Risk On Investments Are Set To Come Alive, Act Accordingly
When we last left off in the perpetual saga of the U.S. equity markets, a clear statement of the fact that investors had become overly fearful led us to conclude that "this remains a market to take advantage of rather than run from." This was the final sentence of a note titled Buying Equities Here Involves A Simple Yes or No Answer To A Simple Question. The direct and blatant truth of the matter is that investors are being led down an overly-pessimistic path of the global recessionary boogie man that every investor, analyst and trader is now clinging onto in an act of despair. It's almost as if the constant barrage of misinformation has caused investors to tap out from pure mental exhaustion of the repetitive recession sirens blaring for the entirety of 2019. If one didn't know any better, judging purely from the headlines of 2019 exclusively, you would think that the S&P is negative on the year. Instead, we are up about 15% in the face of an overwhelming penchant for negative sentiment towards equities throughout this year. Following this risk reset in the markets, investors are being given yet another opportunity that a majority will miss to accumulate equities at advantageous prices. The risk on trade is set to come alive in a big way as we enter Q4, fed by a near historic misallocation away from equities into any instrument that absolves asset managers of taking responsibility for putting on risk. In other words, professional investors are way too afraid of losing money and they have become stupid in their decisions as a result. The markets punish stupidity without fail. They especially punish stupidity when it plays into a narrative of misallocation that can then allow the markets to do what they do best: create a counter-intuitive, momentum driven march forward that mentally runs counter to even the most outlandish scenario a majority of investors were expecting. As a result, investors want risk on, correlated assets here. There is a time to run from equities that correlate to the markets and then there is a time to embrace them. This is a time when investors should be giving them a bear hug with everything they have. The biggest and brightest mega-cap tech names...buy them. The leading real estate and construction related names....buy them. Semiconductors: NVDA, AMD, AMAT...have to own them. What investors don't want to own is anything remotely associated with risk off. With this said, ETF Pro subscribers were told to liquidate their GDX position that has been held since Q2 and SLV for gains of 40% and 14%, respectively. In fact, we...
Buying Equities Here Involves A Simple Yes or No Answer To A Simple Question
We are now beyond the point of fears related to China and the ongoing trade war. This is news that has been more than factored into both U.S. and international markets. Where we are now in the grand cycle of financial boogie men hiding under every bed and occupying every closet is the after effects of this trade war. Specifically, investors have now moved onto the recession boogie man. Being that markets are always looking forward, the current extreme volatility is a symptom of investors debating whether a recession is going to begin within the next 6-12 months. Simultaneously, economists are ratcheting down their estimates for the economy as they KNOW a recession is coming. What this creates is a potential springboard effect for the markets to the upside, while the bar is being lowered for the economy to the point where even slight glimpses of growth will create a sustainable uptrend. All the meanwhile, investors continue to be so poorly positioned for equity appreciation that a move up from here will force money from the sidelines in what could be a historic fashion into year end. Is the economy going to be bad enough over the next several months to justify the greatest fears of investors while disappointing estimates for growth that have already seen substantial reductions? That's really the only question investors should be asking here to decide whether they are buyers or sellers. Given the recent history of markets getting the economy wrong, led by the bond market especially, this is simply a micro replay of December 2018. Investors greatest fears are rarely realized, especially when they are as vivid and scary as they are at the present time. This remains a market to take advantage of rather than run from. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which...
Here Is Where We Are After The August Risk Reset
Since late July, one of the primary topics of discussion here has been an impending risk reset in the markets. Risk resets are generally nasty affairs that scramble the brain while taking a rubber mallet to the heart. We're seeing this play out in real-time presently, as market participants are failing to distinguish signal from noise, while having their will to proceed in any semblance of a profitable manner compromised severely. Certainly a risk reset has taken place here. Conditions of froth in both price and sentiment have been removed rather swiftly from the market. All the meanwhile, the news out of China has suddenly taken on an amplified tone, as everything from currency fluctuations to protests in Hong Kong are enough to set the Dow back 400 points. Investors have become hyper-sensitive to China. Hyper-sensitivity to a particular topic in the market is typically a sign of news flow reaching the manic stage, where it is close to factored in, unless a much more severe escalation takes place. With respect to China and the U.S., there are very few avenues for real escalation. We already know that trade talks are dead. We already know that both sides are further apart then ever. The economic damage caused by these recent events will start at the emerging market level. Whether that weakness ultimately infiltrates the U.S. economy is debatable. In the meantime investors have the following pieces of the puzzle falling into place: Gold and silver - will say it again, as we have been since December of last year, investors have to allocate a portion of their portfolios into metals here. They are an insurance policy against excessive QE, negative interest rates, out of control central banks and earth shattering shifts in the monetary system taking place over the next several years. Real estate - already have made the case for single family residential REITs some months ago. Home builders have been one of the strongest sectors in the market. We own DHI. Have traded in and out of NAIL a bit here and there. Low interest rates and record jobs create buoyancy in the sector. Financials - our thesis of financials leading the market during the second half of 2019 is being compromised by the debacle taking place in interest rates. The pressure to the bottom line by perpetually lower rates may create a dead money situation here. Still early to tell. However, for the time being, we aren't taking on new financial exposure unless it's for a trade. Mortgage originations - Q3 could be a record for mortgage originations. Quicken Loans - the largest originator - reported...
A Market That Is Coming Full Circle
This week has been an interesting one in numerous respects: First, investors now have become experts in the pegging of the Chinese Yuan. This the latest fascination of the market that is causing gyrating hip movement to take place in the overnight sessions, making for volatile trading conditions. Secondly, we have movements taking place in the interest rate markets that are out of some economic fairy tale that nobody would believe if it wasn't happening before our bloodshot eyes. Yields continue to be obliterated, with all types of theories being bantered about as to not only why this is occurring but the fundamental changes this will create in the global economy moving forward. Lastly, gold continues to cement itself on the path of abundant potential as the President's latest obsession is a weaker dollar, followed by publicly castrating Fed Chair Powell with a pair of rusty scissors and a blowtorch. Compromising the U.S. Dollar and the Fed simultaneously is a wondrous development for gold, as it firmly places a dunce cap on fiat, putting it in a corner without much maneuverability. Amidst all of these entertaining developments we have a market that is doing its job rearranging the minds of investors so that they won't be able to accurately track its movements. On Monday, during a complete panic driven meltdown, we outlined exactly why we were taking up short-term long exposure for the first time in weeks in an a note titled Taking Long Exposure Up. The final paragraph of that piece said: In all likelihood, when looking back at this moment in time at the close of trading Friday of this week, investors will wish they were buying instead of selling. And that's all we are playing this for. A short-term surge in exposure acknowledging that markets enjoy toying with investors more than they enjoy accurately reflecting the value of the companies listed. The next question very obviously becomes, at what point is there potential for the toying to stop? Bringing us back to the 2945 level that was described last week as everything for the market before the worst day of the year took place on Monday. The textural nature of that level doesn't simply dissolve away. Like the sound waves of a giant bell ringing, important price points carry with them a rippling effect that stays. The 2945 level has now become a resistance point for the market. And the reaction to that resistance level will tell us a lot about the markets intentions moving forward. More to come..... Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. ...
Stumbling Through No Man’s Land
Throughout Monday's trading, the path of least resistance in terms of optimal decision making dictated purchasing some stock. Tuesday was much the same, as the market decided to reverse a bit while investors remained generally pessimistic about the outlook for the remainder of this week. Wednesday is a different animal, however. There are certain days in the market matrix where the markets are so deep into No Man's Land that you simply have to freeze. If anything, you use day's like today to derisk the portfolio a bit. And that's how we're approaching today. We sold off the Zillow we purchased Monday morning for a small profit, after adding other equity exposure in the Real Estate 2.0 disruption world yesterday. The original plan was to hold Zillow through earnings. However, when you have no cushion in your portfolio for big swings due to performance issues, it's time to hit for singles, then doubles, triples and eventually home runs again. Just like anything else you have to work your way back into the mix. Way too many guys step up to the plate swinging for the fences, especially during difficult market periods. That's exactly what the market wants you to do. It wants to suck you into stupid decisions in an effort to feel good again. Unfortunately, or perhaps fortunately (depending on how you look at it), good trading/investing is boring. Once again, this dump in yields creates a nice risk/reward equation for equities into the end of the week. Paired with some really pessimistic sentiment, it's a short-term "add to your equity exposure" type of opportunity. That has been our argument from Monday on. Thinking more than a week out is a fruitless endeavor given the rapidly changing macro environment. That's where we are for now. Embrace your inner-boredom. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations...
More Stock Please….
The long exposure train began boarding passengers yesterday, with a continuation of the journey taking place this morning. The fear instilled within the hearts of investors has created a short-term buying opportunity, along with some clear deals on the aggressive beta side of the market. There is an outside chance of the NDX wanting to kiss support at 7250 before a solid bottom is reached. However, the positive factors outweigh the negative to the point that risking 2-3 percent of index downside isn't a terrible trade-off. What are those positive factors? Investors now BELIEVE that the macro situation is irreversibly tainted Investors have, yet again, piled into government bonds with negative real yields in the latest sign of panic Bond investors are forcing the Feds hand to accelerate rate cuts Earnings yield on the S&P drips ever sweeter juice the lower yields go with equities following along on the downside Sentiment towards equity has experienced an epic reversal from highly bullish to highly bearish in a single week The outcome of such sudden shifts can be isolated fairly effectively, creating a positive expected value proposition for future short-term speculation. As opposed to recent weeks, we now have both sentiment support and pending price support of the markets supporting the decision to take on long exposure. For this week, at least, that's good enough. We're taking advantage. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration requirements. Visitors to this site should not construe any discussion or information contained herein as personalized advice from T11 Capital Management LLC. Visitors should discuss the personal applicability of the specific products, services, strategies, or issues posted herein with a professional advisor of his or her choosing. Information throughout this site, whether stock quotes, charts, articles, or any other...
Taking Long Exposure Up
The past several weeks have been an exercise in taking scissors to the portfolio, trimming excess fat from around the meat of our exposure. In mid-July, our long exposure stood at 185%. As of the close Friday, we were at a little over 100% long, with a big shift into conservative beta from what was aggressive beta in mid-July. Conservative beta names like REITs, gold and financials have become the theme here recently. That's changing over the very short-term due to the sense of panic that is taking place in the markets today. Following Friday's close below 2940, which was described on Twitter as being a "Tyson level uppercut to the market," paired with China's revised strategy of manipulating their currency in order to keep up in the trade war, investors are suddenly coming to the realization that things are going to get really bad from here. These types of snap consensus realizations that are reflected by near crash like conditions in the financial markets aren't typically allowed to persist without the prerequisite manipulative dance. Especially in a political environment where mouth pieces emerge randomly to talk up the markets in moments of severe distress, with compensatory policy decisions once they realize the financial markets are getting a bit out of hand. The move down in yields again reeks of distress. The move down in the most speculative sectors of the market (think: SOX) screams of investors fully embracing trade war induced economic panic. The move into gold and silver as safe haven plays is rushed in nature, again having a "snap decision" feel to it. All the meanwhile, this type of crash in yields creates a value cushion that should be able to mitigate the threat of precipitous declines, such as what we experienced in Q4 of 2018. In all likelihood, when looking back at this moment in time at the close of trading Friday of this week, investors will wish they were buying instead of selling. And that's all we are playing this for. A short-term surge in exposure acknowledging that markets enjoy toying with investors more than they enjoy accurately reflecting the value of the companies listed. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be...
Now That 2940 Is Compromised….
Yesterday the importance of 2940 for the S&P 500 was discussed. With volatility expansions taking place off numerous historically relevant resistance areas, the last thing investors want to see out of the market is a thrust on the downside, with markets closing at the weekly lows. In what may be a date with destiny, however, this may be exactly what the markets get as we enter August trading. For visualization purposes, here is the 5 minute chart of the S&P 500 today. The market opened right on the 2940 level (white line). When it lost that level, it responded by throwing a tantrum of volatility on the downside. This is otherwise known as a recognition point. It's the market embracing the fact that something of consequence from a price perspective took place. For investors who choose to listen to what the market is saying, it serves as a valuable glimpse into the mind of the market at that moment. This recognition of the 2940 level, along with numerous instances of volatility expansion across market averages is something to run from, not embrace. From a seasonal perspective to a technical perspective, everything is coming together for a market where risk/reward dynamics of taking on risk laden positions simply doesn't add up. Have been arguing for conservative beta exposure here for some weeks now. Add gold names to that mix, as well. There are simply so few avenues for a sustained decline in precious metals from here. It's a must have portfolio position that a majority of the developed financial world is underexposed to at present. August is set to be perilous. Behave accordingly....
2940 Is Now Everything For The S&P 500
In a fit of bearish prudence, it was noted yesterday on Twitter: With the dramatic reversal that has taken place today, 2940 becomes that much more important for the market. The S&P 500 has been walking a tightrope with resistance at 3000 for several weeks now. To put it in the simplest terms possible, walking a tightrope is great when you are steady and balanced. However, when you start becoming erratic and volatile, walking that tightrope turns from magnificent to potentially catastrophic. Large volatility expansions around areas of significant historical resistance, as 3000 on the S&P 500 always has been, are more often than not warning signs by the market of impending instability. As of now, we have S&P 500 2940 as a very important marker for how serious this instability can become. Should the market continue its erratic ways, closing the week below 2940 on the S&P, it becomes a very precarious situation, very quickly. Needless to say, with the S&P at 2953 currently, the market needs to get its act together soon. 2940 for the S&P is everything this...
Welcome To Fed 2.0: Here Is A One Minute Orientation
A new era for the Fed kicks off today. Gone is the era of monetary policy for the sake of the economy, guided by principles of economic balance in the face of shifting data. Fed 2.0 is guided by three factors: Global monetary policy, primarily concerned with the BOJ and ECB Politics Survival Global monetary policy: The Fed knows the unsustainable nature of allowing other developed countries to borrow at zero interest rates while the United States pays ~2%. Either the rest of the world needs rates to move up or the U.S. has to bring rates down. It seems the Fed has decided today that the rest of the world isn't budging. Politics: The Fed doesn't have any friends in Congress and especially The White House. Back against the wall, they have to bow to political pressure. Survival: If the Fed doesn't do what our political leaders insist upon, it will be compromised to the point of what will essentially be dissolution. What does Fed 2.0 mean for the financial markets? Radical volatility in everything from government debt to equities The inability for the Fed to be effective when needed, such as in a recessionary period, without resorting to drastic measures that will properly absorb the radical nature of the volatility in the Fed 2.0 financial markets It's really as simple as that. The function of the Fed has permanently changed. To expect the nature of the financial markets in reaction or in proportion to this change to remain constant is foolish and naive. Adjust expectations for everything...