Trading the Trend

[qldfrog]

so not actually in bear mode, more a transition, more an interpretation that leans to bear ?

not much interpretation in my systems: based on backtest of previous periods
more statistically right than interpretation.
If I want to have an edge, it is turning bearish today, may turn opposite tomorrow, it is not triggering yet a GTFO (get the **** ou) signal; but I notice one sell, no buy in my daily..usually that sell would have been matched by one buy.
Still mostly invested nevertheless today

 

[ducati916]

So now the 20EMA has crossed the 200EMA (touching) and we will have a correction. The correction started today. Now that correction can be in time or price. If it is time, then price will just go nowhere while the EMA catches up. If by price, we'll get a price pullback. I would expect a price pullback, but this market has simply been so strong I would not rule out a time correction as that would likely frustrate the most participants.

Looking at another view:

If correcting by price: then as price and the rising EMA meet (again) would be our correction. I would not expect price to fall to the lower B. Band. If by time, price will fluctuate sideways until it takes off higher again.

jog on
duc

 

[qldfrog]

View attachment 104570

So now the 20EMA has crossed the 200EMA (touching) and we will have a correction. The correction started today. Now that correction can be in time or price. If it is time, then price will just go nowhere while the EMA catches up. If by price, we'll get a price pullback. I would expect a price pullback, but this market has simply been so strong I would not rule out a time correction as that would likely frustrate the most participants.

Looking at another view:

View attachment 104572 View attachment 104571

If correcting by price: then as price and the rising EMA meet (again) would be our correction. I would not expect price to fall to the lower B. Band. If by time, price will fluctuate sideways until it takes off higher again.

jog on
duc

So @ducati916 Mr le Duc, if you are ready to share this only, do you rotate you rinvestment mix or as you expect just a pull back, ride the fall?

 

[ducati916]

So @ducati916 Mr le Duc, if you are ready to share this only, do you rotate you rinvestment mix or as you expect just a pull back, ride the fall?

If I'm going to 'act' (hedge/exit/rotate/etc) I want the market to be falling at least 10% or more. For daily fluctuations, losing the position or being simply wrong (market just keeps moving higher) simply isn't worth the effort.

However once we talk about 10% +/- in the broad market, the x3 leveraged ETFs are going to move a lot. This makes it very profitable to take action. Generally I am going to rebalance. That is sell down a % of the position and re-buy at the bottom of the move. Essentially my position is growing over time.

The key is to differentiate between a macro based move and fluctuations. It is my opinion that the current correction is simply a technical correction. We were very over-bought leading into today.

What will be interesting to monitor over the next couple of days will be the Bear Media. Will they call this the long sought after 'correction': ie. moving to new lows? How many will be scared out of their positions? Just reading some of the threads on ASF you can see the paranoia is high. It was the same in 2009. Look at what happened there. 10 yrs of a 1-way market with a couple of bumps along the way.

I 'think' the Market Makers are well aware of the level of paranoia in the market and for that reason alone may drop the market precipitously, leading to a mass of new shorts, scared longs selling out etc, only to turn it around (typically with a gap higher) trapping those new shorts. It is a pattern in the US that never grows old.

There is nothing macro, currently, suggestive of a reversal of the Trend. This will be (possibly a scary) technical correction. I'm in this for the 50 baggers, not the crumbs.

jog on
duc

 

[qldfrog]

much appreciated

 

[ducati916]

So here is part (i) of the correction: we have the fall to the 20EMA which has just sneaked across the 200EMA.

With 1 trading day left in the week it will be interesting how the market trades into today's close and then tomorrow's close. In the past, the market would linger, indecisively over the w/e giving both camps the jitters. Monday, it gaps higher trapping the new shorts that enter today and tomorrow (just my opinion). The Market Makers want volume of transactions.

I added to my DFEN position.

jog on
duc

 

[ducati916]

Let's start with the Bad News Bears:

The opinion piece is from one of my favourite chaps, Mr Flippe-Floppe-Flye.

Unless you have been living in a cave, pretty much everyone is aware of all the negatives. They are myriad. They always are. The difficulty is culling the emotional from the factual. Often the factual is denied because of an emotional reaction to that fact.

Now let's look at non-opinion based information:

The issue of inflation is a non-issue currently. The market conditions are (still) deflationary. All of the above goods and services relate to consumer side inflation (which is rampant) and irrelevant. The market only cares about producer price inflation. Why?

Because it plays havoc with the profitability of the business. That is what concerns the market: business profits. Given that there is PPP deflation and CP inflation, nominal profits and real profits are set to move higher. As the market is forward looking, that means higher prices for stocks.

Now let's look at market internals:

In 2 days of trading, the number of individual stocks declining is already at the lows. This is in part a game that MMs play in the US, in part day-traders, in part new longs sucked late into the rally, new shorts, etc. An important group however are the big Pension Funds, Insurance Funds, Sovereign Wealth Funds, etc who for whatever reason missed the lows and have been waiting for a pullback.

Now these chaps do not just sit back and wait for a pullback, they are on the phone to the Market Makers (GS, etc) screaming for a pullback so they can enter. Here we have the classic pullback, across the board, to allow huge money entry into the market. As hundreds of billions of dollars are potentially trying to find entry, a little time has to be allowed to allow inventory to be found. Inventory from sellers. Thus it is (often) necessary, with huge orders to be filled, to scare the s*** out of retail. Big drops (quickly) usually do it.

Well Mr duc, that all sounds very interesting, but it's a load of bollocks.

So if this were a return to the lows or to create new lows, based on the fundamentals, we would expect to see a change in the fundamentals or at least some distortion of those fundamentals.

So looking back at the information re. inflation. If it were truly inflationary, then Bonds would be trading lower. Higher inflation has a very negative impact on Bond duration, particularly at the long end of the curve (20yr/30yr). What are they doing?

They are rising in price. That is not inflation: that is deflation. So we know that inflation as a thesis is simply incorrect. We are dealing with a deflationary environment. Stocks (can) do very well in deflationary environments, particularly when there is Central Bank stimulus. We have that in spades.

Treasury paper is also the risk off, run to safety trade.

Bonds were oversold. We have the classic overbought (Stocks) and oversold (Bonds) which makes it an ideal time to rebalance the 2 markets. The same Market Makers operate in both markets. They are the big US Investment banks (notoriously Goldman Sachs).

As always, we'll see how it plays out over the w/e and into early next week.

jog on
duc

 

[over9k]

New guy here but long time trader:

There was always going to be a 2nd wave, but all the riots have brought what was going to be the 2nd wave scare/data forward by weeks, i.e it wasn't supposed to be this early. My position's been KO'd because of it and until the riots etc stop, cases are going to continue to spike. Ironically, the spike in cases might actually be what ends up stopping the rioting.

I was planning on selling in 2-3 weeks as that's when the "organic" spike in cases was due to hit (increase as a result of reopening etc) but BA's just done -15% in a single day. The volatility of the market at the moment is beyond belief but everyone should already know that. I'm nuking most of my positions (with the exceptions of the stay at home/distance work stuff like zoom, autodesk, amazon, paypal etc) until the riots stop. BA was a long position that I bought at $125 that was a star performer... until it wasn't.

The yanks are also due for a 2nd round of stimulus but when they do that is another question - it was planned for later but all this 2nd wave stuff may cause them to bring it forward. Predicting when they announce the 2nd round would be a very handy thing to know and nobody's going to know that except the people in the white house. They might even bring it forward and then announce a third package. Printing press go brrrr!

Economic/jobs data is up for now but it's not going to last. The other major announcement will be the employment data on the 3rd of july. I'd expect that to be fairly positive as employment etc will overall be up for may/june (though june's data not being nearly as positive as may's) before we see another crash in july (on account of 2nd wave/everyone being too scared to do much) and thus the next data on the 7th of august being disastrous.

The other thing is that the new mask factories aren't going to come online until at least august because the private sector didn't even start building them until they knew the virus wasn't going to be contained and you can't exactly build an N95/N99 mask factory overnight - they take months to construct. Colossal failure of government to start building a few early on just as a contingency, but different discussion.

Once the supply of masks is high enough that everyone can wear them like regular clothing, we'll be able to return to somewhat regular (masked) lives, though with non essential air travel and hospitality still being near non-existent. Kind of hard to eat with a mask over your face. Think back to the fundamentals of superior vs inferior goods.

This whole thing reeks of the GFC all over again - every time anyone can confidently say XYZ is going to happen, some kind of massive intervention occurs and the whole thing goes out the window.

Or you get black swanned by something like the george floyd riots.

 

[lindsayf]

Interesting stuff Mr Duc.
Thanks for this thread, learning a lot.

 

[ducati916]

So with a fair interest in all things $VIX driven by Mr Skate's treatment of the VIX, where are we?

There was a massive spike in volatility to go along with the significant fall in stocks across the board. Something to worry about?

Well yes and no.

Clearly it was going to break a trendline (see previous chart below and was in of itself a signal that a correction was on the way and potentially to lighten positions if you were simply day/swing trading) so we need to look at it from a different perspective, ie. if you are looking to hold long term.

So holding long term does not mean simply hanging on through the ups/downs. What it means to me is: do you want to rebalance or hedge your positions? This I will do when a correction is signalled through a change in the macro environment: which to date, there hasn't been. Therefore, I will not rebalance positions through selling/repurchasing (although with the drop today, in hindsight, that would have been quite possible). Due to the size of the drop I did add to positions, however, it would actually have been better to do this via rebalancing.

There has been no macro-signal to date. Therefore I am simply sitting tight. The $VIX signal for me is purely a technical signal. I require a macro signal + technical signal to rebalance.

jog on
duc

 

[over9k]

There was always going to be a correction - the hard part in this business is timing.

The yanks never contained the virus in the first place but the correction armageddon wasn't due until at least the july data, if not august. The riots have brought all of that forward and so a lot of people are now taking it in the proverbial.

See my previous post about how every time some huge intervention/event happens it rocks the market massively. We're not talking just run of the mill have-existed-forever employment data releases here. A SINGLE protester with the virus in melbourne did things for what, 5%? yesterday.

IIRC this is the most volatile the market has *ever* been.

The key is to differentiate between a macro based move and fluctuations. It is my opinion that the current correction is simply a technical correction.
duc

This would imply you don't see a 2nd wave coming despite the yanks never containing the virus and then all the spread that will have inevitably occurred because of the riots. You really think that?

 

[qldfrog]

There was always going to be a correction - the hard part in this business is timing.

The yanks never contained the virus in the first place but the correction armageddon wasn't due until at least the july data, if not august. The riots have brought all of that forward and so a lot of people are now taking it in the proverbial.

See my previous post about how every time some huge intervention/event happens it rocks the market massively. We're not talking just run of the mill have-existed-forever employment data releases here. A SINGLE protester with the virus in melbourne did things for what, 5%? yesterday.

IIRC this is the most volatile the market has *ever* been.




This would imply you don't see a 2nd wave coming despite the yanks never containing the virus and then all the spread that will have inevitably occurred because of the riots. You really think that?

The way i see it share market wise, 2nd wave of what?
Virus is still rampant in europe france etc, just slowed down by summer but economy have to restart
Another second locldown would be just a communist dream, state economy a la CCP.
The curve has been smoothed, now let it go and have ad hoc policies
We have had 1000s of cases here yet most deaths came from the cruise ship.
With proper and now relatively effective treatment,. You reecover.
It is bloody serious but not a death sentence
So aged care in isolation of yypu want but restart the economy
We are all playing the china game so well...self destruction from changing our history to sinking our business and democracy

 

[gartley]

The SPX futures have confirmed a downside projection of between 2828-2907 this morning. This projection range is in the span of the previous 4th wave of one less degree and the expected support area before the market attempts another leg up. SPX gapped down yesterday and has multiple unfilled gaps above now.

The 10W cycle has a target that still stands at 3396 to 3455 range and this can only be invalidated by price crossing below both offset lines ranging from 2759-2922, once again the a similar area to the previous 4th wave of one less degree. The 20W cycle has a target range of 3463 to 3769 which still stands. Price would have to fall a lot to invalidate that probably to the 2500-2600 level. As it stands don't think that will happen although anything possible....
Weekly dynamic cycles still pointed up but need to get next weeks bar to start to get a better idea.

 

[ducati916]

This would imply you don't see a 2nd wave coming despite the yanks never containing the virus and then all the spread that will have inevitably occurred because of the riots. You really think that?

I have no strong opinion on whether there will be a second wave or not. Historically, the markets don't care.

jog on
duc

 

[over9k]

You mentioned some kind of macro indicator - a 2nd coronavirus wave would be a massive macro indicator no?

 

[qldfrog]

You mentioned some kind of macro indicator - a 2nd coronavirus wave would be a massive macro indicator no?

Can i be Devil's advocate?
A second wave coming, no lockdown anymore as neither people nor the economy would accept it
Net result: gdp boost, sale of new specific heath related items and services to households and business, generational wealth transfer via earlier death of seniors..
On going recovery spending for healed ones, few of economically productive generation affected
Better than death tax....
An economic feast

 

[over9k]

Think about the cost to business of every 2nd employee having to take a month off work once they inevitably get coronavirus and then how people are going to actually behave when they're genuinely afraid of getting sick/realise this is not just some overblown sensationalism. They'll start voluntarily avoiding things vs the disregard of all advice that they're doing now on account of not thinking that this is actually a big deal - it soon will be.

It'll be the same economy wide as it currently is with the hospitals - you know how pharmaceuticals are in the toilet now on account of people only going to the hospital if they *absolutely* have to? Take and apply for the whole broader economy at large.

The american public just aren't taking the virus seriously even now - that will change when there's another few million cases (which there will be) and you can bet the media will fan the fear fire like no tomorrow as well, even if just to try & get trump blamed for it. Just the mention of 2nd wave has KO'd things by what, 4% in one day?

Until the new mask factories come online in august, you can expect further meltdown stateside. I've moved about 40% of my portfolio just into zoom alone and the rest is in stay at home stuff like ebay, paypal, amazon etc.

All of this was going to happen but later on and gradually as there was the occasional slow reopening here & there. The george floyd riots have meant vast numbers of cases have spread within literally a few hours and so the correction has happened all at once and all weeks earlier. It's just a fall off a cliff vs the slow melt it would have been. I'd planned to sell off over the next few weeks before the june and then july data hit but the spike in cases from the riots and market meltdown that's followed has smashed my position completely. The only wildcard remaining is the june employment data due on the 3rd of july - we'll see a nice bump if that's better than expected but contrast that with big increases in coronavirus cases and I'm seeing the august market being lower than right now.

 

[over9k]

Oh and whilst I see your point RE: markets not caring about a 2nd wave, just the mention of it in the media has obliterated US markets in a matter of hours. To my mind, that implies the market does actually care (in fact, cares a lot) this time around?

 

[ducati916]

The market holds at the 20EMA/200EMA/300 level.

It's the weekend. The Bears could gain no traction on the follow through. By Monday they will be paranoid. Monday the market could well gap higher and continue running to close the gap. Even if it doesn't and we churn sideways for a couple more days, the Bear's chance is gone.

jog on
duc

 

[ducati916]

Oh and whilst I see your point RE: markets not caring about a 2nd wave, just the mention of it in the media has obliterated US markets in a matter of hours. To my mind, that implies the market does actually care (in fact, cares a lot) this time around?

Forget the media. If you traded to the media you would go broke very quickly. One example:

There are hundreds of examples.

People love a narrative. They want to know causation, even if causation is impossible to discern. The media provide that narrative. It has little if anything to do with what moves markets.

jog on
duc