Weekend Debrief For Oct 23 2022

Clearly the sentiment is to the downside. Markets have been very much leaning towards selling pops, especially going into the weekend. Nevertheless, what we saw today should resonate with the overall higher time frame view that we are looking at from a technical perspective.

First off, S&P completely reversed the entire Friday down move today. This is something to take note of because the markets have been more or less becoming less and less bearish with each selling iteration -- ie no follow through for more downside.

Furthermore, we are actually still right around the May/June low across a lot of assets. Why is this important? Well, the markets have really gone nowhere in months or even the last few quarters.

But what hasn't really changed? Well, interest rates. We have been looking for some kind of cooldown on the 10-year yield and this has not really come to fruition. You are having short-term rates yield close to 4%. When AAPL yields almost 4% at the same risk premium, what is really the incentive to buy? This kind of circular logic is what is running through investors minds. Why? Because the trade is going to happen all at once. You are going to live and die by the sword of either fixed income or equity risk premium, especially in stocks like AAPL.

What do I mean by this? Well, the relative strength is always going to be in beta when internet rate markets start to cool off a bit. There might be a one or two week period where this is not the case, but the gist is that lower interest rates = beta safe again. Of course, the first reaction to lower interest rates is going to be fixed income markets and then we will see if the equity markets will believe some kind of bottom is in.

Let's dive into some of the charts. Energy continues to the canary in the coal mine for inflation. Most of the longer term charts are holding firm and the recent test of moving averages on the energy side was successful for more upside

What is most interesting though, is the relative strength in Bitcoin. The idea that such a high beta asset has basically been unchanged for months in an environment when most 401k's are seeing close to a 30% drawdown. We have also started to see some strength in the alt coins like Tezos and ETH. I am still playing as a longer term investor on the crypto space with the idea of buying into declines for the long term. One could also make the case that there is some kind of bid in the crypto space due to the political tension in the Slavic region of the world. Transferring money in and out of the country is a difficult endeavor, with most western payment technology not functioning or blocked in mainland Russia.

Lastly, this is a market environment where the central banks are finally starting to care about what is happening with their currencies. With the dollar having so much strength, countries like Japan for example are now seeing this impact their growth and import/export bargaining power. The idea that the BOJ won't be adamant in defending the 150 area on USDJPY seems a bit unreformed. Furthermore, I think that this is going to be a coordinated effort across most central banks to try and tame markets from being so one directional.

https://twitter.com/MacroTactical/status/1584293790944153600

Nice thread above giving some credence to the discussion.

Speaking of individual setups, REPL looking really good

AAPL another name with relative strength and back above the 9/20 EMA.

Why am I honed in on this? Look at the AAPL/SPY ratio. This could have some serious alpha while that ratio is breaking out and retested to the upside.

UNH another alpha name, strong chart

ABBV strong as well

Anyway, a lot of our ideas are playing out from a broad market perspective here, with most of the trades being well in the money. I will keep everything updated in Discord.