Trading the Indices on Fundamentals

[FXtrader8911]

Quite a swing on the indices today, Dow, S&P 500 touch record highs on Pfizer-BioNTech vaccine news while Zoom Video and Amazon fall. The interesting factor is that the highs were hit pre-market indicating that retail investors were pushing the buys. When the cash market opened, the fund manages took profit when Mitch McConnell said that with a vaccine, a smaller stimulus is in order, this drove the indices back down. The S&P closed almost flat after having surged +4.5% while the NQ closed lower, the DOW had a 1,700pt swing to then lose more than half of that. In the end, EU outperformed the US. The NIK225 is worthy of a mention, it broke the 1991 ceiling ending a 20-year slump, it also closed off its high but had a +4.5% gain for the day.

 

[FXtrader8911]

Friday saw another strong risk-on day. Once upon a time we used to say "markets take the elevator down and the stairs up", this saying no longer applies, now, when markets want to go up, they do so violently. Both the Russell and the S&P closed on new highs (they have been higher intraday) but I feel today the surge was totally unjustified, it happened in the face of record infections, record deaths and renewed shutdowns across the world. My view is that we have reached a turning point... markets could keep their heads in the sand and choose to focus on a vaccine and surge more, or could come down to earth and bring the economic fundamentals into focus. The 700,000 new unemployment claims last months should, realistically, take the wind out of the bulls by bringing home that the virus has caused long term damage to the economy and no magic solution is available. Despite Biden's criticism that Trump mishandled the pandemic, I don't see what he can do better, other than increase closures of business & schools which will bring down the fatalities but damage the economy further.





Today

 

[FXtrader8911]

It seems that sentiment is oblivious to the fact that even before the pandemic, the US & indeed the world was in a below-normal level of GDP growth, many economists and also Buffett were, even then, saying markets are overvalued. Currently, markets are celebrating economic figures and company performance that are "not as bad as feared", while the figures themselves are below the pre-pandemic mediocre figures. Stimulus no doubt has artificially distorted markets, but now the US will have a President that won't be making decisions based on whether the decision lifts markets or not and will have a Fed chair that no longer needs to prop-up markets to keep his job... Interesting times ahead.

 

[FXtrader8911]

I do believe that market sentiment has overshot on vaccine euphoria.. on best logistics, it will take 25 months to innoculate everybody in the USA, then there is the unknown factor of the immunity period. If Russia is any measure, they started vaccinating the population 4 months ago but are currently one of the countries having the highest daily infection rate necessitating new closures. I cannot see any major change in the prevention precautions needed in the US happening at this point. Markets seem to have rallied and priced-in an "all clear" and an earnings growth within the 6 months forward outlook. Bidan is no magician, in fact, if anything, he will cut the optimistic BS Trump was dishing out and so dampen the fast economic recovery expectations. He will allow science to tell it as it is, I would expect some easing in sentiment and some sell-off near term.

 

[FXtrader8911]

Well, we did have the sell-off from 17th to 22nd, about 800 DOW points, but then the rally started again essentially on regurgitated vaccine news. We are back to were markets were on the 17th but nothing has changed since then, so, I repeat my comment "I do believe that market sentiment has overshot on vaccine euphoria"

For those trading the ASX, I exited my COM BANK holding today... The stock finally broke $81, took 3 years to raise from $76. the ASX is really not my cup of tea... dead money to invest in it particularly since many companies have cut or abolished dividends. Having said that, the bonds down under seem to be a reasonable investment paying 7% to 10% and paid-out as promised at maturity.

 

[Launcepeter]

I always trade in the early stages of the trend. I enter long when the price crosses the resistance, or when the price falls below support I enter short. I have applied this strategy many times with different brokers: HYCM, Fxview, Schwab, and find that it protects me from a lot of risk. On the contrary using technical indicators haven't helped me much.

 

[FXtrader8911]

It might not be all hype and cult following that has pushed TESLA to 700 X in value in a little over 12 months. Musk has kept his self-driving advantage close to his chest, but a few recent tweets have let some of the cats out of the bag, in particular, he referred to "The Dojo" (his AI facility) as the ExaFlop System. This would make the facility as having about twice the computing power of the largest supercomputer known to date (costing $1.5b, installed at the RIKEN Center for Computational Science in Japan having less than half ExaFlops)

Such computer system driving TESLA's AI, probably cost some $2.5b . A Ford or a GM could not come close to this scale of investment to ever compete with TESLA's AI, and although a Toyota or VW might be able to afford it, they'd be at least 5 years behind the curve.

Here is the caveat, Not all of TESLA cars come equipped with the necessary components needed to run Full-Self-Driving (FSD) - in fact, only 500,000 cars in total were built so far and out of those, only about 40% of these buyers bought the FSD option, meaning TESLA is less than halfway there for the facility cost to be recouped, let alone pay for running it.

The bottom line is that a profitable TESLA is so far-out in the horizon that investors buying at current prices will be looking at a return with binoculars.

To put some perspective to the scale of "The Dojo", her's a picture of The Fugaku, TESLA's facility is probably double that.

 

[FXtrader8911]

Trump threw a curveball by refusing to sign the stimulus bill. Many economists say that helicopter money, although good for the recipient, does nothing for the economy, so you might say that Trump is just trying to swing the limelight back on himself as his demand for higher pay-outs archives nothing but remind people that he is still in charge.

It might be prudent to just observe rather than trade markets during the shortened week ahead. Volumes are expected to be very thin so any movement could be magnified and occur without warning or reason... trading profits will be a matter of luck in being in the right direction at the right time, more of a gamble than skill.

 

[FXtrader8911]

Monday saw the Santa rally continue. Two things of particular interest... the Russell, although the best performer intraday, had wild swings and ended in negative territory indicating that perhaps the investors in Small Caps do not think the rally will go much further and so took some profit at the high. The VIX remains 11 units higher than it was at the last highs in February, this could indicate that investors in the S&P500 are also not overly confident that the rally in big caps will continue but rather than selling, they are buying insurance.

Thin trading is keeping movements erratic during this shortened week, easily moving 100 (DOW) pts up or down in seconds. My view is that the disconnect between Main St and Wall St should bring some calm in Q1 when Trump is gone and markets could see a downward drift to narrow the gap between exuberance and reality.

 

[Bomp]

Monday saw the Santa rally continue. Two things of particular interest... the Russell, although the best performer intraday, had wild swings and ended in negative territory indicating that perhaps the investors in Small Caps do not think the rally will go much further and so took some profit at the high. The VIX remains 11 units higher than it was at the last highs in February, this could indicate that investors in the S&P500 are also not overly confident that the rally in big caps will continue but rather than selling, they are buying insurance.

Thin trading is keeping movements erratic during this shortened week, easily moving 100 (DOW) pts up or down in seconds. My view is that the disconnect between Main St and Wall St should bring some calm in Q1 when Trump is gone and markets could see a downward drift to narrow the gap between exuberance and reality.

Today it felt as if there was a rotation back to large Cap and big tech from value. Maybe looking for safe haven as we approach EOY or there is more clarity on the vaccine rollout. Especially since the rollout feels like is falling behind schedule.