The market has been really difficult these past few months. Well, to be honest, these past few years. It seems though that finally the retail army has been filled with fear and we saw retail flows sell en masse last week (the week before we saw institutional selling) while institutions started buying again. Although this by itself is not a reliable indicator on which to take action, it does show that ‘the smart money’ is starting to nibble at equities again. There is also around $33bln worth of US equity buying to do before the end of the quarter in order for pensions funds to rebalance and remain withing legislated asset allocations. Add quarter end and the ‘window dressing’ phenomenon and you the makings of a bull potion. Bigger picture wise, there is no real change and the world economy still looks very much in trouble, but in the short-term, Friday’s bounce might have legs for another few days.
$940bn worth of options traded on Thursday last week, making it the single biggest volume day for U.S. options… ever. Interestingly, 70% of the options traded have expiries less than one week. Also worth of note is that options volume was 140% equities volume and the vast majority of those options being bought were calls. …
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.
It’s an age old saying in the market, and for good reason. The trend is your friend. Often we try to fight it and mostly, it wins the day. Markets are currently trending higher, and thus our plan is to find opportunities to get onboard with the trend and allow it to make the returns for us.
Well then, that’ll teach us to think that markets can actually come down from time time! Jokes aside, the bearish setups from last week have all be nullified and a fresh set of breakouts have taken place. Guess when it comes to equity market rallies, you really can’t stop a good thing. We’re not entirely convinced from a long-term perspective, but for the short-term traders… well, the job is to follow the market. So if you can’t stop a good thing, you might as well join in the fun.
We’ve said a few time in the past that patience is key. The main benefit of being patient when it comes to trading is that we can wait for the really good setups to mature and then take trades in which the odds are firmly skewed in our favour. Some of the stocks we’ve been watching for a long time have finally triggered buy signals.
Volatility is subsiding and markets are feeling more confident than they have for some time. We can debate about logic and valuations and inflation for days on end. In the end though, it will boil down to “yes, nothing makes sense” and “don’t fight the FED”. The money printer is going brrrr and all we can do is hold tight while the bulls give another run.
Markets have been uneasy for a rather long time now. Well, uneasy is perhaps a mild way to put it. Markets have been uneasy for the last few months, maybe, but just over a year ago markets were in a full-blown panic. Thankfully those crazy times have passed. Over the last two weeks, we’ve even seen the VIX below 20, which is something that has not happened in a mighty long time. Lower volatility signals higher risk appetite and we think a VIX below 20 signals risk on in equity markets.
Markets bounced hard in the second half of last week. It’s almost hard to believe how fast things are changing in the current landscape. Although there are so very many reasons to be cautious, if not flat out bearish, the market is just pulling its ears back and making its way higher despite the conditions of the world around it. Thus, given the strong footing the market ended on last week, and of course the charts, we think that we’ll likely see new highs in the week ahead.
Over the last few weeks, markets have remained rather strong in the face of many challenges. Last week we finally got confirmation that more stimulus cheques are in the mail for Americans, although it seems that $1.9 trillion was not enough to help equity indices end the week in the green. Risks remain elevated and volatility is stubbornly not abating, thus we are starting to think that it is time for a pullback. There are a few long indeas in precious metals and commodities, but for the most part, caution is advised.