The New Bull Market

[qldfrog]

An update:

View attachment 108696

VIX is coming off. Near, but not touching resistance. Now of course it could always bounce back up over the long w/e and we are in Sept/Oct and an election year.

However I bought YINN

View attachment 108697

Not a huge fan of China, but I need some diversification exposure in this area, so YINN is it. As I want volatility, so a Trump victory (increasingly probable) could actually work for me.

This morning's strong jobs report saw a bigger than expected jump in nonfarm payrolls during August and a bigger than expected drop in the unemployment report to 8.4%. That strong combination helped contribute to today's rebound in bond yields. Chart shows the 10-Year Treasury yield rising 9 basis points today to 0.71%. The 30-year Treasury yield in up an even stronger 12 bps. That means that Treasury bond prices are dropping. That's unusual on a day when stocks are having another weak day. But not all stocks are being sold equally. The biggest losers are in technology, communications, and consumer discretionary which have been the most over-extended on the upside. Some stocks in the value category are holding up a bit better. That's especially true of financials which usually benefit from higher bond yields and a steeper yield curve.

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And of course higher yields favour financials, which have held up pretty well the last couple of days.

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jog on
duc

While yesterday session saw a 1.5% loss on my US oortfolio, i was surprised to sée that last night actually recovered my losses and i end today at +1.5% again.even on the last two sessions.
Mostly due to finance up as Dic mentioned,but also no big loss in oil or lmt and hydrogen etf
I am definitively a contrarian

 

[ducati916]

Not a good way to finish the week. I don't see anything sinister in the news, so this volatility and sell off must be due to uncertainty of election outcome... ?

View attachment 108694

Trading the news is an activity fraught with complications as in Keynes' example of the beauty contest: you are not trying to pick the winner, you are trying to pick who the other judges think is the winner. That is the game you play in the market trading on the news.

It is far more profitable to ignore the news altogether.

One of the technical reasons for the fall was this:

Now when you have MMs selling a CALL, they will hedge and buy the stock. Assuming for ease of calculation that the delta of the CALL is 0.50: then to hedge that position the MM buys 100 shares for every 2 contracts sold as stock is delta 1.0. There is a wrinkle: gamma. Gamma changes the delta calculation. Suffice to say, you have to increase the amount of stock purchased as a hedge.

Now look at the P/C ratio:

Now you would have to do a bit of digging, but you could actually find that the FAANG (whatever) stocks accounted for a significant portion of that volume. Now, extrapolating out a little, we know that there has been a significant increase in small retail traders via Robinhood et al. These stocks, TSLA, AMZN, MSFT, AAPL, are (were) high value stocks. Far cheaper (and tons more leverage) to trade the Options. Which clearly they did. From the chart, we can see that those positions have been closed.

Now I wouldn't say that this is the causation: but it is part of the underlying issue, because as you close those CALLS, you also close the underlying stock position.

jog on
duc

 

[over9k]

You don't watch the news for 99% of what they say. 99% of it is just "no **** sherlock" type of analysis. You watch it for the 1% of the time where something is brought up or mentioned or explained that you didn't already know.

It is possible for someone on this planet to know something that someone else doesn't. Remarkable concept I know.


Back on topic:

The drop & then recovery yesterday was absolutely ridiculous. Futures are back in the red but with the election etc heating up, I suspect it's going to get REALLY choppy for the next couple of months.

There are, however, a lot of earnings to be reported between now & then (and economic data for that matter).

Some I've compiled on account of me holding or at least watching them (please note that some are assumptions based on last year's reporting date but not actually confirmed for this year yet):

2 sep – crowdstrike
3 sep – docusign
9 sep - zscaler
15 sep – fedex
19 oct – Logitech
22 oct – intel
27 oct – ups
28 oct – ebay, paypal, microsoft, tesla
29 oct – wayfair
3 nov – amd
5 nov – Zillow

Trump has also now cracked the 50/50 mark:

 

[So_Cynical]

I feel that the new bull market isn't new at all, it's the old bull market carrying on regardless of the fundamentals - as late bulls always do.

Assuming it really is just the old bull then the real correction is still to come.

 

[over9k]

Depends what you think is already priced in.

Take the megatech out and it's not a bull market. The dow's still in the toilet for example.

 

[ducati916]

The question is: is the pullback over or just getting started? It also becomes necessary to differentiate between SPY and QQQ.

SPY has clearly held up on a broad basis reasonably well.

Whereas the QQQ breached that initial support. The question is will the second line of support hold?

Support is close and should hold (SPY) evidenced on both charts.

QQQs are also close to support and could well bounce on the same indicator.

Bond yields surging are actually a good sign for the market, as falling yields indicate a run to safety. Surging yields mean that money has come out of the Bond market and either (a) gone into someone's pocket or (b) flowed into stocks. I opt for (b). Which rather creates a bit of a double whammy, in that financials benefit from surging yields.

And the full holdings of XLF (FAS):

So on balance, that pullback, pretty much looks like its all over.

All that remains is for the fat lady to sing: in that case, we may get an early move lower at the open, just to catch the unwary and then the market starts moving higher again.

Remember: this is a BULL market. This is not the start of a BEAR market, until proven otherwise. We are still in an elevated Vol environment, which means that jumps in Vol seem, or actually are, much more violent, but do not carry increased SIGNAL. It carries the same weight of signal, just a more violent one.

jog on
duc

 

[over9k]

Yeah the NDX futures are all deep in the red (over 2% at the time of this post) so tuesday (which is admittedly a long way away) looks like opening down again.

It's worth noting just how much the market recovered from its session lows on friday. Thursday opened low and just kept running. Friday opened POSITIVE (jobs data threw everyone for six, including me), fell off a cliff until mid morning, and then spent the whole day recovering. Several of my positions even temporarily cracked positive again.

In other words, admittedly it's only been a day, but the market did nothing but recover since the session lows of friday, and all the earnings reports and economic data have been better than expected. Did the market perhaps price in things to be *far* greater than expected?

Everything bounced a couple of days before zoom's blowout report (which EVERYONE were focusing on) and then went absolutely mental the day after. Had several other 4x estimates earnings been priced in and the market tanked once it realised zoom was the outlier?


Here's a thought: Duc, you focus on the technicals, and I'll focus on the interventions/artificial market movers.

E.g:

Compared to the multi-trillion-dollar first stimulus package, this isn't much, but it's roughly the equivalent of 1.4x KRUDD's $1000 cheques (it's USD remember, and that 1.4 is ignoring purchasing power parity difference, which ballparking it puts it at about 2x the equivalent in AUD) that we all got in the GFC, so it certainly isn't insignificant either.

 

[Miner]

I feel that the new bull market isn't new at all, it's the old bull market carrying on regardless of the fundamentals - as late bulls always do.

Assuming it really is just the old bull then the real correction is still to come.

I dare add that the correction within Asx and probably gold and coal commodities has arrived on last Friday 4th Sept.
Massive PE with some of the BNPL stocks will just ready to be brought to natural levels. Not pessimistic - purely looking into fundamentals and geopolitical assessment.
DYOR

 

[ducati916]

This is an area that I normally don't stray into overmuch, IPOs. One that is upcoming: https://www.palantir.com/media/

Now I've been trying to figure out exactly what they do. One of their contracts, with the US Army (as I'm interested in defence stocks DFEN): and I follow court cases.

So one for the Tecchies: when it comes to the IPO: worth it?

I'll also download/upload the CA case.

jog on
duc

 

[ducati916]

So further factors in the sell-off:

Financial press confirms a report yesterday from Zero Hedge that SoftBank Group Corp. has been the options market “whale” devouring call options in an array of tech-related stocks, a move perhaps directly contributing to the Nasdaq’s dizzying ascent this summer. The call buying spree, which The Wall Street Journal pegs at $4 billion, follows SoftBank’s reported $10 billion worth of tech-stock common equity purchases earlier this summer.

Masa Son and co. have company. While the role of retail investors in the recent gangbusters rally has been well-ventilated, new data highlight the intense speculative flows coming from smaller players. Citing data from the Options Clearing Corporation, Bianco Research notes that, as net bullish options activity surged in August: “small traders are dominating the options market and 75% of the volume is in contracts that expire in under two weeks.”

As one whale and many minnows ride the magic wave, the captains of some larger vessels look to bail. The Financial Times reports that corporate executives unloaded $6.7 billion worth of their company shares in August, the busiest single month for insider selling since November 2015.

Insiders at high-flying tech companies have been particularly eager to cash in, as firm StoneX (nèe INTL FCStone) reports that insider sales among Nasdaq 100 companies jumped to $10.4 billion in the second quarter, up 171% from a year ago.

StoneX macro strategist Vincent Deluard sums it up to the FT: “Insiders at Nasdaq 100 index companies are harvesting a once-in-a-millennium bonanza.”

jog on
duc

 

[ducati916]

And Oil news:

Friday, September 4th, 2020

Oil prices hit a rough patch this week, falling back in concert with broader financial markets. The dollar gained strength, which also pushed down crude. The demand rebound is also sputtering. WTI was driven below $40 for the first time since June.

Iraq seeks OPEC+ exemption. Iraq is looking for an exemption from the OPEC+ deal for the first quarter of 2021, raising fears that the group’s compliance may start to slip. A separate report says that Iraq wants a two-month extension on the extra production cuts that it agreed to implement in August and September.

Kuwait’s oil economy running on fumes. Kuwait’s budget deficit is expected to reach $46 billion this year. But oil revenues collapsed after the 2014-2016 downturn and neve recovered. Now the country is grappling with tapping its sovereign wealth fund as the days of huge oil revenues appears to be over.

EU warns of running low on critical metals. A new report from the European Commission warns that the shortage of critical materials could threaten the EU’s push to become climate neutral by 2050. The EU estimates that it will need up to 18 times more lithium and five times more cobalt in 2030, a figure that rises to 60 times more lithium and 15 times more cobalt by 2050.

U.S. LNG faces blowback in Europe. The Trump administration’s aggressive use of sanctions related to Nord Stream 2 risks blowback from angry European policymakers. “This is not a way you treat allies and friends. Now, the European Union should show unequivocally that it will not be blackmailed,” said Klaus Ernst, chairman of the German parliament's energy and economic affairs committee. “If diplomacy fails, we'll need penalty tariffs on fracking gas or even an import ban as a painful countersanction, since the U.S. gas industry seems to be a major driver of the sanctions policy.”

Merkel under pressure on Nord Stream 2 after Navalny poisoning. The poisoning of Russian opposition leader Alexei Navalny is ratcheting up the pressure on Germany to cancel the Nord Stream 2 project as retaliation against Russia.

Schlumberger exits fracking. Schlumberger (NYSE: SLB) agreed to sell its North American fracking business to Liberty Oilfield Services (NYSE: LBRT), marking something of an exit from shale for the oilfield services giant.

Only 14% of utilities prioritize renewables. A new University of Oxford study found that worldwide only about 14 percent of utilities prioritize renewables over gas or coal. “This research highlights a worrying gap between what is needed to stop global warming and what actions are being taken by the utility sector,” the author said.

Refinery glut continues. Overcapacity in the downstream sector is a global problem, and some aging European refineries face the prospect of closure. Energy Aspects estimates that the refining sector needs to cut capacity by 10 percent. Total (NYSE: TOT) and Eni (NYSE: E) have already converted three refineries into handling biodiesel, and more are likely to follow.

Imperial cuts oil sands after pipeline leak. Imperial Oil (TSE: IMO) shut down its production at the 220,000-bpd Kearl oil sands site after the Polaris pipeline leaked diluent. The pipeline delivers diluent for blending but spilled 566 barrels near Fort McMurray. The outage is likely to remove 240,000 to 270,000 bpd from the market for at least a few weeks, according to Reuters.

Australian gas losing out to batteries. Batteries are becoming more attractive than gas-fired electric capacity in Australia. AGL Energy (ASX: AGL) new COO Markus Brokhof recently said that “there is a clear business case for big batteries.” New electric capacity is increasingly coming from renewables plus batteries, and as natural gas prices rise worldwide from recent lows, that dynamic should continue.

Fossil fuels are here to stay. The future looks bright, emission-free, and electric. But a recent IEA report offers a reality check. The world is still very much dependent on oil and gas—and even coal—for its continued energy supply. The 100-percent renewable energy world is still decades away, and more than a couple.

U.S. jet fuel demand rebounding. Jet fuel demand in the U.S. is recovering faster than it is in Europe or the rest of the Americas.

Saudi Aramco slows diversification plans. Saudi Aramco (TADAWUL: 2222) is tapping the breaks on major investment plans in Texas, China, India, and Pakistan, according to the Wall Street Journal. It is also delaying plans to increase domestic crude production capacity.

California oil and gas permitting up 190%. California has issued 190 percent more oil and gas drilling permits in the first six months of 2020 compared to a year earlier.

Bill Gates-backed battery company to go public. QuantumScape, a 10-year old battery company backed by Volkswagen Group, is looking to go public through a reverse-merger with SPAC Kensington Capital Corp.

Plastics growth not assured. A new report from Carbon Tracker finds that while the oil and petrochemical industries are betting their future growth on demand for plastics, demand is likely to peak as the world starts to transition from a linear plastic system to a circular one. The report warns that disappointing demand growth will lead to $400 billion in stranded petrochemical assets.

jog on
duc

 

[Miner]

And Oil news:

Friday, September 4th, 2020

Oil prices hit a rough patch this week, falling back in concert with broader financial markets. The dollar gained strength, which also pushed down crude. The demand rebound is also sputtering. WTI was driven below $40 for the first time since June.

Iraq seeks OPEC+ exemption. Iraq is looking for an exemption from the OPEC+ deal for the first quarter of 2021, raising fears that the group’s compliance may start to slip. A separate report says that Iraq wants a two-month extension on the extra production cuts that it agreed to implement in August and September.

Kuwait’s oil economy running on fumes. Kuwait’s budget deficit is expected to reach $46 billion this year. But oil revenues collapsed after the 2014-2016 downturn and neve recovered. Now the country is grappling with tapping its sovereign wealth fund as the days of huge oil revenues appears to be over.

EU warns of running low on critical metals. A new report from the European Commission warns that the shortage of critical materials could threaten the EU’s push to become climate neutral by 2050. The EU estimates that it will need up to 18 times more lithium and five times more cobalt in 2030, a figure that rises to 60 times more lithium and 15 times more cobalt by 2050.

U.S. LNG faces blowback in Europe. The Trump administration’s aggressive use of sanctions related to Nord Stream 2 risks blowback from angry European policymakers. “This is not a way you treat allies and friends. Now, the European Union should show unequivocally that it will not be blackmailed,” said Klaus Ernst, chairman of the German parliament's energy and economic affairs committee. “If diplomacy fails, we'll need penalty tariffs on fracking gas or even an import ban as a painful countersanction, since the U.S. gas industry seems to be a major driver of the sanctions policy.”

Merkel under pressure on Nord Stream 2 after Navalny poisoning. The poisoning of Russian opposition leader Alexei Navalny is ratcheting up the pressure on Germany to cancel the Nord Stream 2 project as retaliation against Russia.

Schlumberger exits fracking. Schlumberger (NYSE: SLB) agreed to sell its North American fracking business to Liberty Oilfield Services (NYSE: LBRT), marking something of an exit from shale for the oilfield services giant.

Only 14% of utilities prioritize renewables. A new University of Oxford study found that worldwide only about 14 percent of utilities prioritize renewables over gas or coal. “This research highlights a worrying gap between what is needed to stop global warming and what actions are being taken by the utility sector,” the author said.

Refinery glut continues. Overcapacity in the downstream sector is a global problem, and some aging European refineries face the prospect of closure. Energy Aspects estimates that the refining sector needs to cut capacity by 10 percent. Total (NYSE: TOT) and Eni (NYSE: E) have already converted three refineries into handling biodiesel, and more are likely to follow.

Imperial cuts oil sands after pipeline leak. Imperial Oil (TSE: IMO) shut down its production at the 220,000-bpd Kearl oil sands site after the Polaris pipeline leaked diluent. The pipeline delivers diluent for blending but spilled 566 barrels near Fort McMurray. The outage is likely to remove 240,000 to 270,000 bpd from the market for at least a few weeks, according to Reuters.

Australian gas losing out to batteries. Batteries are becoming more attractive than gas-fired electric capacity in Australia. AGL Energy (ASX: AGL) new COO Markus Brokhof recently said that “there is a clear business case for big batteries.” New electric capacity is increasingly coming from renewables plus batteries, and as natural gas prices rise worldwide from recent lows, that dynamic should continue.

Fossil fuels are here to stay. The future looks bright, emission-free, and electric. But a recent IEA report offers a reality check. The world is still very much dependent on oil and gas—and even coal—for its continued energy supply. The 100-percent renewable energy world is still decades away, and more than a couple.

U.S. jet fuel demand rebounding. Jet fuel demand in the U.S. is recovering faster than it is in Europe or the rest of the Americas.

Saudi Aramco slows diversification plans. Saudi Aramco (TADAWUL: 2222) is tapping the breaks on major investment plans in Texas, China, India, and Pakistan, according to the Wall Street Journal. It is also delaying plans to increase domestic crude production capacity.

California oil and gas permitting up 190%. California has issued 190 percent more oil and gas drilling permits in the first six months of 2020 compared to a year earlier.

Bill Gates-backed battery company to go public. QuantumScape, a 10-year old battery company backed by Volkswagen Group, is looking to go public through a reverse-merger with SPAC Kensington Capital Corp.

Plastics growth not assured. A new report from Carbon Tracker finds that while the oil and petrochemical industries are betting their future growth on demand for plastics, demand is likely to peak as the world starts to transition from a linear plastic system to a circular one. The report warns that disappointing demand growth will lead to $400 billion in stranded petrochemical assets.

jog on
duc

Gees.
Enough smokes from my oil stocks burning to pour water unless by Monday market opening fire engulfs them with no remainder.
Really scary. In addition our son is a drilling engineer in a large oiler. I could see with depressed market he could come to dole queue.
Any better news

 

[over9k]

No. Oil is absolutely done for. You even have seasonality to consider now, meaning northern hemisphere gets cold = people do less stuff = oil consumption drops even more. Things are so bad that leftover jet fuel is being mixed into regular car fuel and sold at the pump. The only thing you'll see a bounce in is heating oil.

Then factor in the increased spread & lethality of the virus in cold weather, and you have the perfect storm.


The smaller the company the faster it is falling in every industry/sector (that's been hit) and oil is no exception. You'll be able to prove this to yourself with a quick look - the bigger the company, the better it is (relatively) doing.

So take that logic and look for the biggest (oil) company of them all - aramco. It's the only one that hasn't been absolutely obliterated. If you want to buy it, the ETF ticker is KSA.

 

[over9k]

As if things couldn't get any worse for oil.

The saudi's couldn't have dreamed of a better predatory price environment.

 

[aus_trader]

Not a huge fan of China, but I need some diversification exposure in this area, so YINN is it.

Looks like it doesn't pay a dividend. Am I mistaken ?

 

[aus_trader]

No. Oil is absolutely done for. You even have seasonality to consider now, meaning northern hemisphere gets cold = people do less stuff = oil consumption drops even more. Things are so bad that leftover jet fuel is being mixed into regular car fuel and sold at the pump. The only thing you'll see a bounce in is heating oil.

Then factor in the increased spread & lethality of the virus in cold weather, and you have the perfect storm.


The smaller the company the faster it is falling in every industry/sector (that's been hit) and oil is no exception. You'll be able to prove this to yourself with a quick look - the bigger the company, the better it is (relatively) doing.

So take that logic and look for the biggest (oil) company of them all - aramco. It's the only one that hasn't been absolutely obliterated. If you want to buy it, the ETF ticker is KSA.

You are probably right with your argument, from a global point of view. Just for interest I just looked at the biggest one on the Aussie market, that's the one on most balanced super funds and on most investors blue chip list which is "woody woodpecker" Woodside Petroleum Limited (WPL). It is trading at prices not seen in the last 5 years...

 

[aus_trader]

View attachment 108791

As if things couldn't get any worse for oil.

The saudi's couldn't have dreamed of a better predatory price environment.

Yeah, they'll send the US shale Oil and Canadian Tar sand oil stocks (both have massive production costs) packing into history books...

 

[ducati916]

Looks like it doesn't pay a dividend. Am I mistaken ?
View attachment 108796

Depends on where you look, seems to be lots of variations.

I'll let you know (if) when I get paid a dividend.

jog on
duc

 

[ducati916]

No. Oil is absolutely done for. You even have seasonality to consider now, meaning northern hemisphere gets cold = people do less stuff = oil consumption drops even more. Things are so bad that leftover jet fuel is being mixed into regular car fuel and sold at the pump. The only thing you'll see a bounce in is heating oil.

Then factor in the increased spread & lethality of the virus in cold weather, and you have the perfect storm.


The smaller the company the faster it is falling in every industry/sector (that's been hit) and oil is no exception. You'll be able to prove this to yourself with a quick look - the bigger the company, the better it is (relatively) doing.

So take that logic and look for the biggest (oil) company of them all - aramco. It's the only one that hasn't been absolutely obliterated. If you want to buy it, the ETF ticker is KSA.

I would disagree for the following reasons:

(a) Oil is for the moment (at least) still indispensable to the world economy. Just prior to COVID, growth in demand was robust and growing. As economies emerge from COVID, that demand will re-assert itself; and

(b) The growth in supply, which exceeded the growth in demand, has been ended by the Arab price war; and

(c) The US via the Fed. is actively trying to create inflation: this will likely include a weaker dollar. A weaker dollar is a higher price for oil.

Where I agree is that smaller, highly leveraged producers/services/etc are going to struggle to survive and many (already) will have gone under. In the US Chap.11 bankruptcies however preserve the assets (and often the Company) in a way that can (and probably will) in the right circumstances, bring back that supply more quickly than you might imagine.

jog on
duc

 

[Smurf1976]

Where I agree is that smaller, highly leveraged producers/services/etc are going to struggle to survive and many (already) will have gone under. In the US Chap.11 bankruptcies however preserve the assets (and often the Company) in a way that can (and probably will) in the right circumstances, bring back that supply more quickly than you

Something to note is that whilst the total cost of finding, developing and operating oil production in the US is relatively high, the cost of simply continuing to operate an already developed well for the remainder of its life is drastically lower.

A lot of upstream energy production has that same basic attribute. Solar, hydro and nuclear power and upstream oil (except tar sands) and gas certainly have that aspect in terms of low costs once it’s built.

Some coal mines too but that’s very site specific. Wind energy also “it depends” since ongoing maintenance is significant but potentially cheap at the margin if it’s a major operation and the staff are employed anyway etc.

It creates a situation where even if the overall operation is unprofitable, continuing to operate is the option which produces the smallest loss. A fortune may have been lost on the original investment but the assets are cash flow positive as such.

Total cost versus the marginal cost to operate what’s already developed can be drastically different.