, but who really knows.


Currently I am net short and have been all week. With the push of a button, I can be net long. I am short because (a) there has been positive news (vaccine) and other news stories, yet the market has gone nowhere, (b) all of my charts are suggestive of a bear move (hasn't eventuated yet), (c) the general vibe seems to be bullish, but ignoring the market evidence.

And Oil news:

Oil prices pared recent gains as investors nervously watch the spread of Covid-19, which has tempered bullishness following positive vaccine news. “It’s not good news,” Bill O’Grady, executive vice president at Confluence Investment Management in St. Louis, told Bloomberg. “This is probably going to be a disappointing travel holiday coming up, and that’s going to weigh on demand.” Still, there are signs of life in global oil demand visible beyond the near-term coronavirus wave.

Asia’s oil demand looks strong. While oil demand in Europe and the United States continues to disappoint, refiners in Asia are racing to procure crude from around the world, giving the oil market some hope that at least in one region, demand is strengthening in the fourth quarter.

China’s oil binge to extend into 2021. China stockpiled oil this year when prices were cheap, offering an extra bit of demand to the market. Reuters reports that China’s private refiners will stockpile an additional 100 million barrels in 2021.

Oil demand primed for recovery. Crude oil demand is likely to rebound next year following the promising news about a vaccine against the novel coronavirus, according to Fitch Ratings.

Goldman Sachs: Structural bull market on the way. Goldman Sachs said in a new report that not only will oil prices rise next year, but we could soon see a “structural bull market on par with the 2000s.” The bank says under-investment in new commodity supplies, fiscal stimulus to rebound from the pandemic, and the risk of higher inflation all point to a bull market in the 2020s.

GM raises bet on EVs. GM (NYSE: GM) told investors that it plans on spending $27 billion on electric vehicles through 2025, an increase over prior plans by 35%. The automaker intends to introduce 30 different models over the next four years, some of which will have a sticker price cheaper than $35,000. “We have everything in place to accelerate mass adoption of EVs,” GM CEO Mary Barra said at a Barclays auto conference. “We want to be No. 1 in EVs.” The company aims to cut the cost of manufacturing battery packs by 60%, which would mean reaching cost parity with gasoline vehicles by 2025.

Iberdrola aims to dominate hydrogen. Spanish utility Iberdrola (BME: IBE) is building a 200-megawatt electrolyzer and has plans for an additional 600 MW over the coming years.

EU wants 300 GW of offshore wind by 2050. The EU’s new “Offshore Renewable Energy Strategy” calls for increasing offshore wind from 12 to 300 GW by 2050. In the interim, the plan calls for 60 GW by 2030. Hitting the 2050 target will require $940 billion in investment.

Libya’s oil to hit 1.25 mb/d. Libya’s oil production has reached 1.25 mb/d, according to the country’s National Oil Corp. The cuntry's output could rise to 1.3 mb/d within a month.

Natural gas prices fall on mild weather. Natural gas prices fell below $2.70/MMBtu this week as the U.S. saw warmer weather. At the end of October, prices had surged close to $3.50/MMBtu. “November’s mild weather has flipped the script,” Gelber & Associates analysts said in a recent note.

California considers a 90% EV target for Uber and Lyft. California regulators are considering a rule that will require ride-hailing fleets to transition to 90% electric by 2030.

California wants Imperial Valley to be “Lithium Valley.” California’s Imperial Valley holds vast reserves of lithium. A report from earlier this year found that the Salton Sea could produce 600,000 tons of lithium per year, nearly 8 times the size of the entire world’s production in 2019. A growing number of mining companies and investors are looking at the region’s lithium potential.

Solar group wants Biden to end solar tariffs. The solar industry wants the Biden administration to use an executive order to repeal the Trump administration’s 2018 order that slapped tariffs on imported panels.

Middle East oil producers drowning in debt. Arab Gulf oil producers are losing billions of U.S. dollars from oil revenues this year due to the pandemic that crippled oil demand and oil prices. Because of predominantly oil-dependent government incomes, budget deficits across the region are soaring.

UAE clarifies its position in OPEC. Anonymous UAE officials claimed earlier in the week that the country was considering breaking away from OPEC, citing the difficulties it is facing due to the stringent production cuts it must adhere to. Now, the UAE’s Energy Minister has officially responded to the allegations.

Enbridge to buy Spectra Energy for $3.3 billion. Enbridge (NYSE: ENB) will buy the rest of Spectra Energy Partners for $3.3 billion in stock. Enbridge already owns 83% of Spectra.

Investors shifting capital from fossil fuels to renewables. According to Morningstar, investors funneled 1.9 billion euros into European renewable energy investments between July and September, up 11-fold from a year earlier. By comparison, conventional energy funds saw less than 115 million euros flowing in.



jog on
duc
 
Last edited:
Thank you duc for your invaluable input
 
So with more positive news, I closed hedges, taking me to 50% long. The reason:



The trend line may turn out to be valid. For it to be so (obviously no breaches higher) we need to move into a lower volatility band. So that would mean moving through the lower narrow band into the wider band below. ATM, things could move either way.

Positive news:



Non-profit supply of vaccine (assuming it works) will mean poor nations can also control their infection rates.



The 'Turkey Gods' are arriving shortly. Not a good idea to bet against them.



Looks (subjective) like a correction through time. Corrections (time/volatility) can sometimes only be distinguished (early) by your best guess.

Finally, Mr flippe-floppe-flye:



Re. the Turkey Gods, we are aligned.


jog on
duc
 
I am very wary of the USA causing a crash though the vaccine release is going to be a huge boost and we should always look 6 months in advance. If Trump crashes the economy deliberately it will be nasty but perhaps the Republicans won't let him. The Fed is resisting his efforts.

Trump is "salting the earth" for Biden , particularly within the small business sector.

The purpose for Trump is to damage Biden as much as possible and destroying the economy is just a side effect.

Fed spat raises fears Trump wants to 'burn the house down'

Trump appears to be doing everything he can to undermine the incoming Biden administration and constrain its ability to govern effectively.
www.theage.com.au
 
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