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Trading the Trend

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over9k said:
Wanna remake that post in the other thread and we'll chat there? Don't want to derail this one
Click to expand...

I can have a coffee, and stay up for the next few hours; however I have made my comments.

Wall Street is pumping now; that is the main thing to keep people happy.

Speak tonight, Australian time.
 
A follow up article:

Legendary 19th century financier JP Morgan said, “A man generally has two good reasons for doing a thing—one that sounds good, and a real one.” Pundits cite loads of seemingly smart reasons you should dismiss global stocks’ rally since March. But their real reason? Admitting the upturn is real also admits they were wrong. Tough for most of us! So instead, they grasp for anything supporting their prior negativity. Behavioral psychologists see this as a subset of “confirmation bias.” It drives the “Pessimism of Disbelief”—the foundation of every new bull market, as I highlighted in May. Those falling prey it to suffer a costly but simple behavioral error.

After late-stage bear markets’ steep, panicky plunges, battered investors get myopic. They fixate on bad news, spinning any positives into negatives—like now. That’s the Pessimism of Disbelief. It sets expectations so low almost any eventuality lifts stocks, force feeding a new bull market in the process. It persists for a long time. But why … cycle in, cycle out, always? Why does it persist as stocks rise?

Simple: Confirmation bias—the ubiquitous tendency to see what we want to see or believe we should see—while not seeing contradictory evidence. When most buy a stock that rises they think they were smart and accumulate pride. But if it drops, they’ll blame distractions, illness, their spouse—anything other than themselves. It’s called accumulating pride and shunning regret. Humans have done it forever. It motivates us to keep trying, which was essential in Stone Age days and helps in lots of things now. But it hurts us all in stock markets.

Today, it causes most experts and investors to deny they were wrong since late March. The rally is fake they say—all “stimulus” optimism which boosted valuations unjustifiably high, teeing up another drop. They hype any resurgent volatility, like mid-June’s, as vindication. Or they argue euphoric investors ignore a potential second COVID wave. Or the rally is all Millennials day-trading on Robinhood. Or surging US debt will doom the dollar and zap markets. Or, or, or! It surely isn’t a sustainable new bull market, they grumble. The higher stocks climb, the more vehement the dismissals grow.

This happens in every new bull market, without fail. Consider the last one to see confirmation bias run wild. In 2009, stocks soared off March lows while bears shrieking “sucker’s rally!” grasped at bogeymen. Deflation. Consumers unable or unwilling to spend. A “New Normal” of lower returns for decades. Confirmation bias built well into 2010. Remember all those double-dip recession fears? Massive inflation’s inevitability? The looming municipal default deluge? To disbelievers, these weren’t reasons a new bull market would end. They were reasons it should never have started. In doubling down, they got it doubly wrong.

Confirmation bias makes disbelievers overlook a simple, basic truth: Markets never dwell on today—they look forward, somewhere from 3 to 30 months ahead. Exactly how far shifts unpredictably, but once economic contraction hits and negativity dominates news—like now—stocks are usually pre-pricing a far brighter future. They shift focus further out into that 3 – to- 30 month range. All the negatives pessimists tout are already factored into prices—rendering them incapable of triggering another big down leg. That would take new, big, bad problems no one has contemplated yet. With pessimists touting risks widely, I can’t see anything new stocks haven’t pre-priced to some degree.

Absent that new problem, this rally looks picture-perfect like every early bull market to me. Expect short-term volatility. Recoveries are always jagged, testing investors’ faith and shaking out the weak. But a retesting of March’s low? It would be historically unique. Consider: from February 19 through March 23’s low, the S&P 500 plunged -34%. Before mid-June’s volatility, it had recaptured over 75%of that decline. Since 1928, only two bear market or mid-correction rallies clawed back 75% of their drop and then headed down to retest lows—1957 and 2000. But they were different.

Both those rallies started before the declines even hit the -20% bear market threshold. Hence, they were absolutely much smaller than this year’s. In 1957, stocks fell -14.8%, recaptured 90% of that, and then headed lower—into bear market territory. In 2000, they fell -11.2%, regained nearly all that and continued their long, slow slog to 2002’s low. Neither was like now. At all! Those who call this upturn a head-fake project something unprecedented. That doesn’t mean impossible. It means unlikely.

This bear market began without warning. Nothing is certain, but dollar to a donut it ended the same way March 23rd. If you missed the rally so far, don’t compound your mistake. Look to that brighter 2022 and 2023 far-future—just like stocks do.

jog on
duc
 


Approaching the gap and then the previous high. The QQQ have already blasted through and are now trading at all time highs. Clearly in a bull market.

Could 320 pose an issue? It might. Once the market closes we'll see where we sit, which will make any analysis a little clearer.

As regards 340, a lot of eyes will be on that level. There will be endless media discussions on whether it will hold or fail and all the pet theories will be on full display. I suspect that 320 will fall and that come Friday this week we will be close to the 340 level, where the week will end. The market will have the w/e to debate whether the 340 level holds or fails.

jog on
duc
 
Probably not a great idea:

President Donald Trump is picking another fight with the technology sector.

On Monday, the president took another swipe at the tech giants, suspending the issuance of H-1B visas through the end of the year. H-1B visas allow foreign workers with specific skills to work in the United States under the sponsorship of their employers.

The ongoing debate about the H-1B visa program is whether tech companies really can’t find the talent they need at home—or whether they are using them to hire skilled but less expensive tech experts from outside the U.S. Tech industry leaders, venture capitalists and entrepreneurs take the view that restrictions on H-1B visas primarily have the effect of hurting the competitive position of U.S. companies, rather than protecting jobs for U.S. workers



jog on
duc
 
Better expressed and exactly my thoughts
as usual, Australia will be a bit behind to catchup, not helped by its media feed..
.
 
Quick question Duc
You are a New Zelander, interested mostly in the us market. We can notice very early posting Australia/NZ time
Are you physically based in the US or do you have an early wake up time /work by night to follow the US market.if so, must not be easy
And thanks for taking the extra time for sharing.
 


I'm your cousin from across the English Channel, living in Auckland. I'm just an early bird.

jog on
duc
 
Just having my first coffee of the morning in a sea of red. Who is nervous? Currently it is simply the market rebalancing.



Notice the 50SMA rising from below.



We have most sectors (pretty much everything excluding Tech) settling from red hot to something more sustainable. The move has brought the Utilities sector back below its 50-day moving average. At the moment, it is the only sector below its 50-DMA.

Technology and Communication Services stocks have continued to press higher up 2.35% and 1.05% in the past week respectively. Now the Tech sector is over 10% above its 50-DMA and is easily the most overbought sector. Alongside Tech, Communication Services and Consumer Discretionary are the only other sectors that are currently overbought. Most of the other sectors were overbought within the past week but recent declines have left them in neutral territory.

Before declines in the past few weeks, some of these had even traded at over 2 standard deviations above their 50-DMAs. With most having since returned to neutral territory, they broadly remain off their highs, though, Consumer Discretionary and Technology are trading around fresh 52 week highs.




Since the low on 23 March, Technology has been overbought more than 50% of trading days and both Communication Services and Consumer Discretionary have been overbought for 47.06% of days. Given these three sectors account for just under half of the weight of the whole S&P 500, the broader index has not been far behind trading overbought for 38% of days since 3/23. Looking at the other end of the spectrum, Consumer Staples has been overbought the least at only 7.35% of days. Other groups that were stronger during the bear market but have since seen performance wane like Health Care and Utilities also have been overbought far less frequently.



We are once again contesting the 300 level +/-. Previously I stated that we could get a correction in price or time.



We are getting both. The correction is simply allowing the market to catch its breath. The bounce, into the trend, has been a sprint.

So we are now sitting at Tuesday. The previous high and all time high sit only a few % points away. To go through the all-time-high, the market will need (to be healthy) more than just one or two sectors. It will need the majority.



Nowhere near the spike of last time. The actual drop 7% +/- last time to 2% (at time of writing) this time round. Calm the farm.

jog on
duc

 
I don't want to burst anyone's bubble, but I feel like tomorrow's going to be a classic friday selloff. Today has undoubtedly given a lot of people a lot of jitters.
 
ducati916 said:
I'm your cousin from across the English Channel, living in Auckland. I'm just an early bird.

jog on
duc
Click to expand...
a late night owl!!!! ;-)
All good, now i check your input before looking at the NYSE when I wake up ...
Have a great day
early bird myself by some standarts
 
I, meanwhile, have been up all night.

0.25% in the red for the night. I'll take it.
 
over9k said:
I, meanwhile, have been up all night.

0.25% in the red for the night. I'll take it.
Click to expand...
0% for the night and even a great sleep.i assume Zoom has been up the sky?how can you be in the red
Ok i am stirring sxxt...;-)
 
Time is our friend, it does not stir nor does it choose. It does however tricks us to think now is important.
We creatures with emotions chose from the choices time allows.
Choose wisely, deja vu has taught us all, if only i spent time in the market and not timing the market.
Very few has the skills to time the market.
When equities, indices, derivatives or any asset class resets... it is nothing more than an opportunity to plan your trade and then trade your plan.

Everyday is a beautiful day...some are better than others.
 
qldfrog said:
0% for the night and even a great sleep.i assume Zoom has been up the sky?how can you be in the red
Ok i am stirring sxxt...;-)
Click to expand...
Yep zoom's my standout.

Also just doublechecked my numbers from last night - I'm actually up 0.13%
 
Last edited:
Lots of green in the U.S tonight (though we're only an hour into the session). Looks like an overcorrection correction like we saw on the 12th, which was also a friday. But we'll see what it closes at.
 


With stocks fluctuating, news stories everywhere trying to account for causation, what is actually going on in the market?

For that we need to look at this chart:



So here we have the US$ pitted against Commodities with the Stock Market in the background. This is the 'macro' picture. It is (far) slower moving, although, even this has 'speeded-up' currently.

We have record low yields in the US. The Stock Market loves low yields and all that liquidity. It hates (as we saw in the end of 2018 start 2019) the 'Taper Tantrum' and the removal of low yields.

What can threaten low yields? Inflation. Inflation is not the CPI. Central bankers could care less about consumers. It is the PPI inflation that they worry about. You can see on the far left of our chart, the US$ weakening against commodities: specifically Oil.



Now the POO had been in a long term decline based on all that new supply from the US via fracking etc. The POO would have been (reasonably) contained somewhere in the $40-$65 range. With the Saudi's launching an all-out assault on the POO, that new supply that was holding (disinflationary) price into that range, has been (probably) largely obliterated for the foreseeable future. This has resulted in POO rising back rapidly to the $40 range.

The question is: does it stop circa that $40/$60 range?

If not, the ultra-low rates become risky in that they will encourage inflation, which in this case is a falling US$ as against commodities or POO. What to do? Raise rates? The Stock Market will not love that.

So the macro story that is playing out slowly, sub rosa, is this developing inflationary risk. This won't be a quick developing story. It will take time. The second big macro force that is (obviously) going to influence inflation is the current de-globalisation. It was present prior to COVID in the Tariff war that the US was engaged in (primarily) with China. That rhetoric continues unabated from the White House. Then of course we had COVID which accelerated this force of de-globalisation even further, but paradoxically increased the disinflationary forces that will keep the forces of inflation far more muted than they may have been. The Oil war would have occurred with or without COVID, that was just coincidental. There are currently no signals from the macro side that are flashing an exit. However, as the chart indicates, it is something that the market will keep an eye on.

Stocks remain the place to be for the time being. Currently we are engaged in a 'time' correction coupled with the fast paced price correction of last week. Stocks are just catching up with themselves. Of course all of the various headlines compete with traders/investors attention as being causative and predictive.

Thinking more macro-strategy, you would want your portfolio to have allocations to: (a) commodities (I hold Oil Producers) which could be Oil/Gold/Silver (probably not agriculture as this is more weather dependent); (b) stocks that could benefit from a new cold war between the US and China (I hold DFEN); (c) more defensive based stocks with good steady yield. Clearly what you don't want to hold going forward if inflation develops are Bonds and other debt based investments.

As already stated, this is not a next week type of trade. Inflation may never present for years to come as the current disinflationary forces are very strong currently, even given the de-globalisationary forces currently present. If it does occur there will be ample warning.

jog on
duc
 
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