Trading the Indices on Fundamentals

[FXtrader8911]

The trigger for Wed sell-off was Europe were many countries entered a lockdown while the rest were contemplating one, the FTSE & IBEX were the greatest losers, UK with the BREXIT overhang & Spain gaining the title of highest virus deaths in the EU. DAX, MIB & CAC were very much tied at the hip and correlated to the US markets. US Futures started their fall during the EU session and the 2 zones remained pretty much in lockstep. The US had an accelerated sell-off in the last 10 minutes, the DOW reached below 26,500 putting it briefly in correction territory (-10.4%) from Feb high but still 20% above March Lows.

Hard to say whether the "buy the dip" players are still around to give us a rebound, if we get a rally, it will be purely sentiment-driven and probably short-lived. I am pencilling in another 3% to 5% sell-off (from Wed lows) before any sustained rebound. A rebound is assuming the elections don't become messy. On that subject, Biden is still in the lead for no other reason than many not wanting another 4 years of Trump, if Biden was running against anyone else, he would be last, if he wins he needs to thank the Trump haters for the win because he has no agenda, it will be another "do nothing" Obama era with the "do nothing" Pelosy running the show.

 

[FXtrader8911]

The fundamentals have steered my strategy in the right direction but we are seeing a flat line in Asia. Do any technicians out there wish to comment? Like what are the charts saying... more selling? How far? Do signals now point to a rally?

I'd imagine that the Robbin Hood crowd have used the last of their account balance to buy the dip when the GDP figure was printed but it was a very short-lived rally, looks like fund managers are firmly in control now. I do not see a recovery just yet and expect lower before any rally, as said above, I'm pencilling in another -5% and have heavy buys orders if we see -10% from here.

 

[longandshort]

What you describe as “fundamentals” is not fundamentals. A fundamental index trader would be using something like the fed model to determine the relative valuation of stocks to bonds, and trading based upon those signals. Another example would be forecast erp, and variance in erp, to define ranges. Ultimately, price multiples are driven by implied Ebitda growth rates, so that + momentum should give you a starting “view” to then evaluate context with.

 

[FXtrader8911]

Anyone know why does both the UK & USA hold all their elections during a business day? (UK on a Thursday, USA on a Tuesday). In America's case, every 4 years, the presidential election also coincides with the switch to wintertime. From a trader's point of view, it is just stupid having to deal with market volatility each time there is a media speculation or an exit poll announcement. as well as, having to adjust to the time change. Other civilized countries hold elections on Saturday so that by Monday traders can trade on the results instead of on minute by minute speculations. Do the UK & USA have a reason for being the exception to a more sensible way adopted by other countries?
.

 

[normal]

The fundamentals have steered my strategy in the right direction but we are seeing a flat line in Asia. Do any technicians out there wish to comment? Like what are the charts saying... more selling? How far? Do signals now point to a rally?

I'd imagine that the Robbin Hood crowd have used the last of their account balance to buy the dip when the GDP figure was printed but it was a very short-lived rally, looks like fund managers are firmly in control now. I do not see a recovery just yet and expect lower before any rally, as said above, I'm pencilling in another -5% and have heavy buys orders if we see -10% from here.

I'll chip in with my perspective:

I think that NQ is in a typical bull market cycle with Sep 2 being the blow-off top and Oct 12 being the bull-trap. That is, we will enter a bear market soon.

This week AAPL and AMZN broke below their trendline resistances that started from the March bottom.

My position is short AAPL via the 20/11 110 Put, entered @3.70 now trading @5.30.

Come Monday I'll look to short TSLA via the 20/11 350 Put. Bear spreads on ZM are also on the menu.

I'm not sure how the market will move in the next couple of days. A straight up crash Monday is possible but I'm not betting on it. A more likely scenario is a short rebound leading up to US elections and then a fall after a winner is declared on Wednesday.

 

[Overnight]

Anyone know why does both the UK & USA hold all their elections during a business day? (UK on a Thursday, USA on a Tuesday)...
.

"...Originally, election days varied by state, but in 1845 a law was passed to set a single election day for the entire country. (At first, it applied only to presidential elections, but it was later extended to congressional elections as well.) At that time, the United States was still a largely agrarian society. For farmers, who made up a majority of the labor force, much of the year was taken up by the planting, tending, and harvesting of crops. Early November was a good time to vote because the harvest was over but the weather was still relatively mild.

Still, some days of the week were better than others. Two days were definitely out of the question. Most Americans were devout Christians and thus set aside Sunday as a day of rest and worship. Wednesday in many areas was a market day, when farmers sold their crops in town. In addition, a travel day was sometimes required. In rural areas, the nearest polling place might have been several miles away, and, in an era before automobiles, getting there could take a while. If people couldn’t use Sunday or Wednesday as their travel day, then that meant election day couldn’t be on Monday or Thursday, either. And so Tuesday was perceived as the best option..."


https://www.britannica.com/story/why-are-us-elections-held-on-tuesdays

 

[FXtrader8911]

Election day did not phase the optimism of markets. One would have thought that prudence would dominate with a flat-line till results but it is obvious that markets don't care who wins, so election day was no different from any other. The point to note is that the whole of Biden's campaign was an attack on Trump without ever saying how he would have done things better nor even spell-out his agenda. I would not vote for a candidate that does not show how his leadership would be better, but that's just me. If Biden wins it is a vote against Trump, not a vote for Biden. Shame there was no 3rd candidate, a missed opportunity for someone like Michel Bloomberg had he divorced from the Dems and ran as an independent.

If the Dems also win both houses, a 2,500 S&P is insight.

To the real and now economic Impacts yet to be felt:

The debt payment holidays, rent moratoriums, the job-keeper schemes, the helicopter money and the relaxation of insolvency rules put in place to avoid the sort of business failures, distressed asset sales, layoffs and hardship that normally occurs in recessions, have all distorted the markets, however, these are not permanent changes. Many zombie companies have been created and many companies have accumulated bad credit. When the stimulus ends, reality will kick-in and the effects of the recession that had been postponed will take hold. In addition, the effects of some likely permanent changes affecting travel & transport, retail and commercial real estate have been artificially dampened.

Not all impending permanent changes will be negative but many high employment businesses that were successful in the old economy will struggle to survive. Less time commuting, less time in meetings, less time travelling could all result in higher than otherwise structural unemployment (i.e. fewer jobs associated with commuting and offices, fewer jobs associated with business travel and fewer jobs in retailing.

Whatever one might think of Trump, he bullied, schemed and forced change that protected business, who in tern, kept unemployment low... can we say Binen has the character or the foresight to do the same?

Source: IMF

An afterthought that will challenge business in the future... If the work from home economy becomes permanent, I see a real problem in companies being able to expand and retain their culture. It seems fine now because existing and experienced employes simply move to a new place to continue doing what they do, but, how do you train a newcomer? how do you instil & protect company culture?

 

[FXtrader8911]

I should add that the accelerated uptake of technology has reduced cost for many companies but has also created redundancies that have not yet being seen due to the job-keeper incentives. And, as for the cost savings.... the Covid related cost in doing business actually exceeds the tech cost-savings (e.g. Amazon spent $11b in 6 months just on costs directly related to Covid). Markets participants are only seeing what they want to see and only hearing what they want to hear, disregarding all else. Markets, even at current levels that are some 10% below the post-Covid highs, are overvalued on optimism of a recovery that will bring everything back to "normal".... pie in the sky?

 

[FXtrader8911]

In most countries each party has a colour, in the USA blue is encombered, red is ruling, things are different there.

 

[FXtrader8911]

Looks like the happy pill the market was on y'day is starting to wear-off. US futures are mostly down, NQ by more than 1%, Asia & EU are also down.