Trading the Trend

[over9k]

You really don't think that a virus wave will drive/dictate the fundamentals? There's an awful lot of coincidences to explain if not.

 

[IFocus]

You really don't think that a virus wave will drive/dictate the fundamentals? There's an awful lot of coincidences to explain if not.

The dramatic sell off due to the 1st wave of virus was by and large due to uncertainty no one knew where it would go, markets hate uncertainty.

There is very little uncertainty around the virus currently and the 2nd wave is largely understood.

 

[ducati916]

You really don't think that a virus wave will drive/dictate the fundamentals? There's an awful lot of coincidences to explain if not.

Ok so let's explore this a little bit.

(i) We can assume that there could well be a second wave because (a) it is infectious.
(ii) We know that the initial response was lockdown, which didn't work particularly well in US.
(iii) We know that it did damage to the economy.

What was that damage?

In no particular order:

(i) unemployment;
(ii) loss of revenues across wide swathe of businesses;
(iii) rising NPLs;
(iv) Etc.

What was the response?

(i) Unprecedented supply of liquidity;
(ii) Other government based support, loans, etc.

Did all Sectors suffer equally?

Clearly the answer is no. Some sectors (industries) suffered far greater disruption than others. Look at the sector charts for various examples. That would likely continue into a second wave.

Let's take a more specific example: Financials. We know that financials are exposed to rising NPLs, which could threaten their liquidity and hence their survival. (a) We know that the Fed. has provided unlimited liquidity to the financial sector, based on the disaster incurred both in 1930 and 2008 with Bank failures. (b) The Banks have also been stress tested. They passed. No confidence in (b)? Well you still have (a). Therefore there will be no collapse of the financials. Fact. Irrespective of how many are infected/die.

Repeat this exercise for any (or all) sectors. Some you might legitimately have doubts on: Cruise ships, passenger aircraft, etc.

What you will find is that irrespective of the viral load, business goes on. It has to. There are no alternatives. Therefore apart from technical volatility, all the bad news is already in the price (to the downside) and all the potential (for good news) is unrealised.

So stay away from industries that people in a free market would naturally avoid and stay with those that will carry on carrying on. Now this is simplified simply because I have no inclination to draft a post so long as to send everyone to sleep.

jog on
duc

 

[ducati916]

The dramatic sell off due to the 1st wave of virus was by and large due to uncertainty no one knew where it would go, markets hate uncertainty.

There is very little uncertainty around the virus currently and the 2nd wave is largely understood.

Amen.

jog on
duc

 

[Chronos-Plutus]

The issue for me, re. your analysis is this: it is superficial and does not provide an analysis of the macro-fundamentals at all.

Medically, there was always the potential for a 2'nd wave, everyone and their granny knew that. This superficial type of analysis takes you nowhere.

jog on
duc

A fair bit of data being released tonight:

 

[ducati916]

So updating the charts:

Every chart support held.

We knew the probabilities were high because the macro-fundamentals are supportive of a higher trending market. When the fundamentals change, so will I. While the fundamentals remain in place, so greater weight can be accorded to the technical picture.

Dr Copper does not lie.

jog on
duc

 

[Smurf1976]

With regard to the virus story: even if the world (US) went to 100% infection rate, can economies be closed indefinitely? The answer is clearly no. Closing economies indefinitely is something that simply cannot happen. If it cannot happen, it won't happen.

Agreed that the economy as such cannot be closed.

That said, disasters of any kind have a habit of being "unthinkable" for a very long time until they actually happen. Eg if anyone had discussed the idea of closing state borders or even just closing cinemas then they'd have been given a very firm "no" not too long ago. Then all of a sudden we ended up with not only cinemas being shut but the entire aviation industry all but grounded and people fighting over toilet paper. Etc.

With that in mind I pose the question that whilst "the economy" won't be shut, I see nothing preventing parts of it from being shut again or even permanently.

As just one example - when does anyone expect to see a major multi-stage music festival up and running in Australia with international acts and traveling to at least the 3 east coast cities and perhaps SA and WA as well, with attendance of 20,000+ in each city?

Or when do we see cruise ships calling into Australian ports at the rate of several a week and their passengers freely disembarking without restriction?

Those are just two examples but it seems entirely plausible to me that they won't be happening at all for quite some time and nor will many things. The economy won't be shut but a portion of it may well be - you need to pick your stocks carefully there I think.

 

[waterbottle]

So updating the charts:

View attachment 105377 View attachment 105378 View attachment 105379

Every chart support held.

We knew the probabilities were high because the macro-fundamentals are supportive of a higher trending market. When the fundamentals change, so will I. While the fundamentals remain in place, so greater weight can be accorded to the technical picture.

Dr Copper does not lie.

View attachment 105381

jog on
duc

@ducati916

What is your reasoning behind using copper prices as opposed to other financial instruments/commodities or oil for that matter?

 

[waterbottle]

@Smurf1976 completely agree. The nature of the economy may change but it'll still be here.

Reality is deposits have grown but spending hasn't - people are saving a relatively large amount of cash. Meanwhile government is being pressured to provide ever increasing amounts of social welfare.
Consumers will consume.

Agreed that the economy as such cannot be closed.

That said, disasters of any kind have a habit of being "unthinkable" for a very long time until they actually happen. Eg if anyone had discussed the idea of closing state borders or even just closing cinemas then they'd have been given a very firm "no" not too long ago. Then all of a sudden we ended up with not only cinemas being shut but the entire aviation industry all but grounded and people fighting over toilet paper. Etc.

With that in mind I pose the question that whilst "the economy" won't be shut, I see nothing preventing parts of it from being shut again or even permanently.

As just one example - when does anyone expect to see a major multi-stage music festival up and running in Australia with international acts and traveling to at least the 3 east coast cities and perhaps SA and WA as well, with attendance of 20,000+ in each city?

Or when do we see cruise ships calling into Australian ports at the rate of several a week and their passengers freely disembarking without restriction?

Those are just two examples but it seems entirely plausible to me that they won't be happening at all for quite some time and nor will many things. The economy won't be shut but a portion of it may well be - you need to pick your stocks carefully there I think.

 

[qldfrog]

@ducati916

What is your reasoning behind using copper prices as opposed to other financial instruments/commodities or oil for that matter?

Copper is a great indicator of economic activity: it is used from housing,infrastructure to industry or even throw away gadget: any wiring or electric motor uses it.
So its use as an economic health indicator

 

[peter2]

The price of copper is going up mainly due to the number of South American copper producers that have had to go to care/maintenance because of COVID-19. Copper production in Sth America is down.

 

[over9k]

Same with iron ore - brazil's just toast. The wildcard(s) are on the demand side. We saw a big dip just a few days ago with that outbreak in beijing. The thing is that china still makes steel and just dumps it in their storage yards even if there isn't any demand for it. And then when the storage yards were filled, they started filling up their now empty sports stadiums.

No, I'm not joking.

 

[Chronos-Plutus]

Same with iron ore - brazil's just toast. The wildcard(s) are on the demand side. We saw a big dip just a few days ago with that outbreak in beijing. The thing is that china still makes steel and just dumps it in their storage yards even if there isn't any demand for it. And then when the storage yards were filled, they started filling up their now empty sports stadiums.

No, I'm not joking.

Brazil export map:

https://oec.world/en/profile/country/bra

 

[over9k]

I don't know what percentage of world supplies that is but I know brazil is roughly 25% of the world's iron ore.

 

[Chronos-Plutus]

"New York Adds Travelers From 8 States To 'Mandatory Quarantine' List: Live Updates"
https://www.zerohedge.com/geopoliti...month-lockdown-covid-19-infections-spike-live

I don't know what percentage of world supplies that is but I know brazil is roughly 25% of the world's iron ore.

It is a percentage of Brazil's export value, about ~$20 billion.

I was just listening to Powell and Mnuchin in the US hearing live; I switched it off after I heard Mnuchin say that China are maintaining their agricultural commitments to buy US produce:

 

[ducati916]

Metals prices:

The downward sloping are Steel (China & US) and Tin.

jog on
duc

 

[ducati916]

So now looking at sectors (and their stocks) on a technical basis:

Energy in particular had run hard, but so too had other sectors that in a lockdown type of environment you could expect to again: Communication, Staples.

Tech. remains the place to be.

A correction (technical) was inevitable.

Most sectors are now within a few percentage points of their 50-DMAs, and that is a much more moderate reading than some observed in the past few months.

As for the individual stocks within each sector, there has also been significant mean reversion. In the first couple of weeks of June, well over 90% of S&P 500 stocks were above their 50-DMAs. With equities broadly lower since the early month highs, only around 60% of stocks are now above their 50-DMAs. On a sector basis, Industrials have the highest share (80.8%) above while Utilities has the lowest share at only 21.43%.

Now the industrials will correlate (reasonably well) to the metals prices.

In addition (which is the next stage of analysis for the Financials in earlier post) we have the RE sector picking up (which means mortgage business for the Banks):

The 'news' contains both noise and signal.

jog on
duc

 

[Chronos-Plutus]

Metals prices:

View attachment 105403 View attachment 105404 View attachment 105405 View attachment 105406 View attachment 105407 View attachment 105408 View attachment 105409 View attachment 105410 View attachment 105411 View attachment 105412 View attachment 105403 View attachment 105404 View attachment 105405 View attachment 105406 View attachment 105411 View attachment 105412

The downward sloping are Steel (China & US) and Tin.

jog on
duc

You might like this table Duc:

 

[ducati916]

Agreed that the economy as such cannot be closed.

That said, disasters of any kind have a habit of being "unthinkable" for a very long time until they actually happen. Eg if anyone had discussed the idea of closing state borders or even just closing cinemas then they'd have been given a very firm "no" not too long ago. Then all of a sudden we ended up with not only cinemas being shut but the entire aviation industry all but grounded and people fighting over toilet paper. Etc.

With that in mind I pose the question that whilst "the economy" won't be shut, I see nothing preventing parts of it from being shut again or even permanently.

As just one example - when does anyone expect to see a major multi-stage music festival up and running in Australia with international acts and traveling to at least the 3 east coast cities and perhaps SA and WA as well, with attendance of 20,000+ in each city?

Or when do we see cruise ships calling into Australian ports at the rate of several a week and their passengers freely disembarking without restriction?

Those are just two examples but it seems entirely plausible to me that they won't be happening at all for quite some time and nor will many things. The economy won't be shut but a portion of it may well be - you need to pick your stocks carefully there I think.

Now I suspect that this is (firmly) tongue-in-cheek, but it demonstrates the (necessary) adaptability of the workforce:

jog on
duc

 

[ducati916]

You might like this table Duc:
View attachment 105423

Provides additional context. Nice.

jog on
duc