Feb 6, 2018 – Market Update (No recession short-term, healthy correction done, no global contagion, so let’s hunt for bargains; One Fed hike is priced off; Watch today for Trys yields, JPY crosses, VIX; New turning points for VIX at 22 & 30; XIV a problem for Credit Suisse; BNSF Railway (part of Berkshire) joining Blockchain in Transport Alliance; Hedging by book: long gold, JPY, 10- and 30-yr Trys; The panic is over, moving to the last leg up of 2009 bull run; German coalition talks well covered blockchain)

Mr Price Action/ February 6, 2018/ Market Update, Market Update Posts/ 0 comments

 

Short recap

 

Asia in red

Europe opening lower

US Congress to vote on government funding

German coalition talks well covered blockchain technology to make Germany a fintech hub

Draghi not ok with EUR volatility due to potential inflation miss

Kuroda – no near-term hikes

 

Question – what now?

 

Honestly, I am not sure either…

…as Janet is celebrating and Powell not being able to find the “Buy” button

Market is down and Trump focussing on long term fundamentals and not the short term sell off

It reminds me local CEE politicians who cheer and show up in the public only in good times

 

Let’s sum up a bit

 

S&P 500 was 12% above 200 DMA – markets do not stay very long 10% above 200 DMA

(for regular bull market it is between 5-10%)

Technicals showed way-overbought markets

 

Most of the market followed the same direction (robots, ETFs, investors selling volatility) for months/years

Selling volatility/insurance and now covering positions

But after market dropping more than 6% all start to hedge (thus more selling)

 

S&P 500 found support at 2538 (200 DMA) after touching low of 2530

DAX didn’t care about 200 DMA and found support around 2015 highs, 2017 support levels

And below 12 275 (76.4% Fibo) after printing 12 141 low

 

VIX skyrocketed above 33 (up 113% on a day) but corrected (25+ levels signal market fear)

XIV (short volatility ETF) plunged (speculation that Credit Suisse lost USD 500 mln)

Let’ wait for official comments

 

Hedging based on history

 

Long Gold – pretty unmoved (sitting right below resistance zone (1357-1375)

Long JPY – sitting right lows of 108.12/107.31 acting as support but not very affected

Long 10- and 30-yr Trys – enjoyed very decent rally yesterday

 

Why to hedge?

 

CBs believe in rising rates globally on inflation pressures and strong growth

But China is slowing down and coping with huge credit problems

US economy topped, EU to follow soon and as Japan population is old, the lag

 

Example from 2011 – losses prior week, losses on Monday, more at the open on Tuesday

And recovery taking more than half a year…

 

What to do next?

 

As there is no recession risk near term, the healthy correction & late stage bull market panic is done

Stock markets will hopefully find their calm soon

So we can focus on hunting as a part of final leg up of the bull market that started back in 2009

 

…but be aware of:

 

FX, EM unaffected (EM equities down only 5%) – a positive sign

One Fed hike is priced off; If volatility continues another one can get priced off

No global contagion – a positive sign

Watch today for Trys yieldsJPY crossesVIX (can fly in both directions with turning points at 22 or 33)

JPY 1m ATM vols (jumped from 6% to 10%)

 

Equities

 

Broadcom bidding for Qualcomm (USD 121 bln)

Bayer to sell more assets (seeds/pesticides) to please EU as it buys Monsanto

Elliot Advisors don’t like BHP’s dual listing (among other things)

Energy stocks still worth of looking at (also multiplied by recent sell off)

Boeing keen on a new mid-market jet

BristolMyers still behind Merck with cancer drugs testing data

Apple and Cisco come together to work with insurance companies on cyber policy products

Banks moving away from models to stock picking on new research rules

BNSF Railway (part of Berkshire) joining Blockchain in Transport Alliance

 

Earnings

 

Allergan, GM, Gilead Sciences, Walt Disney

 

S&P 500 daily

Source: Saxo Bank

 

DAX daily

Source: Saxo Bank

 

Bonds

10-yr Trys yield at 2.65% vs 2.86% yesterday

Yield at 3.00% a buying opportunity?

10-yr Bund yield at 0.73% vs 0.76% yesterday

 

Bitcoin

 

Bitcoin’s Brutal Week Is Even Worse in South Korea  link

So-called kimchi premium disappears amid government clampdown

Bitcoin prices globally are sliding to their lows of the year

 

Data/events

 

ECB’s Weidmann (0900 GMT)

Fed’s Bullard (1350 GMT)

 

Feb 16 – Chinese New Year

Mar 4 – Elections in Italy

 

 

Should you have any questions feel free to contact me anytime.

 

Good luck Champs!

 

 

Mr Hawk

 

 

 

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: landoftradingATgmailDOTcom

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