April 2019

Quarter Two

We began the Second Qtr of 2019 in benign fashion. The Fed is back to being a tailwind and certainly going to continue to lend all the spport it can to spending, investment and risk assets.

THe bond bull market is entact with the 10yr. Treasury having a glass ceiling at 2.50%. Munis are being gobbled up in the US, the German Bund contiues to have a yield with a negative sign infront and the only place to be if you want to try for anything mroe exciting is in US stocks.

The US stocks market is in a bit of a quiet period during this time as we await April reporting season to begin with the lead-off from the financials. Many corporate buybacks take a pause around this time and that could be one reason volatility and volumnes have been subdued. I have long been convinved that one of the more prevalent strategies of the 'quants' or 'algo-driven' funds has been that of coding for momentum. That strategy seems to have suffered of late with less follow-thru on both UP and DOWN days.

There are some smaller-themes within the market - like Cable-TV 'cord-cutting' and the battle for dominance in the streaming space with the main implications for ROKU, DIS, NFLX, CMCSA and IQ, BILI for those playing China.

Today's tape seems a bit sloppy yet the likes of SNAP & TWTR remain strong. These are some examples of social-media co's that could be entering a renewed growth phase. Small-cap biotech is another area where one can play idiosyncratic names that will not get caught up in macro-driven gyrations.

Apart from that I sense a bit of fatigue amongst larger-beta swathes of the market. China aside, the US seems to be struggling with trade skirmishes everywhere from our own North American neighbors to continental Europe (which is already ensconced in broad economic malaise to boot). Global growth expectations have recently been trimmed by many research houses and thinktanks. Projections for oft-market-leading sectors likes semiconductors have likewise seen a rash of downgrades.

To me cash has the greatest appeal for the short/medium term. Aside from that, I would view PYPL and CVS as safe longs with CAT, IBM and WHR as short plays for a market re-pricing.

Be a turtle. Go Slowly.

In Like a Lion

Ides of March, "in like a Lion", etc. Suits the weather here in NY and the market; sharp sell-off Monday saw limited follow-thru yesterday.

Today brings some S&P option and deriv rolls so could see some good two-way action.

Mkt leadership changing a bit - back to AAPL / FB / BA, less so now TSLA / NFLX / NVDA. Other good trading names have been SQ / ROKU / MU / AMD.

MoMo Algo is generating more sell signals. For mean-reversionists with longer time; Buy CVS / T / ENDP / MU and TSLA. Time to trim AMZN / JD / GOOGL.

Today I am looking to Sell V / TWLO & IBM.

Be a turtle. Go Slowly.

Ground Hog Day

The Groundhog predicted an early spring on the east coast. But will the markets repeat last year and have another downdraft like last February's VIX-induced sell-off? January has proven rather benign given the December tantrum in the markets triggered mostly by fear of a Fed policy mistake. Equities are up roughly 15% in January - to finish the year with that kind of return would be a welcome outcome for many.

Perhaps 2019 will actually be the year that some people have been hoping for - a return to "stockpicking". The fact that consumer staples conglomerate Clorox (CL) can spike +10% on an eps report with 0.70% better gross margins is enough for me to say the markets are not truly that "efficient" and there is still incentive to play the game.

I have taken to the sidelines in FX and have been caustiously making smaller long plays in stocks - on weakness like after PYPL's quarter, buying in high $80's and selling in low $90's. Similar play in AMZN: post Qtr good #'s, in-line guide, stock sold-off 5%, nimble long and trim - holding time can be several days so it's hard for me to be all-in.

It "feels" like many people are wary of another external shock like US-China headlines or further EM instability. THe market is always good at finidng pain points and that could point more to risk of further upside

My home ALGO is signaling overbought conditions in most big-name FANG and top Nasdaq names while signaling Buy on SNE (Sony) and AMRN (Amarin).

Cautiously watching the market post-GOOGL eps.

The Days Will Get Longer Again

It's a hurried time of year with the holiday either under way or looming and calendars filling up with obligations to tie up loose ends both personally and professionaly for many people.

One also may feel more forecefully cold winter winds amidst the the shortening daylight hours. Alas, while we are tilted away from the sun in our hemisphere during this phase in our orbit the WInter Solstice means daylight will begin to lengthen once again. This year, our solstice on the 21st will coincide with a full moon, aka the "Cold Moon" or the "Long Night Moon" to signify the longest night of the year.

Changes in orbit is a good theme as well for today's anxiously (nervously?) awaited FOMC meeting and policy announcement and press conference. A "dovish hike" is the consensus and what I would bet is in the cards.

iPhones aren't the only things on sale. Many equity darlings that have powered this aging bull market are between 20%-40% off of their fairly recent all-time highs.

I can't help but feel this December is a real "kitchen-sink" end of year event. With individuals punting both equity and bond funds, anecdotal tales of grind to downright horrendus year for some HFs, and even co's downplaying guidance for H12019. We are going to finish the year in the red on most indicies, lower than where we began or close to Feb-lows based on what you watch. Less than 90 days ago market watcher where wondering when the 10yr Treasury might hit 4%. Now at 2.82% bonds simply look too expensive to me.

I would rather allocate more to 3% 2yr bank CDs and step-up notes for a healthy percentage of my portfolio. I like locking in some of these short rates with specific issues held to maturity versus an ETF. We recently had a strong reading from ORCL, weaker broad econ datapoints from the cc and guidance for Fedex (CHina and Euro area dropping) and MU revealed slowing datacenter growth (NVDA last Qtr confirmed the cryto phase is the Millenials version of 'GE'). So are self-driving cars and AI the slower-descending crypto? (probably not but these things take time).

I have been underweight stocks but have increased core longs this week in AMZN, GOOGL, NFLX, NVDA, recently added smaller in AAPL, SQ, XLK (more MSFT, withouth FB!), Softbank, Neslte and BABA and added some EEM (gives you some S amsung along with Tencent rather than just domestic China-focused FXI).

Ahead ofthe Fed I am long small Aussie. I think Powell has to soften tone and DOTS will reveal lower flight path. There is too much at stake to not have some smoothing of US-China relations and a lot of negativity is price-in. I will watch for any strength in Canadian Dollars for confirmation of FOMC dovishness. The 'Algo' likes Oil at $45 as well as CVS, CSCO, TGT, UA and the Russell (IWM).

It's time to reflect on the blessings around us. Everything ebbs and flows. Exhale. The days will get longer again.

It's The Most Wonderful Time of the Year

The NFP number missed by a lot this am, 155k jobs vs estimates of 200k along with flatness in wages. I don't think this should come as a surprise given recent softness seen in recent ISMs and PMI reports. Housing and construction have rolled over in the past several months and with trade concerns swinging around wildly by the Tweet it's not a stretch to see why companies stall on hiring.

It has also become commonplace for a major index like the Dow Industrials to swing 3% in either direction in one session without many participants batting an eye.

USD/CAD had a strong recent move from the 1.32 handle to try several to break through $1.3450 several times without being able to sustain. Oil started to base and strengthen from $51.50 or so. At 8:14 am today Trump tweeted 'China talks going well'. General risk-on could be seen and even the Fed ws around early this week re-emphasizig "data dependent".

All that led me to put on a USD/CAD short pre-data at 8:20 at $1.3393. After the weaker US data and stronger CAD employment the dollar sold off broadly. I closed the short albeit too early at 1.3338 - was just happy to put a 'P' on the page.

Elsewhere yesterday, I added new names on the long side: CVS, BAC, DIA (Dow etf), GE, ORCL, ROKU, INTC, TGT; PYPL & SQ I also like adding on weakness.

Elsewhere in FX, my mechanical algo system is suggesting a long in Aussie (AUD/USD at $0.7225). I will restate that the overall increase in volatility in the US equity market should re-weight downaward all holdings and I view this both a as a market-structural development AND an economic strucrual development. I believe the scales have tipped towards persistently low wage growth, public and private excessively high debt-levels and synchronized slowing global growth.

With that take a moment in the crisp cold air outside the remember, 'It's the Most Wonderful Time of the Year !'

Thanksgiving Reset

Thanksgiving is always a good time for a pause to take "stock" or an inventory if you will - counting one's blessings and perhaps reflecting quietly of things that have worked or not worked.

These past few weeks have witnessed a real drubbing of high-beta tech names (and actually ALL beta for that matter!). I have said for awhile that I do not like many broad funds nor ETFs because of their over-reliance on AAPL, FB and JPM. That said I would rather own DIA over SPY and XLK over QQQ. I would also rather own a sector ETF over anything by Vanguard as the intraday moves are excessive and selective buying of things when down intraday or on the close has presented some good opportunities. (I have no affiliation with any of the afforementioned fund or ETF companies).

Elsewhere I have been allocating a higher percentage to short-term CDs and Notes with yields between 3%-4%. Additionally I have kept a higher-than-normal cash position to deploy for some medium-term equity allocations. Letting some things go when up and adding when down.

Admittedly, I have a rather lousy track record as a day trader but with comfortable position sizing (read "smaller") I have had better luck tactically looking for longs amid oversold or washed-out conditions of seller fatigue.

I do believe the market will languish for sometime now in a lower trading range. I believe the forward P/E on the SPX has rightfully drifted back down to the high teens and could see 15-16x forward eps.

I am a long term believer and have been trading around / adding on wekaness to names AMZN, NFLX NVDA, SQ (which has taken a larger hit due to crypto-related sell-off). At $175 or below I will buy AAPL (and I am no "fan-boy" by any stretch). I have zero exposure to gamers like EA, ATVI, etc but I am trying to figure out what is going on there - my gut would be to play a name like TCEHY from the long side first (China fears putting extra pressure on that sector). More work to be done.

Have a wonderful Thanksgiving everyone and happy bargain hunting in the markets as we hope for a truly financial "Black-Friday-and-Cyber-Monday" !!

October 2018

All Hallows

It's All Hallow's - ok almost. Interested to see if stocks rebound at all and if the Euro can trade higher at all after we get through one more day of October.

This month has been a bloodbath for FANG or MAGA or BAT or whatever acronmyms you use for large cap tech. What about CAT? that's NOT an acronym but the actual ticker symbol for Caterpillar. CAT and FCX (Freeport McMoran) have a correlation of 0.90 on a 180-day basis and my algo is giving me a buy signal on both. I am following that pair.

Elsewhere today I am getting clear air above to go long cross-Yen, Aussie, INTC, BAC, T, TGT, MNKD and SNE (Sony, reported a good Qtr this am).

On the headline front we still have US-China dicey relations, Trump mood-of the-day, US political mid-term elections, Italian budget coupled with Merkel retiring from German CDU party, weakness in Mexican Peso on AMLO moves.

Good luck.

Bargain Hunting

The US stock market has been more intersting to me of late than the currency market. October is historically a tough month to say the least for equity markets and this one has proved to be just that. The Dow, SP, and Nasdaq (take your pick of their derivations) are all trading lower by 8%-12% from their recent (past 20 days ) and yearly highs. FANG names have fared even worse with names like NFLX -27%, AMZN -18% and NVDA -33% from highs seen this year. However, even CAT is -35% from recent highs.

I have read commentary from a few technicians pointing out that by many market metrics after these recent sell-offs we are in "no man's land" and I do indeed agree with that. Strangely I feel the bond market and FX markets were portending this equity correcion since August but these are the times we live in and markets have a life of their own.

I believe the only true defensive play is to hold cash and I am the type to happily miss some upside in good times in order to keep a higher percentage allocated to good ole' cash.

Despite not expecting any V-shaped recovery I put some new longs on in AMZN, GOOGL, NFLX, NVDA, SQ + TWTR (the Jack Dorsey basket), MU, AMD, ROKU, IBM and CELG.

As far as other attractive ETFs, for me I like XLK over QQQ. With XLK (State Street Technology Sector Spider) you AVOID Facebook (FB) which is currently roughly $148 and I think it's going to $125. The XLK gives you a much higher weighting in MSFT which is currently trading at $108 after a good Qtr and I ALSO think it is going to $125 ! XLK gives you higher PYPL weighting than QQQ. XLK is also cheaper - to own its 67 components will cost you a 13bps mgmt fee versus paying 20bps for the QQQ which also ladens you with biotechs and pharmas which I would rather own on a selective and individual basis (REGN, GILD).

I would caution that the above items have all been implemented amidst a larger cash and bond strategy for a long-term portfolio. Speaking of bonds I also think this is great time to pick up short duration bonds that yield above 3% without going out too far.

In FX I think the Dollar is a bit over extended and longs in EUR, GBP and NZD while I think given concern of China's domestic slowdown and concern wtih commodities and trade you can short AUD on rallies.

Good luck and be careful in "No Man's Land".

Italian Opera

It is hard not to suffer from recency bias. Any look at prices the past several mornings would make me believe the Euro, AUD and NZD are oversold and due for a bounce versus the dollar.

As a trader I have learned you don't trade "yesterday's prices" and one should avoid terms like "oversold", etc.

Indeed Italy is still in the fore and the ensuing implications of their high debt to GDP budget and its reverberations for the Eurozone and EU budget guidelines.

I am staying a bit ot he side of the direct EURUSD cross for now and instead looking to play other crosses based on what the rest of the risk matrix looks like. US stocks seem to have stalled with concerns on what the tech sector will do the the overall indicies (AMZN lower by $100 or so from recent highs).

USDCAD was a great buying opportunity after the "new-NAFTA" levels saw it with a $1.28 handle for several sessions, it has now reclaimed $1.2950 and I think it can still go higher.

USDCHF has several old tops near CHF 0.9950 and I had a successful short there yesterday from 0.9942 with ensuing cover at 0.9928. I think still safe to sell the dollar on rallies there.

The "MoNo" (momentum Sell algo) says to short AUD and NZD still and EUR while not a full sell is still due to languish near recent lows.

That's all for now. I have to remeber I have the scars longer term to show that trying to find reversals and play counter trend usually ends badly for me so I will look for small pips "with the wind" and let the big moves reveal themselves once current storm clouds clear.

August In September

Morning signals from the algo were productive with a short EUR/USD from $1.1550 good for a quick 10 point gain. The EUR/USD is now sitting a key suuport level of $1.1530. The bid to the dollar looks firmly entact however versus typical safe-haven crosses of JPY and CHF, the dollar seems a bit tired.

The price action in USD/CAD has been to buy on dips near $1.2800 as it seems to want to gravitate back higher towards $1.2850 - any punch higher through there would open up a $1.2900 handle I think. That is my prefernce for long dollar plays.

August is typically a quiet month in FX and other financial markets as Europe goes on 'Holiday' and seasonal eps reports for major US stocks experience a lull. However, this August saw fireworks in the form of Emerging Market stress (Turkey, Argentia, South Africa, Russia) and geo-political tension with regards to trade with China, Canada and the EU.

September by comparison was a bit more tame so those wishing to jump back in and trade some action may have seen certain false starts in major moves. Time does indeed fly and here we sit in October - historically one of the worst months for stocks - and instead we mark the 102nd time that President Trump has 'Tweeted' about the strength of the US equity markets (indeed the S&P500 is +40% since Trump took office).

Today the US economy continued to report healthy figures, this time in the form of monthly services PMI readings. Indeed with several Fed speakers in various venues, one doesn't need to look far to her soundbytes such as "this is about as good as it gets", and "it is pretty easy to see the future path", according to Chicago Fed President Charles Evans, and others.

With the North American trade deal having been sorted, and NAFTA now the 'USMCA' (United States-Mexico-Canada-Agreement), we can turn our attention to trade deals (tensions) with the EuroZone and more importantly China.

The situation on the latter does not look particuarly encouraging but that could also be by design as the US political mid-term elections loom. It is possible this is greater trade concern along with domestic China slowdown concern is being expressed by a particuarly weak AUD/USD cross.

Today also sees a decent-sized option expiry in AUD/USD at $0.7190. I am currently long the pair just under $0.7150 with a tight stop and a take-profit of $0.7185.

Still some nice beach weather here on Long Island so enjoy, "September in October" !!


It is twilight here in the GMT -05 timezone and as electronic venues begin to warm-up and post bids and offers the Cad$ is looking stronger at an indication of $1.2850 vs Friday NY close of $1.2910. Intraday Friday the CAD surged from over $1.3020 to the $1.2900 region.

Canada did report a slight GDP beat on Friday. I believe the October BOC rate hike was already a fait accompli no matter the Friday data (mkt pricing assumes it as well). But there were hints in recent speeches (Wilkins in Ottowa several weeks back) that their future rate path may not be as steep as that of the Fed's.

Trump on trade I believe will prove to have more bark than bite as US midterms near. China domestic slowdown fears will not be as bad as perhaps feared I sense.

I like a long USD/CAD at $1.2850 even with an agreed upon tri-lateral NA trade deal as I think new terms will still put a dent in any further Cad$ appreciation. I would expect a $1.29 handle could be regained on even positve NAFTA outcomes.

And of course any further negative announcements (delays) would most likely see a sharp USD surge higher versus Cad and Mex.
AUD/USD at $0.7220 seems like a good long entry if indeed CAD retains this bull run. Same with NZD/USD from the .6620 area. Their domestic data seems to be coming in better than expectations, coupled with a fairly dovish RBNZ and market short positioning.
Back to the price action in USD/CAD on Friday it was clear that certain market participants knew something was brewing as the cross rate plummeted amidst dollar strength elsewhere (not to mention month and quarter-end flows can make even the most eager contrarian trader of thinking twice or thrice before stepping in front of any move - no matter how seemingly exaggerated).

Well Anchored

The Fed hiked. The RBNZ stood pat. Higher inflation reported in the Eurozone and UK. After an initial confusion surrounding the Fed statement's dropping of the the word "accommodative", the wind is behind the Greenback.

Typically the Fed doesn't like to the rock the boat and spook the market. Too much of the world's debt is dollar-denominated. It is usally safe to buy commodity currencies (AUD, NZD, CAD) if they strike a balanced tone. That was the market's initial take. But this morning the AUDUSD is almost 100 points lower than its inital Post-Fed high of $0.7312.

I had a chance to re-watch Powell's testimony and it has given me more comfort at being long dollars.

Some notes I highlighted:

"...every voting member sees a natural rate above where fed funds is now ...so whether we keep that natural rate and exceed it a few times or raise that rate ..."
"...we are still accomodative ..."
"inflation is well anchored in the long run"
"employment is high, wages are rising; banking system is much stronger"
"true, asset prices are in the upper end of their ranges but it is moderate"
"impact of a trade war could be dire...rising chorus of concern about impacts on trade all around the country...""
"loss of business confidence could reduce investment"
"in longer run, where is this going...trade supports productivity and higher incomes...fair trade can be a good thing"
"widespread tariffs in place for a long time and reduction in trade is bad"
"...a particularly bright moment if you look back over the past decade...""
Reporter comment, 'WMT, KO, GPS, GM all expect tariffs to affect the price of everyday goods'...
"until we see it in the numbers it's hard to react"
"we don't see it yet"
"a lot of talk of supply side constraints"
"'accomodative'...its useful life was over - we put that in the statement in 2015, it no longer says anything important about the way the committee is thinking about the economy."

Current thoughts are long USD/CAD and USD/JPY.
$1.3065 looks like a 50% fib from May low of $1.2750 and June high of $1.3386.
USD/CHF seems now firm above 0.9700.

It's well anchored. Let it Ride.

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