Market Outlook April 02, 2018

Technical Indicators

All of the indexes we follow have turned to bearish signals on daily timeframes. HACK remains the only index with a ‘buy’ rating on weekly timeframes.

With the exception of BOND, all indexes we follow still have buy ratings on monthly timeframes.

 

-2 = strong sell
-1 = sell
0 = neutral
1 = buy
2 = strong buy

Score gives 3x weight to 30-day indicators and 2x weight to 7-day indicators.

What others are saying

1 . Old Prof cautions about short-term trading, though believes long-term fundamentals remain positive.

Short-term trading conditions worsened this week. In mildly bearish conditions our trading approaches can still be profitable, but that might not be true for everyone. We continue to monitor the technical health measures on a daily basis. If this indicator goes to fullish bearish, we liquidate trading positions. This is not a forecast that the market will decline. It indicates increased difficulty in trading profitably.

The long-term fundamentals and outlook are little changed. The FOMC decision flattened the yield curve a bit, and that is one component of the C-Score. Based upon historical data for this indicator, I have increased the 9-month recession probability to the 18% range. I am monitoring, but not yet especially worried. Please see James Picerno below.

He also warns that Canadian marijuana stocks may be overvalued:

Pot stocks, according to a cover story in Barron’s. Bill Alpert analyzes the Canadian stocks, comparing valuations to other markets like gold and alcohol. He writes:

As they often do, investors have celebrated this emerging business early by embracing Canadian companies that claim a cannabis connection. Traveling in Canada, cabbies, bankers, and even border guards will tell you their favorites in a bubble that has floated Canadian cannabis stocks to a collective stock-market value above $30 billion. That’s already about half the market capitalization of Canada’s gold mining industry.

 

 

2. At StockTrader, Mark Hanna writes about the potential huge surge in corporate earnings:

2018 will be the year the massive corporate tax cuts boost earnings.

According to FactSet, earnings for companies in the S&P 500 are expected to grow 17.3% in the first quarter. Not only would that represent the fastest pace of profit growth since the first quarter of 2011, but expectations have been swiftly ratcheted up over the past few months. At the end of December, analysts were expecting a growth rate of 11.4%. Much of that increase was due to the recently passed tax-reform bill.

Stocks

  • Solar stocks like SEDG and RUN are holding up well in a volatile market
  • OSTK is down over 40% over the 30 days
  • BSBR (banco santander) has been added to our watchlist after reaching new all time highs with an attractive P/E ratio of ~16. More research to be conducted.

Outlook

Remaining mostly invested and looking into income producing assets and real estate projects to hedge should the market continue showing signs of weakness.

 

Market Outlook March 26, 2018

Technical Indicators

Trading View technical indicators point to sell for daily timeframes, with a mix of buy and sell among weekly timeframes among various indexes. Most indexes remain with a buy indicator evaluated on monthly timeframes.

Notably, SPY has a Strong Buy recommendation on the 30-day timeframe. BOND remains to have very negative technical indicators.

VIX has picked up considerably. In this case, buy and strong buy may be considered inversely when looking at outlook for the general market.

-2 = strong sell
-1 = sell
0 = neutral
1 = buy
2 = strong buy

Score gives 3x weight to 30-day indicators and 2x weight to 7-day indicators.

What others are saying

1 . Old Prof remains bullish on the market:

Short-term trading conditions improved again this week. Once again this shows why you need objective indicators rather than relying on your impressions about events. We continue to monitor the technical health measures on a daily basis.

The long-term fundamentals and outlook have been unchanged through the recent bout of volatility.

He also advises to watch the potential trade wars and to remain be weary of negative headlines:

Impressionistic reaction to headlines should not drive your decisions.

2. David Templeton at DisciplinedInvesting writes that the market appears oversold in the short-term and relatively normal long-term:

On a short term basis the indices appear to be oversold. One measure to evaluate is the percentage of stocks trading above their 50 and 200 day moving averages. The first chart shows only 15% of S&P 500 stocks are trading above their 50 day moving average. The chart shows that this measure can get reach the single digits, but mid to low teens is one indication of a short term oversold market.

Conversely, the percentage of stocks trading above their 200 day moving average is 51%. This percentage falls in the lower end of a long term range, with some oversold levels reaching into the mid to upper teens though.In other words, short term, the market appears oversold, but on a longer term basis, not so much.

3. At TraderFeed, Mark Hanna speculates as to the reasons for the recent volatility (trade wars, facebook, etc.), though there’s always a reason to be found to confirm positive or negative movements, and rarely are they correlated. Regardless, the outcome was a bad week:

Whatever the case, the market suffered badly this past week.    Facebook (FB) and it’s scandal hurt the NASDAQ early in the week, then #TRADEWARS(tm)! hurt Thursday and Friday.   The S&P 500 fell 6.0%! and the NASDAQ 6.5%! on the week

He goes on to point out that things still look good on a long-term basis:

Long term: Even after a massive one week selloff, the NASDAQ is only in the middle of a massive uptrend in it’s weekly chart.

Outlook

We are remaining mostly invested in the market. There are many headlines about a potential negative turn, yet there doesn’t seem to be any underlying reason and certainly no evidence of a long-term downward trend. While there is that possibility, it appears the risk is relatively low and there’s a strong chance of a continue bullish trend overall in markets.

 

Cryptocurrency and Bitcoin in Google Trends

Inspired by a post at WooBull on using Google Trends to detect Bitcoin price bubbles, here’s an updated Google trends graph of the terms “BTC USD” and “cryptocurrency”, which we added for comparison sake.

Predicting where the stock market will go is futile

Good perspective on how to view the stock market from Vitaliy Katsenelson. This was written a few weeks ago after the “correction” early in February:

Nobody but nobody knows what the stock market will do tomorrow, next week or next year. Stock market behavior in the short term is completely random. Completely! You’ll have a better luck predicting the next card at a black jack table than guessing what the stock market will do next.

What will the stock market do next? It’s the wrong question. It’s the question that should never be asked, and if asked should never be answered. Asking this question shows that you believe there is some kind of order to this random madness. There is not. And if you answer with any answer other than “I don’t know,” you’re a liar.

via What will the stock market do next? at Vitaliy Katsenelson Contrarian Edge

On the benefits of trend following investing

The consistency of a trend following strategy’s relative performance vs a 60/40 portfolio (impacting the ability for investors to stick with trend following) is the basis of an argument that’s taken place offline (yes, I also argue offline) with a FinTwit friend who is a huge proponent of buy and hold. It’s progressed to the point that we’ve discussed making a mini (very mini) Buffett style bet related to whether trend following or a 60% US Stock / 40% Bond allocation will outperform over the next five years (with money going to the winner’s charity of choice).

via The Behavioral and Performance Benefits of Trend Following at

Bitcoin moving closely with $SPY

Bitcoin’s case as a store of value has not proven especially strong in the past month, as it’s typically gone the way of $SPY.

Bitcoin and stocks bottomed at almost exactly the same moment. This is bad for Bitcoin. Part of Bitcoin’s appeal is that it is weird, and perhaps does not covary with standard financial assets in traditional ways. But at least yesterday it did, and that should be a force pushing Bitcoin lower.

via Bitcoin and covariance at Marginal REVOLUTION

In US, working age population is larger than ever

From Prime Working-Age Population At New Peak, First Time Since 2007 at Calculated Risk:

The U.S. prime working age population peaked in 2007, and bottomed at the end of 2012. As of January 2018, according to the BLS, for the first time since 2007, there are now more people in the 25 to 54 age group than in 2007.

Demographics is a key reason GDP growth has been slow over the last decade.

Changes in demographics are an important determinant of economic growth, and although most people focus on the aging of the “baby boomer” generation, the movement of younger cohorts into the prime working age is another key story. Here is a graph of the prime working age population (25 to 54 years old) from 1948 through January 2018.

As pointed out in the original post, the size of this group surged in the 70s, 80s, and 90s, something not always considered when comparing GDP. This could be a sign of increased GDP in the years to come, though the last time this group peaked in population was 2007.

How velocity effects crypto value

Here’s a post from Alex Evans on how velocity effects value in On Value, Velocity and Monetary Theory

The core thesis of current valuation frameworks is that utility value can be derived by (a) forecasting demand for the underlying resource that a network provisions (the network’s ‘GDP’) and (b) dividing this figure by the monetary base available for its fulfillment to obtain per-unit utility value. Present values can be derived from future expected utility values using conventional discounting. The theoretical framework that nearly all these valuation models employ is the equation of exchange, MV=PQ.

Given how important value has become in most attempts to value crpyto assets, it’s an important discussion:

 The uniting argument in the above articles is that tokens that are not store-of-value assets will generally suffer from high velocity at scale as users avoid holding the asset for meaningful periods of time, suppressing ultimate value. My claim here is that this thesis is directionally correct, but hard to operationalize.

Short-hacking?

In recent weeks, Matt Levine has written about two potential ways of driving a stock price down. The first via literally hacking into computers:

Joshua Mitts and Eric Talley of Columbia — discussing a different approach, which is that you could just trade on the fact that you could hack into the computers. Then you can disclose the hack and hope that the company’s stock will go down. Cybersecurity breaches tend to be bad news. This approach is … look, I have my doubts about how lucrative it is; cybersecurity breaches tend not to be such bad news … but it has the advantage of not being blatantly illegal. Of being legal? I mean, that is not legal advice, but her

In the second case, it’s not so much true hacking, rather it’s akin to growth hacking.

Shares of the Snapchat parent company sank 6.1 percent on Thursday, wiping out $1.3 billion in market value, on the heels of a tweet on Wednesday from Kylie Jenner, who said she doesn’t open the app anymore

So I am inclined to allow it, though I am of course neither your nor Kylie Jenner’s lawyer. But as a way to profit from celebrity, shorting a company’s stock and then being mean about its products on social media seems pretty easy, and the markets would be more amusing if someone tried it. Social media companies profit because their users provide content for free; I like the idea of the users profiting by deciding to stop.

 

If the ICO craze is over, what’s next?

Is the ICO craze over? From a recent Token Economy newsletter:

However we are coming across more and more projects avoiding public sales all together, opting instead for phased out private-only rounds structured as traditional equity rounds or SAFTs/private pre-sales, or a combination of both in sequence. Data provided by our friends from Tokendata show that, in January, $180 million worth of capital was raised by projects that had initially planned a public sale, but eventually cancelled it and raised privately. These include Olympus Labs, Nucleus Vision, Coinfi, Shipchain and a bunch of others (not going to lie, we had not heard of most of them). Of the balance, anecdotally 50–75% was possibly raised via private pre-sales.

They speculate it’s due to regulatory fear, influx of institutional money, huge capital due to increase in value of $ETH, and a handful of other factors, including “more sanity” among founders (ha!).

What this means is unknown, though have some well-reasoned predictions including alternative distribution models where real usage is the goal, increased transparency from quality projects, and a boom in the fully compliant tokens.

Fully-compliant is one thing; proving worthy of the funds raised will be a big task this year. Many projects will not survive and that trend will begin to hurt wavering projects, where token holders decide to sell before value goes to zero.