Die James-Bond-Filme by M. Scheingraber (1981)
Stuff discussed:
using likelihoods, not predictions
what bonds are shouting about
the trades I’m in
the trades I’m thinking about
wrap up
So, we’re going to all time highs again this year, right?
Possibly - with inflation likely to be 8%+ at the end of the year, S&P breaking even will equal an 8% real loss. It’s rare, but bulls aren’t the winners this year, even if we finish unchanged.
The time to get bullish was June and the summer rally has played out. A few more weeks and the real money will be coming back in after a summer away. My guess is they’ll be thankful for the levels they find that they can sell into.
There’s a fine line between using likelihoods to enhance trading and settling on predictions that will rip you apart. A person can’t predict what they will be thinking in ten minutes and yet there’s people who believe they can count ‘waves’ on a chart, make solid predictions and actually make money from it. That kind of crap has been getting my goat recently.
But….the grey area of likelihoods is where a trader can get comfortable.
The likely hood of a midlife crisis
So, similar to the likelihood in June that it was worth trading a bounce, there’s some early signs that everyone is getting on board this idea…..after a 2 month rally…..so it’s time to start thinking the other way again.
But let’s not just blindly short this beast. Some more likelihoods to add in:
the market is likely to rally after the US midterms. It’s usually strong after the midterms (ref) AND November is one of the best months seasonally for equities (ref - and see pic below).
Conversely, it’s likely we get at least a retracement prior to the midterms. September is the worst month seasonally, people are starting to find reasons for the rally (where were they in June?), nothing goes up in a straight line and if seasonals favour October - January, are they more likely to batter on from a 17% rally or pick up from another drop after there’s reasons been found to get bearish again?
Sentiment still seems a bit too bearish - want to see some more bears become bulls and all the bear arguments disappear from Twitter (kinda like oil end of May/ start of June).
Then some technicals can come in.
The last run down took about two months - start of April to second week of June. That’s a decent timeframe for either a re-test of the lows or another leg down. So, working back from the midterms, that’s around end August/ start September.
That’s handily when the people with real money will be coming back to the market to tidy up the summer mess.
It’s not a prediction, it’s a bunch of likelihoods that create a framework to base trades around. That’s as good as you’ll get in this game.
Bonds
Why even look for a short? Surely the market is showing us it’s going to continue to climb the wall of fear?
Perhaps, but I need way more proof.
Here’s the % of all the stocks on Finviz, over the last few years, that are hitting 52wk highs and 52wk lows. Sure, the 52wk lows spiked up in June and gave the short term low. For that to turn into a long term low, they need to spike again but not reach new highs.
Can’t get bullish if I’m looking for the next spike in new lows to give me a signal.
Similarly, 52wk new highs - yes, it’s going to look better at the end of this week, but the year+ long move down means a lot of repair work is still to be done.
Oh, and bonds. One of the key spreads is LQD/IEF. That’s a pretty decent record of coinciding with lows:
The spread on the daily timeframe:
It is nowhere near as convincing as the S&P in this rally.
Oh yeah, and that inflation read the other day taking the fear out of CPI and dumping USDJPY? Hmm, 24 hours makes all the difference.
US10Y daily:
AU10Y:
Take your pick - price is not confirming that knee-jerk reaction.
It’s still all about inflation, so it’s still all about bonds.
My week so far
CADJPY long - target reached; +2.68%
NZDUSD long - trailing stop moved into profit
CADJPY Long….again….and AUDJPY long
My Yen trading has been pretty abysmal this year considering the moves that it has had. Caught a few but got killed on way more.
But, looking at bonds, I’ve talked myself into shorting Yen again. The BoJ have no reason to change stance, with inflation around 2.5% and struggling to stay there (cynics would say it’s all that cheap Russian oil being funnelled via China….). Other CB’s are trying not to sound too hawkish to get the fabled soft landing but the bond market is saying rates are going higher and staying there (for now).
If there is one more push in Yen, it’s going to be a tasty one, so it’s worth a few potential losses to try to catch it.
CADJPY daily:
AUDJPY daily:
Both trades are weak entries (but with strong r/r) and sitting around break even at the moment. If the bond yield rally of today fades, I’ll be giving these tighter management than usual and will be cutting back on risk if there’s weak daily closes before any gains are made.
If they start moving, they’ll be trailed from EMA’s.
note - I wrote the above on 11/8, then the below 12/8 (I blame the heat; I’m Scottish, it’s too much for my peely-wally skin).
The next few days:
It’s not all been fun and games.
Oil long didn’t get triggered:
I had a final equity long planned, moved my entry as thought there would be a spike lower over the inflation data, never got triggered (first plan, tighter, would have been a winner):
Give or take a few points, unless the feel of the market changes I’ll probably try these again if price comes back. Particularly the Nasdaq.
The reversal on Monday and again yesterday saw a charge of bears coming out calling for 1929 again. If you’ve been a bear in this whole rally up, you’re going to try to get in too early on the turn. Waiting for all those people to get washed out on the churn up here. I may miss the trade, but…it’s just another trade.
Be patient; trade well.