Financial News vs. Noise
In the news:
Magnificent 7 Stocks: Expect The Consensus To Be Wrong Again-Schwab Network
Tuttle launches inverse leveraged regional banks ETF-ETF Strategy
Nice shout out from Darin Tuttle (no relation) in his newsletter about the National Security Index ETF (NSI):
A New Era in Global Investing: National Security
Friday was the first big data point of the month, this week is the next with CPI and PPI. To level set where we are at the moment I think interest rates are the most important thing the market is looking at. Yes, there are other issues that could rise up, but for now those are all just eye candy. When and how much the Fed cuts is the key issue. Coming into year end you had market expectations exceeding what the FOMC was saying. Ironically we had the same issue at the beginning of last year. We started to see bond traders shift their expectations down, and interest rates higher. Then we had hawkish Fed minutes. I am not sure Friday’s NFP report told us anything helpful. Nickileaks seems to agree
Yes, the headline number was hot, and the market initially sold off on it. However, the prior two months were revised down and you kind of have to assume this month’s number will also get revised down. According to zero hedge 10 of the last 11 months have ended up being revised down.
I hate Fed heads. Dallas Fed President Logan warned that recent easing of financial conditions risk causing a reacceleration of inflation, which could warrant more hikes, but also suggested that it’s time to slowdown the pace of QT. Hawkish and dovish in the same sentence, do with that as you will.
The 10 yr yield did close above 4%, but it closed off the highs.
I mentioned on Friday that I would be watching precious metals, the 5 minute chart of GLD below is why. You can see it drop immediately after the number and then start to rally back. It moved above it’s 10 day moving average early in the day and then started to sell off. Precious metals will tend to be a canary in the coal mine about what traders are thinking about Fed policy and rates. This chart gave me a good sense that they were going to try to rally the market early and then gave a warning about upcoming weakness.
As far as the overall market goes here, one of the strategies I run filters the S&P for names where the weekly 2 period RSI is below 20, which on a weekly basis is pretty oversold. Last week we had 9 names, this week we have 69, including AAPL, AMZN, and MSFT. Another strategy I run uses Internal Bar Strength on 25 stocks and ETFs that tend to be mean reverting. 20 are technically oversold. Oversold can, and does, get more oversold, but anyone who understands mean reversion models knows they are correct 70-80% of the time. Trading isn’t about always being right, it’s about putting the odds in your favor.
So bottom line for me is with the market this oversold I don’t want to do shorting now. I did add some equity exposure and will be adding to my weekly RSI model this morning. I run a S&P put strategy that’s long puts also though.
I also got out of my UVXY puts and my long volatility models are getting real close to generating a signal. There are a bunch of reasons I love trading volatility products. First off, the ETPs are designed to go to zero and can have large declines even when the market sucks. Also, you tend to see volatility spike ahead of a number and then sell off. UVXY did that like clockwork on Friday. I watch the implied volatility on SPY puts and so far haven’t seen anything for CPI (1/11) but would assume that would spike at some point shortly. May be an opportunity to go long vol into the number and short vol after.
Looking at the charts, last week I mentioned that I was seeing a bunch of short signals in mega cap tech names, stupid me I only mentioned them, I didn’t actually short them. They are all still there, but now they are extended to the downside. If we do get an overall market pop I am probably going to look to add some shorts somewhere, unless the pop is due to a cold CPI. I am seeing a lot of 2 directional action, AMZN is a good example. It pulled an undercut and rally at it’s 50 day on Friday, technically a buy signal. It could bounce there and the 50 day could be your stop, or it could reverse and blow back through and trigger a short.
2 names to watch this week are CVE and TECK. They are in the commodity space, which I still continue to like, and they have had some unusual options activity. Anyone who has ever traded a stock just based on unusual options activity knows how unrewarding that can be, however, both of these industries have had some M&A activity, and somebody who knows always buys some options. Could be worth a flier.
So far this morning a lot of red, with some of my favorite areas-China, oil, and gold taking it on the chin.
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Matthew Tuttle is the Chief Executive Officer and Chief Investment Officer of Tuttle Capital Management, LLC.
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