Letter 70 – December 24th, 2021 and letter 160 – October 19th 2029
On our way to work this morning, we came across two editions of our letters at the back of the tram… We looked around to see who had discarded them, then saw to our surprise that they were dated 24 December 2021 and 19 October 2029! Once again, we had stumbled upon two editions of our publication… from the future! We looked around again (this time to be sure that nobody had noticed our valuable discovery), and hastily delved into the pages… In this special ‘Back to the Future’ letter, we look back over 2021, and present some insightful extracts from our recently discovered editions from the future: read on at your peril…
Letter 52 – November 27th, 2020: Vaccine
We think global equities are just shy of 2% of our end of the year’s target, while our Sentiment indicators are ultra-bearish. We also consider the rotation from “Confinement” towards “recovery” stocks to be half made, even if its continuity could evolve over a 6-month period with up and DOWNs. Our approach is now to buy on dip (or sell put) those “recovery” stocks that are expected to grow in a post-covid19 world. We screened for names that were down year to date before the 9th of November, the day Pfizer announced an imminent and effective COVID-19 vaccine. 9th November represents our new inflection date, a fractal from which we extrapolate the next months’ trends. This fractal captures stocks that benefited from the Vaccine announcement from Pfizer on 0911, were negative year to date until the 6th of November, and last but not least are quantitatively well ranked by our algos and are trading on more reasonable valuations than the indexes.
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Letter 51 – November 03rd, 2020: Buy the dip
Chart 1 shows the MSCI World observing a second 8% sell-off in October after September. The second wave of the Covid19 is a posteriori the trigger for this correction, while the uncertainty around the US election creates a lot of volatility. Technically, we find a strong risk-reward to go long ahead of the US election outcome. RSI for global equities is oversold but forming a bullish divergence – The percentage of members above their 50 days moving average is also extremely oversold (have to go back to March to get such low readings) – last but not least, the MXWD is consolidationg towards its wave IV elliott wave with a possible downside target not far at 530, which corresponds to the 200 days moving average. All these technical items favour a high risk reward bullish setup for the end of the year, with a 636 target, or a 15% return.
Letter 50 – October 12th, 2020: The Blue Wave and the Second Wave
Global equities have nearly retraced their September correction while our SC US sentiment indicator is currently giving a short-term bearish signal. Behind the incessant political noise, the Blue wave scenario (Biden President with a Democrat sweep in the senate) is rising in the polls and betting odds, and is finally considered as a tailwind for equities as it implies a significative fiscal stimulus at a time when the Covid19 second wave is evolving. US markets are not currently afraid by a Democrat Blue wave; while the rest of the world’s equities are benefitting from the blue wave trend as it is bearish dollar. Europe must nevertheless cope with a second Covid-19 wave and the Brexit saga. All in all, we expect a year-end rally with a 10 upside (S&P500 between 3600 and 3750) but expect a pause until the outcome of the US election and a fast correction if the US elections are delayed.
Letter 49 – September 14th, 2020: A generational conflict
What is observable in the markets since the start of the pandemics is also extraordinary from the point of views of different generations. While the Baby boomers and X generation are cautious on equities as can be shown in the AAIBBULL index (Chart 1 shows that the 3 week average of bullish opinions less bearish opinions is at its low while the S&P500 is near its high), their children, the Millennials, have been responsible for an explosion in the purchase of speculative upside options as shown in the chart 2. Daily volume is now explained half by their activity and the notional of options is now more than the cash equity volume. This new micro-structure trend easily explains the Nasdaq momentum in August and its reversal at the start of September.
Letter 48 – July 15th, 2020: Wave V
We expect a continuation of the rise towards 3,451 for the end of 2020, with a possible spike towards 3,700. We had identified an Elliott wave sequence, with 3220 as a 161.8% wave III extension [done], a correction to 2966 [2933 reached on the future]. That should be followed by a wave V target towards 3451. 3451 also fulfills the scenario 1 of a V rebound for economic data and then earnings.
Theme – July 13th, 2020 : EU Recovery
While our regional matrix stays Underweight Europe, the EU Recovery Fund could be a game changer for European individual companies that should benefit from this historic economic union. We think the Fund should specifically boost Spain and Italy in their environmental (Renewables, home energy efficiency, rail) and digital sectors.
Webinar 1 – June 29th, 2020 11:00 CET: Alice in BubbleLand
In our first webinar, in a Covid-19 world, we analyze the recent events and present our long term views and our tactical ones. Without too much spoiling our conclusions, welcome in Alice in BubbleLand.
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Letter 47 – June 15th, 2020: Wave IV and a bearish view on Japan
The S&P500 has finally managed to correct and it was not done in a shy way. Equity markets were fully priced for a quite normal return to growth and corporate profitability; so when some US states like florida, texas or California warned of a resurgence of the Coronavirus, high to current price corrections ranged from a -10% S&P500 drawdown, to virus-epicenter sectors (Airlines, Hotels/Restaurants/Leisure) down 15-35%. What we expect for the coming days:
Letter 46 – June 8th, 2020: The new BULL is a possible BUbbLe
The rebound of the S&P500 is so strong that it finds no parallel with bear markets’ rebounds since 100 years. Unlike now, most Bear markets restart at best at the 61.8% fibonacci retracement (like in 2008). The various past Bear markets are shown below: (1) 1987 with an identical 34% drawdown but a stock market that will take years to recoup its high, (2) October – December 2008 Bear market rebounds and stops at 61.8% fibo retracement before losing more than 60% high to low, (3) 2000 bear market starts with a less pronounced sell-off but steadily falls, and (4) 1929 with an exact sell-off and first rebound but comparaion stopping there. Instead, the current best comparaison is the start of the BULL market starting 06 March 2009.
Letter 45 – May 11th, 2020: it ain’t over till it’s over
Economic data is ugly, with US unemployment up to 14.7% for April and the global composite PMI marking its largest one-month decline to a level of 26.5. The market divergence with this economic weakness and earnings downgrades is apparently justified by record policy easing and liquidity boosts. Furthermore, the perception of an exogenous or one-off impact of COVID-19 is reassuring investors. What our matrix, technical and sentiment analysis suggest us?
Letter 44 – April 13h, 2020: a new cycle is starting
The Economics grade of our matrix is maximum bearish as should be the case in a “despair” market regime. But, after the darkness, we always get the dawn, which we define as “hope” in our 4 phases’ economic cycle. The switch from despair to hope is often identified afterwards. For that, one should ask the question whether we have already reached the low – the current rebound is denied by most and hoped by some. In the current extraordinary development, the switch from market regime may coincide with a switch of cycle, meaning rolling from a cyclical bear market to the return of the 2009 structural bull market that should end only in 2029.
Letter 43 – March 16th, 2020: Trader’s time
These 2 weeks’ tape with the daily returns of the Dow Jones, shows the increasing close to close volatility on the downside but also upside. On up days, the pattern is: open up big, fade, hold the previous day lows, rally hard into the close – on down days: continuous sell-off with an intraday rebound at US lunch, or 30 minutes before the European close.
Letter 42 – March 2nd, 2020: Autopsy of a crash
The scale and speed of Global equities with the Dow Jones Industrial Average Down 3,583 points, or 12%, last week is nearly unprecendented. In fact, It is the steepest weekly percentage decline since the financial crisis. Since January, we have been Right but too early in our tactical calls…
Letter 41 – February 27th, 2020: from (v) to v
The correction we expected until the March 3rd 2020 Democratic Party presidential primaries, towards 3170 has been steep, fast and outpaced our target with a low at 3109. We now expect a rebound until the end o April, driven by emerging markets and specifically Chinese equities.
Letter 40 – February 17th, 2020: from (iv) to iv
The correction has stopped at the start of February and Bulls are benefiting from one of the strongest trends in history, helped by financial conditions that are about as good as it ever gets. We expect another correction until the March 3rd 2020 Democratic Party presidential primaries, towards 3170. This new correction is following the wave iii just as the correction from January 22nd, 2020 to January 31st followed the wave (iii).
Letter 39 – February 3rd, 2020: Right for the wrong reason
We had anticipated a correction on US and European equities at the start of the year and have been proven right only in these last 2 days. We argued this correction was inevitable as sentiment was too exuberant. But from the start of the year to before yesterday, the S&P500 rose relentlessly as much as 3% as technical targets were not only reached but outpaced. In fact the correction we expected happened to the region where our matrix was looking for an entry level: Asia and more specifically China.
Letter 38 – January 20th 2020: The year of the Rat – Our 2020 convictions through our quantamental process
Following our recent presentation at the Metropole Hotel, we explain in this letter the different convictions for the year of the Rat.
Letter 37 – January 06th 2020: Fade Iran but sell any rallies !
One of the biggest risks today may be that stocks have already priced in much of the good news. Fresh stimulus, trade deals and Brexit fed 2019 market enthusiasm and was expected by most to spill over into the new year. But, attention abruptly shifted to the Middle-East and the risks of greater conflict there after President Trump ordered the strike that killed Qassam Soleimani, the leader of Iran’s Islamic Revolutionary Guard Corps’ foreign wing.