Hmmmm…

Posted on January 10, 2019 by macromon

I’m focused on the picture in the People’s Daily tweet.  Are those what I think they are?

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S&P500 Key Levels

Posted on January 10, 2019 by macromon

Nice price action today generating an outside day, which the textbooks tell us is a confirmation and continuation of the recent move.  No fight here.

Nevertheless, moving into the zone of heavy resistance as the S&P crosses 2600 and the 50-day and .50 Fibo at 2640ish become just a chip shot away.  Grab your gap wedge,  folks.

s&p_resist

Waiting for Godot Mr. Doji so we can sell this market.

One Note Of Caution For The Bears

We are a bit concerned and nervous waiting for our short set-up as everyone and their mother are talking about the heavy resistance at 2600-2650, and also looking for a retest of the Dec 26th low.   There will have to be some real selling up there, which we think is probable given earnings should be sufficiently negative to break some supply loose.  Stay tuned.

s&p_500_chart

s&p

 

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QOTD: You Are A Badass!

Posted on January 10, 2019 by macromon

Deciding means jumping in all the way, doing whatever it takes, and going after your dreams with the tenacity of a dateless cheerleader a week before prom night.  – Jen Sincero, You Are a Badass: How to Stop Doubting Your Greatness and Start Living an Awesome Life

QOTD:  Quote of the Day

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Why Communist China Has So Many Billionaires – Bloomberg

Posted on January 10, 2019 by macromon

By one estimate, China mints a new billionaire every two days, far exceeding the rate of countries like the United States. But how did China remain a nominally Communist state while becoming a hotbed for billionaires-in-the-making? Bloomberg QuickTake explains how capitalist compromises and moves begun decades ago have made China the not-quite-Communist country it is today.

Video by Henry Baker, Graphics by Christian Capestany, Sylvia Yang – Bloomberg

 

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Selling Brazil ETF

Posted on January 10, 2019 by macromon

Taking profit in the Brazil ETF, EWZ, after  a tremendous run.  Out at $43.00 and will look to reload at a lower price.  Bulls eat, bears eat, and pigs get slaughtered.

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The Automatic Tapering Of Quantitative Tightening

Posted on January 9, 2019 by macromon

We heard a market pundit today mention the Fed will soon begin to taper its reduction in the balance sheet.  The pundit seemed convinced the balance sheet reduction is on track to total $600 billion per year as far as the eye can see.  Not so, Joe!

The balance sheet reduction is on automatic pilot in so far as the monthly maturities coming due in the Fed’s SOMA portfolio of Treasury securities and MBS are not rolled over.   That is the total monthly size of QT is dependent on the maturity profile of the SOMA portfolio. The second derivative – the change of the change in the SOMA portfolio – is sharply negative as the maturity profile in each successive year gets smaller (see table).   No Fed tapering needed, Joe!

If the total Treasury maturities for any month exceed $30 billion, for example, the difference of the total less $30 billion is reinvested back into the monthly auctions across the curve.

The mechanics of the MBS run-off are more opaque as not only we don’t have any maturity data there is also uncertainty due to refinancings.   We estimate the 2019-2021 MBS run-off based on an assumption of a running rate of 52 percent of the monthly Treasury reduction, which is the ratio since the balance sheet reduction began in October 2017.

Upshot

The following table illustrates that the Fed’s balance sheet reduction naturally falls simply due to the profile of its maturities in the SOMA portfolio.  Quantitative tightening does not come close to $600 billion that the market clowns were freaking out about over Christmas.   In 2021, the balance sheet reduction is estimated to be only $254 billion, which is just 42.27 percent of the $600 billion cap!   Still, the Fed balance sheet at the end of 2021 will remain around 3.5x its pre-crisis size in 2007.

Remember the idjits proclamation , “the Fed and Jay Powell know nothing,” at the nadir of the recent crash?   What a joke!

This confirms our suspicion the market crash from October to December was likely misdiagnosed.  Maybe what ails the market is not solely a cyclical phenomenon and about the Fed,  but something more structural, such as too much new debt being floated by the Treasury and the inability of the risk-free rate to rise and find its market clearing level. More on this in a later post.

Nevertheless,  it will be interesting to see if stocks can continue to rally on, what we believe, is a false narrative.    Stay tuned.

fed_bal_roll-off

fed_bal_roll-off_2

 

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Opportunistic Alpha Housekeeping

Posted on January 9, 2019 by macromon

If you haven’t noticed, we have been posting specific trade ideas with entry points, target prices, and stops.  These are not recommendations but a vehicle so that our readers can hold us more accountable for our ideas, and to also illustrate that following the Global Macro Monitor is a money maker.

Ideally, the trades will generate alpha for, say, a global macro fund, or P&L for individual traders, mainly through event-driven opportunistic trades.  Assume we have $1,000,000 in capital or trading limits,  which can be levered, mainly with futures. 

Let’s call these posts “Opportunistic Alpha.”

  • Brazil has been stunning, up 10.10 percent from our entry and 12.50 percent for the year.  Getting tempted to take half off but gotta let the winners run.
  • Gold starting to move.  Trading inversely with dollar
  • Is the U.K. getting close to calling for a second BREXIT referendum?  We think so simply due to TINA – there is no alternative.   The disaster scenario is not an option and we suspect the PM secretly wants a “People’s Vote” as an easy way out.  She has to at least appear to be placating Boris
  • We think stocks are still in a bear market and a test of the December low is a given.  Though we think a little more upside, especially on some positive trade noise, we will be looking to get shorty in the 2600-2640 range or sooner  if Mr. Doji begins to appear in the daily schticks

Looks like we left a little on the table by selling the China ETF too early.  Can get them all.

We just had a large contribution from a reader who said the Brazil ETF trade made him some nice coin and wanted to pay us for the idea.  That is exactly what we are looking for. 

A special shout out to our friend, Scott in Tasmania, who was our first contribution and jumped on it as soon as we put the PayPal widget up.  We will never forget it.   

Links to original posts for each trade:

Brazil ETF
Gold
British Pound
China ETF  – exit

strictly alpha

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S&P500 Key Levels

Posted on January 9, 2019 by macromon
  • The S&P continues to march toward, what we believe, is the next major area of resistance at 2640ish, which is the zip code where the 50-day and next key Fibo live
  • The market will soon be tested with the Q4 earnings reports, which will be interesting, to say the least, with all the foreign exposure in S&P500 earnings
  • Doji candlesticks have signaled coming downdrafts since the October top, the closest signal we have found to ringing a bell at the top
  • We are becoming a bit more cautious as the daily candlesticks over the past few days are beginning to resemble Dojis.  Watch this space. 
  • If the S&P generates a nice formed daily Doji, we will get shorty for a trade
  • The S&P needs to hold 2573.61, the key Fibo level during this sell-off
  • The short-term marker to the upside is today’s high at 2595.32

 

s&p earnings exoposure to china

                    Source: @gabewildau

 

s&p_500_chart

 

s&p

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S&P500 Key Levels

Posted on January 8, 2019 by macromon

Stocks have seized the bullish narratives — which are “like diseases,”, by the way – of a dovish Fed and an imminent trade deal with China, which should continue to drive the S&P up to its 50-day at 2639.61.  Note the vicious sell-off in bonds since hitting the recent low of 2.55 percent on January 3rd.  You know our suspicions that bonds have become the instrument of choice for the big, bad global macro equity bears.

President Donald Trump is increasingly eager to strike a deal with China soon in an effort to perk up financial markets that have slumped on concerns over the trade war, according to people familiar with internal White House deliberations.  – Bloomberg,  Jan 8th

The current rally is based on an unstable narrative, in our opinion.   What happens if the terrific trio — Sean, Rush, and Ann — don’t like and the trade deal and criticize the president for selling out the base for stock investors?   We don’t see the Fed cutting rates or suspending its balance sheet reduction,  which we project at $442 billion in 2019 until stocks are much lower.   The bulls, who are driving stocks higher, are thus cannibalizing their own narrative.

Key Levels

The S&P closed just above the key .382 Fibo of the recent sell-off at 2573.61, which opens the way to the next critical range of resistance at 2639 to 2643, the 50-day and .50 Fibo, respectively.   We may see some consolidation before the move there, however.

To the downside, it is now critical for the 20-day to hold at 2528.77, which, keep in mind changes daily.  Also, the index needs to stay above 2573.61, the Fibo retracement mentioned above.

Upshot

We believe stocks are still in a bear market, experiencing a classic nutcracker of a bounce, but reserve the right to change or mind.

 

s&p

 

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Short-term thinking is politics’ most epic failure | Big Think

Posted on January 7, 2019 by macromon
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