Trading the Indices on Fundamentals

Mon I I thought that China released data over the weekend giving hard evidence of the negative impact of the COVID-19 virus, would incite growth fears pushing Asian markets down... I was wrong as even the HSI opened +3%! markets never fail to surprise, however, I think a 25,100 HSI is likely when whatever put the sparkle in Asian trader's eyes wears off... a 14pt drop in China's PMI might just do that (The HSI already lost ½ its gains at half-session).

As for EU & US markets, there was a host of bad virus news and a host of "experts" voicing "the end of the world", one even said this is worst than the GFC.. funny how a week ago those "experts were saying it's just a fly in the ointment and totally ignored the risk. My view is that it's not the end of the world, it's nowhere near as bad as the GFC, but it is serious and earning will be effected. I'll stick to my 17th Feb call of a 17% to 18% correction before we see a period of flat line and eventual recovery to possibly a 27k DOW, then, if 2nd quarter earning are good we might see a 28k DOW before the election circus starts... It's anybody's guess how markets will react to the flow of poll results leading up to November. In all, I see no new highs this year.

In this age of bot trading, To get an idea of whether markets will go up or down, perhaps we should try to find out what parameters and key phrases are written into the algos rather than listen to "experts".
 
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Real Money said:
BOC pumping. It's just more funny money from the the CCP
More...
Ok, so that was the sparkle in the trade's eyes... Seems like it's become the norm... indiscreetly through funny money to any problem... Don't these central bankers realize that stimulus with a plan is good if the plan is to grow the economy but if all that happens is higher stock prices then bubbles are created, when they burst, then there's a credit problem as well as the original problem and the credit problem will need real many to resolve
 
The floor (DOW) has been seen on 28th last with a 17% correction, barring any black swan, the recovery is on the way. The consensus amongst investors is that the 1st quarter will show negative GDP and negative earnings, however, their view is that the coronavirus will have a cure within 4 months so it is no longer a factor and in the meantime, the Fed will counter the economic effects. All considered, my view is that investors are looking at "back to normal growth" within 6 months so the sell-off is over, a floor has been seen.



Here is a graphic representation of my long buys (green triangles represent a buy, the lower ones are buys of multiple contracts) during the sell-off, similar buys were made in the other US indices as well as in the FTSE, DAX & MIB, a total of 98 long contracts, the 46 short contracts I had as of the 17th Feb were also closed off during the sell-off

1583184509512-png.275408


(this is how the indices are traded on fundamentals)
 
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The above call of a floor is not saying that the recent low could be revisited more than once before a decisive recovery. It also hinges on the belief that Powell will join the co-ordinated effort of central banks but there is no guarantee of this, this clueless, egoistic idiot might do nothing or even do the opposite, in such case a form of black swan will be at play.
 
At the lows reached, the ratio of total market cap over GDP read at 139.8%, this is just below the historical average of 140%. The sell-off was by and large orderly and did not overshoot. Hopefully, the euphoria that existed on the up-side has vanished and won't repeat on the down-side. The Fed taking the right stimulus action is critical in keeping markets orderly, if Powell screws it, the floor won't hold.
 
Something not often seen: The Federal Reserve cuts its key interest rate by half a point and the stock market plunged more than 900 points at one point.

Jim Cramer said "This latest cut appears to have created more panic rather than calm, I'm now more nervous than I was before"



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My own view? Had Powel said this is an emergency cut that will be reversed in 4 months (or whatever the estimate for a cure is) then it might have had the intended result on markets, a temporary cut would be seen as "stimulus for a purpose" rather than signalling a weakening economy. Also, Trump should shut-up in telling the Fed what to do and instead come with his own plan for a stimulus, such as tax/tariff relief for affected sectors, he also needs to reform the emergency health response procedure and make it so that the government will pay for all virus related testing and cure.... keeping in place a $3,000 cost to the individual for testing does not do much for containment.
 
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Anyway, I think the Fed's action, despite Powell screwing it up later, was sufficient to hold the floor set on 28th, Sanders inability to secure a clear win on "super Tuesday" might even give markets a reason to continue the rise started on Monday, be it not in a straight line.
 
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Major share US indices rallied 4%+ Wednesday while Bonds sold off. A Congressional spending package for coronavirus control, the rise of Joe Biden and stronger than forecast data lifted US optimism and sent stocks soaring, Europe followed with no particular reason of their own and Asia open simply followed on.

Most experts say the markets are very skittish and likely to react to any news, whether positive or negative so they say the volatility will continue.

The wild-card at the moment continues to be the virus and its yet unquantified economic effect. There is no news on any breakthrough with vaccine or treatment and the death rate is now believed to be 3%, so it is causing continued and increased panic plus disruption to businesses.

On 28th Fed I went from net short to net long on all indices except the CAC, MIB & HSI, I do think that the Feb low is the floor for the US markets but can't yet make a call on the Europeans nor Asia.

For protection I got a large hedge working on the DOW at 24,403 and a second smaller hedge at 23,762

I got no view on the ASX, if anyone has then feel free to fill the blank


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A while ago I said we have seen the floor for US markets and since then it looked that way but since then, a well-known fund manager (sorry I forgot his name) came on Bloomberg radio saying the effects of the virus will be worst than the GFC. The Bloomberg anchors said his views were a bit extreme. Today, Japan finance officials said the same thing and y'day Ray Dalio issued a warning also saying the effect on markets could be worst than those of Liman.

Since Dalio is a respected investor who's views are highly sought after by other investors, I'll summarize what he said:
"The coronavirus (COVID-19) is one of those once in 100 years catastrophic events. Its effect on business will hit leveraged companies very hard, this will cause substantial market dislocations and potentially lead to a significant downturn, he separated the crisis into three inter-related components:
1) the virus itself disrupting life and cause suffering
2) the economic impact of reactions to the virus, and
3) the market reaction to 2) above."

Well, Dalio is not always right, but he is most of the time, and he is clearly concerned about the effects of this virus (which, incidentally still has no cure, cannot be killed by disinfectants nor can it be stopped by a mask). Despite the uncertainty in the ability to stop its spread, the markets have determined that all will be Ok within 6 months and are therefore rallying, this might not be the case, caution is indeed warranted.
 
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