Friday, October 14, 2022

Morning Note: Behind Yesterday's Action

Another thoughtful, well-constructed comment by my friend Sam in response to yesterday's morning note solicited the following, which will serve as my narrative on yesterday's crazy action:

"Yeah Sam, the 3,500 level found a lot of support... Keep in mind, as I've been presenting of late, there are huge flows working through this market having to do with options dealers who have to hedge their own positions... Clearly, many of them were short futures contracts and were forced to cover as the market bounced, exacerbating the huge turnaround.
Also, as I've been pointing out, our fear gauge has been flashing a very high reading, and, overall, futures traders have remained net short the equity market.
Today was largely about sentiment shifting (to fear of missing out) and massive short-covering... Plus, per our charting in the videos, a relatively constructive technical setup going in.
And, lastly, seasonality right here favors the bulls.
This rally could have legs, but of course time will tell... Today's presumed U-turn with regard to fiscal policies proposed by the UK's new leadership was huge for global markets... At this point, however, nothing's been carved in stone there... anything that suggests those assertions aren't what they seem come next week will be met with more volatility... Given the danger to the pound, gilts and the UK pension system, the market is likely correct in assuming that today's news was legit."


On another note, we remain bullish on Brazil going forward, this from Bloomberg yesterday is key to our thesis:

“Brazil traders are betting that one of the world’s most hawkish central banks will change tack and cut interest rates as soon as March, as the economy cools and inflation expectations dive.”
And on yet another note:
"(Bloomberg) -- European stocks touched session high after Russia’s Vladimir Putin says there’s no need for an additional reserve call-up in the near future nor for massive strikes on Ukraine now. He also said that a direct clash with NATO troops would be catastrophic. Those remarks also helped the euro erase earlier losses against the dollar. It’s now up more than 0.1%."

Asian equities rallied overnight, with 14 of the 16 markets we track closing higher.

Europe's up big so far this morning, with all but 2 of the bourses we follow trading notably in the green as I type.

US stocks are up to start the session: Dow by 218 points (0.72%), SP500 up 0.65%, SP500 Equal Weight up 0.75%, Nasdaq 100 up 0.52%, Nasdaq Comp up 0.60%, Russell 2000 up 1.04%.

The VIX sits at 31.19, down 2.35%.

Oil futures are down 1.55%, gold's down 0.66%, silver's down 1.23%, copper futures are up 0.83% and the ag complex (DBA) is up 0.35%.

The 10-year treasury is up (yield down) and the dollar is up 0.41%

Among our 35 core positions (excluding options hedges, cash and short-term bond ETF), 25 -- led by Dutch Bros, utilities stocks, cyber security stocks, water stocks and Eurozone equities -- are in the green so far this morning. The losers are being led lower by silver, oil services stocks, AMD, uranium miners and gold.

"Everything that has happened and everything that will happen has had and will have determinants that make it happen. If we can understand those determinants, we can understand how the machine works and anticipate what will likely be coming at us next."

--Dalio, Ray. Principles for Dealing with the Changing World Order 

Have a great day!

No comments:

Post a Comment