Ready, set, organize! : get your stuff together, P & P Campbell, 1996
In this issue:
Sept - Oct forecast for equities: down then up
Some classy oil shorts that burned some equity…
Risk Index
Under 50 = accumulate, over 70 = defensive, over 90 = distribute
The Risk Index is a combined read of the trends of 68 intermarket spreads and indicators, from credit spreads in the US to car sales in Spain.
Not much change: The Risk Index called for weakness within the following 6 months back in June and it seems like we’re in the midst of that now. It would be great to see the Index move far lower and signal a buy in a few months. Currently, no-man’s land, but evidence points to more downside in the short-term.
Any key inputs?
FED on Wednesday
BoE Thursday, just for a bit of extra spice
PMIs Friday
Expectations are currently that the Fed will stand pat but will leave the chance of a raise at the next meeting on the table. Rate projections are out this meeting as well. Although they always downplay their significance, given their inflation-frantic spectators, these will be poured over to try to ascertain how the Fed sees the path of inflation over the coming year+.
Expect intraday volatility as usual, and odds of a move down in equities once the dust settles, purely due to seasonals.
Seasonals still weak
A look around a few seasonal charts this week, starting with the S&P:
Monthly % changes of the S&P, going back around 100 years (the %’s change depending on what years are kept in but the Q3 weakness and Q4 strength is pretty robust).
I’ve also popped the outliers count along the bottom (months more than 2.5 standard deviations up or down). As per my last post, beware: volatility is likely Sept & Oct. Those 6 negative outliers clearly influencing the seasonal record for September, but similarly 5 positive outliers showing October likes to bounce back.
slightly basic analysis there, but overall odds are of some more weakness between now and early October, and if we get that, then there should be a good buy around the corner as well.
European equities (going back to around 1970) showing a similar pattern
Oil is interesting, given it has been marching higher. The next few months are poor months for oil seasonally. It feels very hard to get short oil just now - must admit I’ve tried twice already - but I’m still on the lookout for a blow-off up day into a key area to see if seasonals will help a short trade.
Oil daily, with my two ill-fated entries so far.
Note the second one, where following my rules = around -1R loss. Ignoring them would have left me stopped out at my disaster stop; -4R.
I’ll be looking at another entry around $94 if there is a large intraday move into that area.
Bond yields have been holding up over what is usually a seasonally weak time and are heading into more favourable territory.
The event of yields breaking yet higher at this time of year has a good chance of killing the ‘we’re bullish, market doesn’t care about inflation’ narrative.
German bond yields like October as well:
Quote to Self
My posts have become infrequent, mostly due to priorities shifting as I get dug into the world of tech startups. However, this also melds well with my trading style. I take trades once or twice a month at most, and I don’t see short-term patterns: I’m more interested in (and have more belief in) longer-term moves. So, I’ll continue this frequency of posting. Posting when it matters.
Aside from the oil trades mentioned above, I’ve been short the Russell 2000 for a few months, since noting the short setup in Trader Diary in July. I closed out some of this late August and added on the bounce as planned (noted here). I am still short Russell and have a small short S&P. This add of the S&P is a NASDAQ play as I expect real weakness to only come when the ‘big boys’ properly drop. S&P was a better-looking technical trade on the day.
FX has been interesting, as DXY never sat around to offer an easy entry before bouncing. Often a sign of a strong trend. Given that the Fed is on deck this week, I’m on the lookout to get in long USD versus commodity currencies, though happy to keep playing short equities if nothing else tees up.
"Time management is an oxymoron. Time is beyond our control, and the clock keeps ticking regardless of how we lead our lives. Priority management is the answer to maximizing the time we have."
~ John C. Maxwell ~
Have a great week.