Sunday, April 19, 2020

 

Dear Reader,

 

Please find below our latest Weekly Trend Update Report covering major asset classes and currencies.

Have a pleasant week end.

 

Marc Bentin

Bentinpartner GmbH

 

 

       

Trend Status Update

 

After dropping rather precipitously on Wednesday as D. Trump vowed to act in violation of the US constitution to force US Governors to end confinement and as oil prices failed to stabilize, equity markets rallied on Thursday night and then again on Friday on a mostly constructed bullish narrative. First was a press conference promising that many states would soon be “freed” (meaning taken out of confinement). Second was a rumour (later downplayed by the company itself) that a Gilead trial for its drug Remdesivir would turn out to be an effective treatment in fighting Covid-19. Last but not least on Friday came news that Boeing would soon restart production. This was welcome news for 27k workers going back to work but the unanswered question remains where those planes will be stored because few people  need more planes as few people will buy them with very few people flying and those who do probably rather flying on something else than a 737max… Boeing which is already on life saving support from the US government most likely did what it was told to do which is to restart building planes. Boeing shares rallied 14%. In the afternoon on Friday, the market zig-zagged with aapl a bit weaker on a downgrade from Goldman Sachs until a ramp job in the last hour boosted the indices back to the morning highs, leaving investors in a good spirit for the week end.

Nobody knows where we are and where we go. Those who expected stocks to further drop last week (Goldman) with S&P forecast at 2000 are now revising their outlook, expecting the S&P to squeeze towards 3000 before an even harder fall. In other words, everybody has moved to ‘trend following’ or CTA driven (those ignoring mass layoffs tracking instead if others are buying(selling) at which point they too join the buying (selling))…because there is nothing else to do.

As my readers know, I have some sympathy with trend following or automatic investing (the whole idea behind Trend Model Updates).

Not the whole but the skill part (still accessible to humans) of Trend Following is to front run some of these trend signal changes across asset classes before they are triggered so as to beat the robots. This skill can be applied and has some usefulness when markets trade “continuously” but stops operating when the speed of adjustment and volume occur too rapidly in no time nor volume. At this point the market moves “discreetly” as opposed to “continuously” and ....it is broken. When it does so on a constructive and mostly false narrative (“We have got a vaccine”, “we end lockdown because the danger is over or manageable without it”, “Boeing restart producing planes, let’s buy hotels and tourism names”), it is twice broken, and when it does so on moves of high amplitude and no volume, it is three times broken.

Unfortunately, that is where we are.  We are also right in the middle of a clash between mostly bullish technicals (CTA trend followers) and mostly bearish fundamentals (Hedge funds for now), oscillating between FOMO, horrible fundamentals, no visibility and mostly positive technicals (for now).

In the meantime, we should try to stay away from that bug. If/when we catch it, we’ll give it the fight as well.

 

 

Over the past week, the S&P500 rallied 3,0% (-10,9% YTD) while the Nasdaq100 rallied 7,2% (1,3% YTD). The US small cap index dropped -1,3% (-26,3% YTD).

While stocks rallied on corona related optimism, the overall strength of the market came mainly from “stay at home” stocks, mostly FANGS (a now 10-year-old pattern) as investors kept flocking to the same handful stocks.

“With 9% of S&P 500 firms having already reported Q1 earnings including all of the major banks, results have generally disappointed relative to already tepid expectations. 43% of companies have missed consensus expectations, on pace for the highest rate since at least 1998 with earnings set to drop by 15% Y/Y, but it's Q2 where the real pain will be with Goldman now expecting S&P 500 to plunge by a record 123% plunge”, ZH reported.

CBOE Volatility Index sold off by -8,4% (176,9% YTD) to 38,15.

The Eurostoxx50 gained 1,3% (-22,4%), underperforming the S&P500 by-1,8%.

Diversified EM equities (VWO) rallied 2,3% (-19,9%), outperforming the S&P500 by -0,7%. CSI300 Chinese equity index (ASHR) gained 1,0% (-9,0%), still the top performer in this year’s difficult markets. Indian shares (EPI) gained 2,0% (-29,8%). Russian shares (RSX) sold off by -2,1% (-26,4%), dragged down by ever lower oil prices but with losses that were mostly contained.

 

The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,2% (4,0%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) dropped -0,5% (-6,0%). EURUSD dropped -0,6% (-3,0%). EURCHF dropped -0,5% (-3,1%). EURJPY dropped -1,4% (-4,0%). EURGBP dropped -1,0% (2,8%).

The euro weakened slightly and across the board with debt mutualisation still not flying (corona bonds) and a small spread widening in Italy wrongly portrayed as a potential EU breaker, or clamoured to be as such, including by a EU core country (France) that was never really able to vow or show  restraint at the first place and now wants debt mutualisation at all costs to ease off pressure on Italy while keeping an eye at potential threats on its own signature. The ECB will keep buying these national signatures as long and as much as needed as a short-term relief. Rules of the stability pact should and will be eased to account for the situation (debt/GDP ratio target of 60%; national deficit of 3% max) but collective debt issuance is what profligate states have wanted all along and the Corona crisis should not be seen as the excuse to throw (past and future) restraint under the bus. On Friday, Bundesbank President J. Weidmann praised euro-area governments for “significant, impressive” spending in the fight against the coronavirus, but warned that they’ll need to tighten their budgets once the emergency has passed, Bloomberg reported.

Dollar bulls should also not think too hard about what a potentially 20% US fiscal deficit this year (to be monetized by the Fed) and further debt monetisation of junk bonds (all shale oil producers at current oil prices) could do to the intrinsic and future nominal value of the USD (knowing that it constitutes 60%+ of world reserves). The value of the USD is an accident waiting to happen and the moment to diversify is now, in our view, with some trading required around core positions as an indispensable risk mitigating strategy if this diagnostic fails to be wrong on timing. The same idea is still floating of a big synthetic short position from EM countries that have borrowed in USD that should prevent the dollar from weakening.  It could be relieved two ways; by either waiting for the USD to weaken or, if under too much pressure due to a rising dollar, by defaulting on foreign debt which would extinguish this USD liability…and the need to have to buy it back. Maybe this is the cure awaiting half the nations asking for an IMF bailout. Perhaps it would be easier to pursue debt relief (which Western countries will apply to themselves at the first place with 0% debt funding and central bank monetisation) than ever higher SDR funded IMF bailouts.

 

10Y US Treasuries rallied -8bps (-128bps) to 0,64%. 10Y Bunds dropped -13bps (-29bps) to -0,47%. 10Y Italian BTPs underperformed rising 20bps (38bps) to 1,79%, outperforming Bunds by   -4bps.

US High Yield (HY) Average Spread over Treasuries dropped -80bps (369bps) to 7,05%. US Investment Grade Average OAS dropped -18bps (102bps) to 2,03%. US High yields looked at rallying stocks for sentiment rather than the cratering oil prices last week, supported by the ongoing high yield debt monetisation efforts.

In European credit markets, EUR 5Y Senior Financial Spread climbed 7bps (50bps) to 1,02%.

 

Gold dropped -0,8% (10,9%) while Silver sold off by -2,5% (-15,0%). Major Gold Mines (GDX) rallied 3,4% (2,3%).

 

Goldman Sachs Commodity Index sold off by -4,6% (-41,4%).

Oil fell sharply in particular WTI crude by -19,7% (-70,1%) despite last week end’s historical(cally ineffective) OPEC++ deal to cut production by 9.7m bd. With demand destruction of USD29mn bd and storage capacity reaching saturation, the odd man out in last week’s constructed narrative remained tumbling oil prices which dropped a further 14% on Friday. With the chart below in mind, one should perhaps imagine some invisible hand buying millions of barrels of oil or associated ETF’s which saw the highest inflows ever on… collapsing prices last week. Rolling oil futures would be equally ineffective and costly (this would not matter if it could be effective) in an oversupplied cash market (rolling the crude oil curve looks like jumping off a cliff), making intervening in oil prices a  more challenging endeavour than  stocking more 0 and 1’s on a custody account after intervening in bonds and high yield ETF’s (and equity futures).

 

 

Global demand for oil in April is forecast to drop by a record 29M bbl/day to levels not seen in a quarter century, the International Energy Agency said, part of a set of dire estimates that executive director F. Birol called "staggering." "When we look back on 2020, we may well see it was the worst year in the history of global oil markets, [and] April may well have been the worst month," F. Birol said following the IEA's release of its monthly oil report.

 DBA dropped -0,9% (-17,6%).

 

Over the week end…

 

France will unveil within two weeks a plan to progressively lift restrictions on travel and business that aimed to curb the coronavirus epidemic, Prime Minister Edouard Philippe said on Sunday. “Our lives won’t be exactly the same as before,” Philippe warned.

 

Marking an interesting U turn and switch of mind, D. Trump has decided that a muscular U.S. currency is a good thing after all. “The dollar is very strong,” he told a press conference on Friday. “And dollars -- strong dollars are overall very good.”

Mhhh…

 

 

 

 

Trend Score Card

 

 

 

 

Click here for technical annotations.

 

 

US & International Equities

Check out US and International Stocks’ Technical Trend Status.

 

Sector Trend & Momentum

Check equity sectors’ trend and performance …and when they break out!

 

Fixed Income

Check out 10Y US Treasury and Bund yields, their trend, expected Fed rate moves and speculative positioning in 10-year Treasury Futures.

 

US Recession Risk Radar

A comprehensive list of economic indicators to compare the current situation with previous recessions.

 

The Dollar

Check out where the Dollar stands Trendwise and Breakoutwise vs. G7 and EM counterparts.

 

Precious Metals

Check out where precious metals stand Trendwise and Breakoutwise. Get a sense of options (cumulative open interests on calls and puts) and futures traders’ sentiment (non-commercials open positions).

Check out how precious metals, the dollar and the Stock market correlate with each other and speculative futures positioning on Gold and the Dollar.

 

Why Trend Following Matters and How It Can Help You?

 

A disciplined and rule-based trend following investment approach can serve as an effective portfolio insurance technique.

 

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Our Portfolio Management and Advisory Services

 

BentinPartner GmbH is a Swiss registered independent financial adviser. We offer four different portfolio management mandates:

 

- The “Global Strategic” (GS) mandate invests your portfolio according to an optimized strategic benchmark. This allocation delivers the “beta” (or markets related) performance of your portfolio while we seek to generate additional “alpha” (“skills related) performance with tactical adjustments, using a predefined maximum “value at risk” envelope. Most of the portfolio’s performance is derived from the strategic Benchmark (beta).

- The “Global Tactical” (GT) mandate invests your portfolio without tracking a strategic asset allocation (or benchmark) and pursues a “total” as opposed to “relative” return objective. With this mandate, we seek to beat the best of “cash” or of the MSCI World Equity index, applying mostly tactical considerations, using a predefined maximum “value at risk” envelope and targeting not to exceed a predetermined overall portfolio volatility.

- The “Trend/Momentum” (TM) mandate, builds a diversified “All Weather” investment portfolio and applies a rule-based Trend/Momentum methodology to adjust this “trend neutral” allocation. We track trends across asset classes on a daily basis and adjust your portfolio in a semi automatic (there is always a pilot in the plane) fashion applying trend changes signals.

- The “Currency Overlay” (CO) mandate seeks to generate “alpha” applying a currency overlay with a limited leverage (not exceeding 100% of NAV). You control the portfolio allocation (which can be a pool of cash, stocks, bonds or gold) and we manage in overlay the FX exposure of your portfolio, seeking to add a total FX return of 4% to 7%.

 

For more information on our risk management and investment methodology, please check our web site.

 

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© Copyright by BentinPartner llc. This communication is provided for information purposes only and for the recipient's sole use. Please do not forward it without prior authorization. It is not intended as a recommendation, an offer or solicitation for the purchase or sale of any security or underlying asset referenced herein or investment advice. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situation, investment horizon and particular needs. This report does not include information tailored to any particular investor. It has been prepared without any regard to the specific investment objectives, financial situation or particular needs of any person who receives this report. Accordingly, the opinions discussed in this Report may not be suitable for all investors. You should not consider any of the content in this report as legal, tax or financial advice. The data and analysis contained herein are provided "as is" and without warranty of any kind. BentinPartner llc, its employees, or any third party shall not have any liability for any loss sustained by anyone who has relied on the information contained in any publication published by BentinPartner llc. The content and views expressed in this report represents the opinions of Marc Bentin and should not be construed as guarantee of performance with respect to any referenced sector. We remind you that past performance is not necessarily indicative of future results. Although BentinPartner llc believes the information and content included in this report have been obtained from sources considered reliable, no representation or warranty, express or implied, is provided in relation to the accuracy, completeness or reliability of such information. This Report is also not intended to be a complete statement or summary of the industries, markets or developments referred to in the Report. 

 

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