Saturday, August 31, 2024
LBO insights: Why these deep value stocks have become even cheaper
Wednesday, August 28, 2024
Risk budgeting ahead of NVIDIA's earnings report
The full post can be found here.
Sunday, August 25, 2024
Bullish momentum vs. bearish seasonality
The Trend Asset Allocation Model is an asset allocation model that applies trend-following principles based on the inputs of global stock and commodity prices. This model has a shorter time horizon and tends to turn over about 4-6 times a year. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.
- Ultimate market timing model: Buy equities (Last changed from “sell” on 28-Jul-2023)*
- Trend Model signal: Neutral (Last changed from “bullish” on 26-Jul-2024)*
- Trading model: Bullish (Last changed from “neutral” on 25-Jul-2024)*
Update schedule: I generally update model readings on my site on weekends. I am also on X/Twitter at @humblestudent. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of those email alerts is shown here.
Subscribers can access the latest signal in real time here.
Negative seasonality ahead
Now that the rally off the early August low appears to be stalling, what are the odds of a re-test of the August lows?The accompanying chart from Jeffrey Hirsch of Almanac Trader shows that the stock market pattern in 2024 has closely followed the historical election year seasonal pattern. We are about to enter a period of negative seasonality until late October. Is this a sign the S&P 500 could weaken back to its early August low?
Here are the bull and bear cases.
The full post can be found here.
Saturday, August 24, 2024
Gold: Fakeout or generational buying opportunity?
Wednesday, August 21, 2024
An almost Zweig Breadth Thrust buy signal
In the absence of major macro news, this week's stock market action can be described dominated by technicals and waiting for Fed Chair Powell's Jackson Hole speech scheduled Friday.
Sunday, August 18, 2024
4 reasons why you should be tactically bullish
The Trend Asset Allocation Model is an asset allocation model that applies trend-following principles based on the inputs of global stock and commodity prices. This model has a shorter time horizon and tends to turn over about 4-6 times a year. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.
- Ultimate market timing model: Buy equities (Last changed from “sell” on 28-Jul-2023)*
- Trend Model signal: Neutral (Last changed from “bullish” on 26-Jul-2024)*
- Trading model: Bullish (Last changed from “neutral” on 25-Jul-2024)*
Update schedule: I generally update model readings on my site on weekends. I am also on X/Twitter at @humblestudent. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of those email alerts is shown here.
Subscribers can access the latest signal in real time here.
A “good overbought” advance?
The rebound off the August 5 panic bottom has shown an astounding level of price momentum. The S&P 500 printed a William O’Neil Follow Through Day, which is an indication of strong positive price momentum with a 1.7% advance on higher volume than the previous day. It went on to break out through its 50 dma and a falling trend line by gapping up through those levels. The next test to exceed the bearish engulfing pattern on August 1.
The market appears to be on its way to start a “good overbought” advance. Here are some other reasons why this rally could continue.
Saturday, August 17, 2024
Back to the soft landing
The latest BoA Global Manager Survey is a dramatic illustration of
market anxiety. In July, 18% of respondents believed that a U.S.
recession was the biggest tail risk. That figure surged to 39% in the
August survey, which was taken August 2–8 right at the height of the
market panic.
During the market panic, the market went from pricing in a soft
landing to rising odds of a hard landing. About two weeks later, the
consensus has shifted back to a soft landing, which should be friendly
to risk assets.
Wednesday, August 14, 2024
The bulls are gaining back control of the tape
A follow through day can occur as soon as day 4 (last Friday) of a rally. It’s defined as the index rising 1% or more on higher volume than the previous day. The most powerful follow through days occur between day 4 and day 7 of the rebound.
Sunday, August 11, 2024
What will lead the anticipated market rebound?
The Trend Asset Allocation Model is an asset allocation model that applies trend-following principles based on the inputs of global stock and commodity prices. This model has a shorter time horizon and tends to turn over about 4-6 times a year. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.
- Ultimate market timing model: Buy equities (Last changed from “sell” on 28-Jul-2023)*
- Trend Model signal: Neutral (Last changed from “bullish” on 26-Jul-2024)*
- Trading model: Bullish (Last changed from “neutral” on 25-Jul-2024)*
Update schedule: I generally update model readings on my site on weekends. I am also on X/Twitter at @humblestudent. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of those email alerts is shown here.
Subscribers can access the latest signal in real time here.
Poised for a rebound
Saturday, August 10, 2024
Assessing the damage: Not just the carry trade
After strengthening rapidly, the Japanese Yen (bottom panel) has
stabilized has stabilized in the 140-150 range. The 10-year Treasury-JGB
spread also stabilized and found support. So did the Nikkei Average
after suffering the greatest one-day decline since the Crash of 1987.
The Bank of Japan sounded a dovish tone when deputy governor Shinichi
Uchida said that the Bank would “refrain from hiking interest rates when
the markets are unstable”. In addition, Bloomberg reported that “JPMorgan says three quarters of global carry trades now unwound”.
Is it all over? It’s time to assess the damage from the latest fright by diagnosing what sparked the sell-off.
Even though many market observers focused on the currency carry trade as the source of the mini-panic, I argue that the carry trade unwind was only a symptom of what’s plaguing the markets.
Back to the soft landing
The latest BoA Global Manager Survey is a dramatic illustration of market anxiety. In July, 18% of respondents believed that a U.S. recession was the biggest tail risk. That figure surged to 39% in the August survey, which was taken August 2–8 right at the height of the market panic.
During the market panic, the market went from pricing in a soft landing to rising odds of a hard landing. About two weeks later, the consensus has shifted back to a soft landing, which should be friendly to risk assets.
Wednesday, August 7, 2024
Why the market panic may not be over
While I am hopeful that the worse of the panic is over, I have some nagging doubts. Here's why.
Monday, August 5, 2024
Navigating the Seppeku Panic of 2024
Sunday, August 4, 2024
The carry trade as risk driver
The Trend Asset Allocation Model is an asset allocation model that applies trend-following principles based on the inputs of global stock and commodity prices. This model has a shorter time horizon and tends to turn over about 4-6 times a year. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.
- Ultimate market timing model: Buy equities (Last changed from “sell” on 28-Jul-2023)*
- Trend Model signal: Neutral (Last changed from “bullish” on 26-Jul-2024)*
- Trading model: Bullish (Last changed from “neutral” on 25-Jul-2024)*
Update schedule: I generally update model readings on my site on weekends. I am also on X/Twitter at @humblestudent. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of those email alerts is shown here.
Subscribers can access the latest signal in real time here.
Watch the Yen
Saturday, August 3, 2024
Assessing the damage: Not just the carry trade
After strengthening rapidly, the Japanese Yen (bottom panel) has stabilized has stabilized in the 140-150 range. The 10-year Treasury-JGB spread also stabilized and found support. So did the Nikkei Average after suffering the greatest one-day decline since the Crash of 1987. The Bank of Japan sounded a dovish tone when deputy governor Shinichi Uchida said that the Bank would "refrain from hiking interest rates when the markets are unstable". In addition, Bloomberg reported that “JPMorgan says three quarters of global carry trades now unwound”.
Is it all over? It’s time to assess the damage from the latest fright by diagnosing what sparked the sell-off.
Even though many market observers focused on the currency carry trade as the source of the mini-panic, I argue that the carry trade unwind was only a symptom of what’s plaguing the markets.
A recession on the horizon?
If we were to see…inflation moving down quickly, or more or less in line with expectations, growth remains let's say reasonably strong and the labour market remains consistent with its current condition, then I would think that a rate cut could be on the table at the September meeting. If inflation were to prove sticky and we were to see higher readings from inflation, disappointing readings, we would weigh that along with the other things.
I don't now think of the labour market in its current state as a likely source of significant inflationary pressures. So, I would not like to see material further cooling in the labour market.
Financial markets have been rattled by the prospect of weaker growth. The key questions for investors are:
- Is a rate cut too little, too late to stave off a downturn?
- Has market psychology turned and bad news is now bad news?