Two weeks ago in our last post, we proposed that buying into the sell-off and VIX spike would make for a good long entry, both on equities (offshore) as well as on Oil. That play worked very well and markets are bouncing back rather hard. From here we think it is most probable that the market (U.S.) goes on to make a new all-time high. We do harbour some concerns around market breadth, especially within the Nasdaq index (US100), but even so we believe that over the short-term (until the end of the year), it is most likely that markets will remain bullish and push a few new highs.
Gees guys, we take one week off from posting and the whole place falls to pieces!? Who broke the market is perhaps not the question we should be asking though. We’re asking, will the dippers win again? There are some mixed feelings on this at the moment. Our local market looks, well, not very good. We had a hard time finding any kind of setup that was not bearish. Things are looking dire here. In the offshore world though, although there is an similarly high level of confusion, we do have some ‘reliable’ buy indicators that give us hope for a bounce next week. So let’s look at why it might be time to buy the VIX spike.
$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. …
Last week we called for new highs and we got them. Now we’re kind of sitting here thinking that is is looking a bit stretched and wondering if the market is not due a bit of a breather.
The market has become very strange indeed. The trend is so strong and there are so many dip buyers around that it seems the part will never stop. Although, whenever there are a few down days, the mood turns really dark and a semi-panic seems to take over. This is one more thing that worries us when thinking with the longer-term hat on. Why are traders to extremely negative when the market ticks down only a few percent? How much is the average trader geared and long the market? What happens when the market pulls back 10%? What happens when the Fed actually hikes interest rates? And what happens if the Fed hikes rates and starts tapering at the same time? These are some of the questions that we are pondering. But for now, the show goes on and the bulls keep dancing. Buckle up, because we’re headed for new highs.
Well, seeing that this post is only going up at Midnight, we’ll just keep it simple and get straight to the trade ideas.
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?