Trading the Indices on Fundamentals

formikatrading said:
how do you determine to establish a position?
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Fundamentals give what the fair value should be, the disconnect between the fair value and the price set by sentiment determines which direction I should be in. As for establishing entry & exit points, I use symmetry to estimate the overshoot and play the overshoot.

Currently, we are in unchartered territory with most companies unwilling to give forward guidance, therefore, the direction of the economy is all there is to "guess" the fair value. Normally the guide is earnings forward guidance but at this point in time, unemployment is my guide.
 
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Reading the fine print of Friday's job report, an abnormally stands out... the average hourly wage increased substantially. The cause of the abnormality is that so far most of the job losses are at the lower end of the income scale. Since these are also the people that benefit the most from the safety nets created by the fiscal expansion and stimulus, markets have determined that the Fed and Congress have done a decent job of smoothing over the lost income and thus allowing overall economic demand to hold up. I disagree with this thinking, further, I believe that the next round of lay-off will be in higher-income brackets, as layoffs climb the income ladder, consumer spending will lessen noticeably forcing more demand destruction leading to reduced earnings. Markets, IMO, are wrong in ignoring the unemployment figures and pushing equity prices upwards.
 
I agree. The daily charts on the indices are starting to look a bit sick. They have managed to recover from each sell off except on the last. It did not make a new high a couple of days ago and we are starting to sink away. Could be a drift down?? Looks like the next week or so might be interesting. All my daily charts have turned down but as yet are not accelerating. I see nothing on the radar to pull us higher except for blind hope. Intraday there has been some good trades but much indecisiveness.
 
The Bundesbank said in its monthly report...... Germany’s economy will suffer a severe contraction in the second quarter, despite Germany being one of the first EU countries to ease the restrictions put in place to fight the coronavirus pandemic

Much the same message Powell gave about the US but without the "ifs", the Bundesbank was more direct and unconditional about its warning.

The US markets keep ignoring all economic warnings, also ignoring data showing that one in 4 small business will not reopen at all and one-third of the one that will, do not intend to re-hire fired staff when they re-open, also ignored was the news that China had to go on lockdown again over the weekend affecting 193m people in some regions due to a resurgence of infections after some easing of restrictions. Markets focused only on the news of a pending vaccine trial and rallied 4% on Monday.





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Tuesday saw clarification on the vaccine hopes so markets sold-off some, but the rally came back on Wednesday, not sure what metric players are using to decide whether to buy or sell, however, movements have stayed within a range of 23,000 to 24,500 (DOW) that was established in early April. The 2% to 3% daily swings makes for good day trading, so I am taking advantage of the volatility while keeping the long term strategy positioned for an eventual downward-brake of the range.

The NDAQ is quite detached from the DOW, S&P & RUSSELL, doing its own thing upwards but it is to be noted that AMAZON weighs in at 14% of the NDAQ while just about the whole NDAQ is moved by just the top 5 techs, all positioned to gain from the virus lockdown, it would stand to reason to see the NDAQ fall (relative to the other Indices) when the economy is fully re-opened.
 
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SmartSelect_20200523-080615_Twitter.jpg
 
Within the pandemic economic damage period, 3 people/groups have consciously decided to make things worst for their respective country.

1. Mohammad Bin Salman (MBS) deciding to lower oil prices in the 2nd futile attempt to close down the fracking industry
2. Trump voicing intend to impose further tariffs on China at this time, still not admitting that it is the US consumer paying the tariff.
3. The Hongkong protesters that seem oblivious to the consequences of rebellion against the regime when they are in fact living within it.

To these 3 groups, I ask... What are you thinking? Your actions might well have reasons but there is a time for everything and this is not the time for what you are doing.
 
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fx, You've been observing the US vs CHINA 'trade wars' for some time, is this current climate the one "where S&*t get real"?

Australia now getting caught up in the middle of it. China 'threatening' quite a few other countries as your prevous posts have mentioned...could we see a global shake up in a co-ordinated effort to reduce the reliance on China?
 
Bwick said:
could we see a global shake up in a co-ordinated effort to reduce the reliance on China?
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It could well be the start of this. Previous attempts have failed mainly because Trump did no co-ordinate the effort with allies, even Trump's "order" to stop buying from China was ignored, but now, the consumer is involved so this time it may work. Australia and the US have claimed China did not do enough to contain the virus (the US going even further saying China intentionally infected the world & bribed the WHO), this has hit raw nerves of the consumer, many having lost their lives due to the virus. If this does not shake consumer's addiction to the cheap crap produced by China I don't know what will.
 
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