Well, seeing that this post is only going up at Midnight, we’ll just keep it simple and get straight to the trade ideas.
Weekly game plan
Our bullishness last week was clearly not the right call. Volatility has crept into the market and there is a lot of uncertainty around what happens next. Therefore, in order to clear our own minds of bias, we will be looking at markets from purely a technical perspective this week.
We saw some fear and panic… for about a whole week. Well, in truth, the institutional money didn’t even flinch. The market bounced hard. The Evergrande situation unfolding in China is still rather risky, although it seems that the CCP are doing a rather good job at a ‘controlled demolition’. They might be making an example of Evergrande in an effort to cool off property speculation in general. There have also been some large repurchase agreement (repo) activity over the weekend, which is indicative of monetary stimulus measures to prevent contagion into other sectors. For now it seems, with some help from central banks (as usual), that the bull is strong yet!
Last week we pondered the idea of hedging longer-term portfolios for some downside protection. We also looked at a few instruments that could easily be added to your portfolio in order to provide that protection. This week we do not really have much to add, other than to reiterate the warning given last week. We think that it might get a little bumpy over the coming weeks. Thus we are happy to sit with some short protection and wait for better setups.
are the fund managers. In fact, allocations into equities are the highest they’ve been since the 2009 global financial crisis. This worries us. Which has us asking if it’s time to hedge portfolios?
Sometimes markets can be fairly boring. Well, that very much depends on where you look, but if you are looking at the major indices now, things seem fairly boring to be honest. The market keeps grinding higher on better and better looking market fundamentals. Sure at some point the tapering will start and we’ll all suddenly wake up and realise that inflation was not transitory afterall…
So the much anticipated Jackson Hole symposium is over and believe it or not, the wheels did not fall off. Fed chair Jerome Powell was rather dovish in fact. Although he said that the process to begin tapering can begin, he also implied that there is not set (or anticipated) start date. Thus the market infers that there will be no tapering until November. In the meantime, the delta-variant of the covid-19 virus still poses the most immediate risk in the form of further global lockdowns and supply chain disruptions. It seems that the central bankers will remain ‘accommodating’ until they feel this threat is no longer a threat. Apologies to the next generation that has to foot the bill.
All eyes are on Jerome Powell and the Jackson Hole symposium this week. Jerome Powell is expected to talk on the 26th of August and the market is waiting to hear when we can expect tapering. Although tapering the does not mean a sudden and abrupt end to QE, the market certainly will pretend that it does up until the very minute that it actually happens. We think it is almost inevitable now that we see some tapering by the end of the year. This does not mean that we see interest rate hikes, or a complete end to bond/asset purchases by the FED. It does mean though that the rate at which they are providing liquidity to the market will slow down. This could cause a bit of a speed wobble and some risk-off sentiment.
To keep things relatively simple, this week we are posting 12 charts we’re watching. It might be a bit of a slow week ahead, although we think that both local and U.S. retail sales numbers will be decent catalysts.
excited about. Overall though, we expect the week ahead to be ‘risk on’. At least for the developed world. South African markets might be facing its own headwinds and continued currency fallout as a result of the cabinet reshuffle last week. Setups are sparse, so play defense and don’t try to force trades that are not there.