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$PSTG: PURE STORAGE for them, PURE TENDIES for you
This is actually my first DD I've ever posted so fuck you and forgive me if this doesn't work out for you.I've been looking at $PSTG for a while now and if my buying power didn't get so fucked from my decision to buy 8/7 UBER puts, I would have been already all over this play. What had got me looking into Pure Storage was an unusual options activity alert. I've looked into this company before but didn't entirely understand what they do. Now after looking at them again, I'm still not exactly sure wtf they do....BUT I've gotten a better clue. Basically what I got from my research is that these guys fuck with "all-FLASH data storage solutions (enabling cloud solutions and other low-latency applications where tape/disk storage does not meet the needs)."......and ultimately what this all means to me is that these are the motherfuckers making those stupid fast laser money printers with the rocket ships attached. And that's something I'm interested in. Now, here is the DailyDick you all degenerates have all been fiending for: Fundamentally: PureStorage remains one of the few hardware companies in tech that is consistently growing double motherfucking digits, yet remains constantly cucked and neglected by investors (trading at 1.9x EV/Sales). https://preview.redd.it/ek7ugjsewnf51.png?width=1118&format=png&auto=webp&s=f9c7e72c95e450a105e44223937422d896eeeb21 The 36 Months beta value for PSTG stock is at 1.62. 74% Buy Rating on RH. PSTG has a short float of 7.28% and public float of 243.36M with average trading volume of 3.16M shares. This was trading at around $18 on Wednesday 8/5 when I started writing this and as of right now, it's about $17.33 💸 The company has a market capitalization of ~$4.6 billion. In the last quarter, PSTG reported a ballin'-ass profit of $256.82 million. Pure Storage also saw revenues increase to $367.12 million. IMO, they should rename themselves PURE PROFIT. As of 04-2020, they got the cash monies flowing at $11.32 million . The company’s EBITDA came in at -$62.81 million which compares very fucking well among its dinosaur ass peers like HPE, Dell, IBM and NetApp. Pure Storage keeps taking market share from them old farts while growing the chad-like revenue #s of 33% in F2019, 21% in F2020, and 12% in F1Q21. Chart of their financial growth since IPO in 2015: https://preview.redd.it/gwlmy82v4nf51.png?width=640&format=png&auto=webp&s=b6508cd5f641da4086b70d8b8007da034e982fd7 At the end of last quarter, Pure Storage had cash, cash equivalents and marketable securities of $1.274B, compared with $1.299B as of Feb 2, 2020. The total Debt to Equity ratio for PSTG is recording at 0.64 and as of 8/6, Long term Debt to Equity ratio is at 0.64.Earning highlights from last quarter:
Revenue $367.1 million, up 12% year-over-year
Subscription Services revenue $120.2 million, up 37% year-over-year
GAAP operating loss $(84.9) million; non-GAAP operating loss $(5.4) million
Operating cash flow was $35.1 million, up $28.5 million year-over-year
Free cash flow was $11.3 million, up $29.0 million year-over-year
Total cash and investments of $1.3 billion
I bolded the Subscription Services Revenue bullet because to me that's a big deal. Pure Storage keeps them coming back with products such as Pure-as-a-service and Cloud Block Store and everybody knows that the recurring revenue model is best model. Big ass enterprises buy storage from vendors such as Pure Storage in the cloud to prevent vendor lock-in by the cloud providers. $$$ >!💰< What are Pure Storage's other revenue drivers? Well these motherfuckers also have the products to address the growth of Cloud storage as well as the products to drive the growth of on-prem storage. For on-prem data center, Pure sells Flash Array to address block storage workloads (for databases and other mission-critical workloads) and FlashBlade for unstructured or file data workloads. On-prem storage revenue is mainly driven by legacy storage array replacement cycle. https://preview.redd.it/01su6chrwnf51.png?width=1129&format=png&auto=webp&s=16e6a705f9392291bc0c3932c815802d9101365e So far, it seems like Pure Storage's obviously passionate and smart as fuck CEO has been spot on with his prediction of the flash storage sector's direction. Also seems like he's not camera shy either. Pure Storage's "Pure-as-a-Service and Cloud Block Store" unified subscription offerings is fo sho gaining momentum it. This shit is catching on with enterprises, both big and small. COVID-19 increased the acceleration of our digital transformation and the subsequent shift to the cloud. This increased demand in data-centers is going to drastically help Pure Storage's future top and bottom line. To top it off, NAND prices are recovering! (inferred from MU earnings). I expect Pure Storage to get some relief on the pricing front because of this which obviously in turn should improve revenues. PSTG's numbers look pretty good to me so far but are they a good company overall? Even when scalping and trading, I don't like to fuck with overall shitty companies so I always check for basic things like customer satisfaction, analyst ratings/targets, broad-view industry trends, and hedge fund positioning.. that sort of thing.Pure Storage stands out in all of these fields for me. https://preview.redd.it/4n0e5nve5of51.png?width=373&format=png&auto=webp&s=495416bb6f5a2dab77f3ac483ca4d9510b39037c Customers like Dominos Pizza and many others all seem to be happy AF with no issues. I can hardly even find a negative review online. Their products seems to be universally applauded. Gartner and other third party independent analysts also consider Pure Storage's product line-up some of the best in the industry. The industry average for this sector is a piss poor 65.Pure Storage has a 2020 Net Promoter Score of 86 https://preview.redd.it/3w51io8yvmf51.png?width=698&format=png&auto=webp&s=4f7d06825d0ad9d126216e5069af2f9c3636f86a Enterprises are upgrading their existing storage infrastructure with newer and more modern data arrays, based on NAND flash. They do this because they're forced to keep up with the increasing speed of business inter-connectivity. This shit is the 5g revolution sort to speak of the corporate business world. Storage demands and needs aren't changing because of the pandemic and isn't changing in the future. The newer storage arrays are smaller, consume less power, are less noisy and do not generate excess heat in the data center and hence do not need to be cooled like the fat fucks at IBM need to be. Flash storage arrays in general are cheaper to operate and are extremely fast, speeding up applications. Pure Storage by all accounts makes the best storage arrays in the industry and continues to grow faster than the old school storage vendors like bitchass NetApp, Dell, HPE and IBM. Pure Storage’s market share was 12.7% in C1Q20 and was up from 10.1% in the prior year - LIKE A PROPER HIGH GROWTH COMPANY.HPE, NetApp and IBM, like the losers they are, lost market share.According to blocksandfiles.com, AFA vendor market share sizes and shifts are paraphrased below:
“Dell EMC – 34.8% (calculated $766m) vs. 33.7% a year ago
NetApp – 19.3% at $425m vs. 26.7% a year ago
Pure Storage – 12.7% at calculated $279.7m vs. 10.1% a year ago
DDDD - A Story of Oil, a Pandemic and Lockdowns, a Money Printer, and Tech Giants
In this week's edition of DDDD (Data-Driven DD), I'll be following up on a few posts I made a few weeks ago about what the stock market will look like over the next few weeks. Three weeks ago, I talked about the stock market needing consolidating, staying in between 272 and 293, which mostly stayed true (+- 2%). I then talked about the declining retail sentiment, which drove the stock market to euphoria levels, and how we won't be making any new highs in the bull rally we've been seeing any time soon, which also so far has held true. Let's take another look at potential catalysts that can cause us to break the channel that we've been in the past few weeks. Disclaimer - This is not financial advice, and a lot of the content below is my personal opinion. In fact, the numbers, facts, or explanations presented below could be wrong and be made up. Don't buy random options because some person on the internet says so; look at what happened to all the SPY 220p 4/17 bag holders. Do your own research and come to your own conclusions on what you should do with your own money, and how levered you want to be based on your personal risk tolerance. Oil The WTI June oil futures contract will be expiring on May 19th. Everyone around the world remembered what happened when May oil futures expired - reality caught up. While futures prices can be driven by speculation, on expiration, it will need to converge with the real price (spot price) of oil based on supply and demand for it. Let’s see how crude prices have been for the June contract. /CLM2020 Oil Futures Contango Looks like oil prices have recovered to pre-lockdown levels, with June contracts priced right under $30 / barrel. Super-contango seems to also be gone, with only a $0.09 difference between June and July contracts. Another way to think about this is that it should thus only cost $0.09 to store one barrel of oil for one month. Contrast this with April 21, where the difference between June and July contracts were more than $7 / barrel. This should put immense downwards pressure on oil storage spot prices, hence a decline in oil tanker stock prices due to expected lower revenue as a result of this. $EURN Daily So is the higher oil prices and decreased contango justified? Let’s look at some metrics published by the Department of Energy. Refinery inputs and production Crude Oil Stocks Crude Oil Spot Prices Crude inputs to refineries have decreased for the week of May 8 compared to May 1 by about 600kbpd, and is still below the 4-week moving average. Refinery capacity is also still moving on a downtrend, with a 68% utilization for the week of May 8, below the 71% utilization the week before and slightly below the 69% 4-week moving average. We do see a dramatic increase in motor fuel outputs, increasing by about 800kbpd in between weeks of May 8 and May 1, above the 4-week MA. This is likely due to lockdown restrictions being lifted across multiple states, and refineries increasing production in anticipation of increased motor fuel consumption.The decrease in crude inputs last week may indicate that they’ve been overly optimistic and have since decreased utilization. Crude oil stocks are still increasing, with an additional 1.2M barrels compared to May 1, despite net oil imports decreasing. In Cushing, we do see oil stocks to finally be decreasing with a net change of 3M barrels being taken out of that area in between May 1 and May 8, probably in anticipation of futures contracts expiring. Stocks of motor gasoline are decreasing, indicating increased demand for it as lockdowns ended, and probably prompted refineries to increase production. Overall, it seems like the story has been that oil demand is slowly restoring with states lifting lockdown, but not as fast as refiners are expecting. Despite decreased supply, crude oils stocks are still slowly increasing. Storage facilities in Cushing have shit their more together this time and are moving their oil stocks from Cushing towards other storage facilities with availability to avoid a storage squeeze like last time. Oil stocks are still increasing, but oil stocks are being allocated more efficiently to utilize excess capacity in other regions, especially away from Cushing, leading to a slowly increasing spot oil price in Cushing despite oil stocks nationwide oil stock increases. COVID-19 and Lockdowns The US is currently at approx. 1.5M confirmed cases, and 90K deaths. US New Cases We’re seeing a slow decline of new cases; i.e. “flattening the curve”. It doesn’t seem like new cases are being decreased significantly even during lockdown. In New York, which has been hardest hit and still under lockdown, we see a significant decline. New York New Cases We see stay-at-home orders being lifted in several states, and most states reopening retail stores, as well as being in the process of opening dine-in restaurants back up. States under lockdown States with dine-in restaurants open States with retail stores open What has the effects of reopening been so far? Let’s look at one state, Georgia, which has been the earliest to reopen three weeks ago. Georgia New Cases Their new cases have remained effectively flat since re-opening. So while there hasn’t been a new surge in cases, their situation is not improving. Italy, which has been one of the hardest hit countries, along with the United States, has seen a dramatic improvement with a steady and consistent decline of new cases, giving hope that the US, with a timeline a few weeks behind Italy, will soon be on the other side of the first wave. Italy started easing restrictions around May 4, with shops and restaurants planning to be re-opened by May 18. Italy New Cases On the other hand, Iran, a country that also was hit by COVID-19 earlier than the US is seeing another spike in cases and is already dealing with a second wave. Iran New Cases We’ll likely see lockdowns across multiple US states being lifted over the next few weeks. US-China Tensions The US has recently imposed export restrictions on Huawei that will prevent any chipmakers using American technology from making sales to it. In response, China may be putting American technology companies, including Apple, Qualcomm, and Cisco, on a “unreliable entity list”, which will apply very severe restrictions to those companies’ operations and trade within China. Round 4 Stimulus The house has recently passed a phase 4 stimulus bill, the HEROES Act, which will include many provisions including another $1200 check to everyone. This bill passed with Republican resistance, with a 208-199 vote. Most political analysts agree that this phase will take a long time to negotiate and won’t pass as quickly as previous phases, with it passing in June at the earliest. Tech Antitrust Filings A leak on Friday from the Justice Department indicates that antitrust lawsuits will be filed against Google later this year. Facebook, Amazon, and Apple are also currently under investigation and may also have antitrust suits filed against them at the same time. Liquidity the Federal Reserve The Fed recently published their financial stability report on Friday, which talks about the state of the economy, financial system, and gives forward guidance on what might happen next. Here’s a summary of the interesting parts of their report. Vulnerabilities in the financial sectors
Asset Valuations especially risky assets (i.e. equities) have risen since mid-March and may be vulnerable to significant declines.
Business debt, relative to GDP, entered 2020 at historic highs, and had seen rapid increases among businesses with weak credit ratings.
Banks and brokers were well capitalized, but hedge funds and insurance companies were highly leveraged, which caused market dislocations when asset prices fell.
Funding risk - Although not as bad as 2007-2009, they saw significant strain in funding markets and required Fed intervention
The report then talks about various monetary issues that came up over the past few months, and actions that the Fed has taken to address them, like lowering interest rates, buying commercial paper and bonds, and infinite QE to stabilize credit markets. They also talk about the strain on the global dollar funding markets, and the international demand for dollars causing a widening of FX spreads (i.e. spike in DXY). To alleviate this, they extended swap lines to other central banks. It also looks like the Fed is slowly winding down their “infinite QE” program, falling from a peak of $75B / day of purchases to $6B / day. Fed Treasury Purchases The Bigger Picture We’re still seeing a slow net increase in oil stocks, despite the lower production and imports, as well as increased refinery utilization. However, oil is being stored more efficiently, with barrels being moved in places with a shortage capacity, like Cushing, to other places in the US. This, along with other actions recently taken by futures brokers, NYMEX, and USO, makes it a shock such as the one we saw when May contracts expired much less likely for the June contracts. Nothing bad has yet to happen with states that have reopened, with daily increases stabilizing. We have yet to see if this translates to an economic recovery, and if current equity prices are justified. On the other hand, escalating US-China tensions around Huawei may further hurt equity valuations, especially technology companies, which seem to be possible targets of China for retaliation. The confirmation of antitrust filing to at least one tech giant, and the likelihood of further filings for other giants, may also further hurt stock prices in the tech sector, where equity valuations have declined the least throughout the crisis. The Federal reserve is slowly winding down their QE, and warning that there are still substantial prices in the credit markets and that asset valuations may see a dramatic decrease. From the fiscal side, although a phase 4 stimulus is being considered and has passed the house, it is unlikely we will see this pass anywhere as quickly as the other rounds. The market has already seemed to price in lifting of lockdowns, combined with weakening monetary stimulus and uncertainty about the possibility of further fiscal stimulus, provides a weak bullish case for further upside in equities. In the meanwhile, potential shocks from antitrust actions and Chinese retaliation to large technology monopolies, which consists of more than a fifth of the S&P500, along with a potential second wave, such as seen in Iran, can be a catalyst to break below 272. Magic Markers and My Personal Strategy For those interested in what I'll be personally doing, and those that have been following me, I'm currently holding SPY puts and VIX calls (among other positions) which I entered back when SPY hit 293, although I did exit my shorter-term SPY puts on Friday after fucking up and missing my exit on Thursday after not following my own strategy that I wrote. /ES Daily The 1D MACD on both /ES and SPY did crossover to bearish, with a larger volume than previous days, which makes me confident that over the medium-term we'll be seeing a downtrend, and is one of the things I need to confirm a drop below 272 for the next drop. On the short-term, the 1H MACD is bullish, meaning we're going to need to consolidate over the next day or two. That being said, RSI is heading towards overbought territory. /ES Hourly Looking at the 15M chart, we've already hit overbought territory, and MACD is turning bearish. /ES 15M This probably means we're going to be opening somewhere below 288 on SPY tomorrow. Depending on how futures act overnight, we'll probably either see a trading range of 285 - 290 or 278 - 285, depending if we open above or below 285. My strategy is to hold my longer-dated SPY puts and VIX calls, and re-enter my short-dated spreads when SPY RSI is overbought again on the 1H chart or 1H MACD crosses over again. As with my posts the last few weeks, I'll be updating this post with a regular updates on what my magic marker horoscope says. P.S. - I got alot of invites and requests to just form a Discord channel with TA updates and thoughts. Although I was originally considering moving this to Discord, I've decided against it since you should not be basing your trading strategy on what some person on the internet is saying, and I'm personally very against trading chat rooms. This is your own money and you should be doing your own DD. If you were going to be spending thousands of dollars on buying something, you would probably be spending hours doing your own research on which product to buy and pros and cons of buying something - this should be no different. I'll post these for inspiration, and to help teach everyone reading how to do their own research, but this is by no means a recommendation on what you should do. Form your own opinions; it's your money. EDIT - Updates 5/18 Market Open - Well was not expecting that. There goes my price range and saying we're not seeing 293 again. Going to still go with my earlier thesis that 293 is a strong resistance and it'll be hard to close outside of the 293-274 channel (+-2) so bought some SPY 287p put spreads today expiring on Friday. Looks like this gap up was caused by vaccine news. 5/18 10:30AM - Looks like oil is in backwardation now? Backwardation This is usually indicative of a shortage of crude oil. This seems very unlikely considering what happened the past few months. Something weird is going on here 5/18 2PM - At 295 right now. I'm going to need a reversal back below this price to still be confident about the thesis. There's alot of momentum in the 1H MACD for the bullish case. For the bearish case, 15M MACD is back to bearish, and we're oversold on 15M and 1H. We also still have 1D MACD bearish still, although it will crossover tomorrow unless we end lower and have a red day tomorrow. Regardless, it's dumb to sell when RSI is overbought in multiple time frames, so I'm going to be selling all my bearish positions when I see RSI go back out from overbought territory if
SPY closes above 295 today
1D MACD is back to bullish (likely to happen unless we see a reversal today) when RSI is out of overbought
15M MACD also turns back to bullish when RSI is out of overbought
That'll be enough to invalidate my thesis, and show this is not a fake out, meaning we're headed to at least 300. 5/18 3:30PM - Looks like tomorrow will have a trading range of 300-293 unless we see a major reversal. This bull really might stop there. If I can't find an exit before we hit that level, I'll probably instead close out the bottom portion of the put spread (i.e. close my put sell) instead at 300. If we make it past 300, idk wtf is going on and I'll just going to liquidate my portfolio and hold cash until this market makes sense again. Even at a rebound of 300, unless I see 1D MACD cross over again, I'll probably be looking for an exit to sell my remaining positions at a good price and hold cash for a while. 5/18 Market Close - Saw a reversal at 295.00. Although still not looking good for my thesis, massive selling at market close and a close not too far above the resistance level means this could have been another fake out, similar to April 29's rally. My thesis is still on shaky ground, and I'll we'll need to see a gap down tomorrow for this to be confirmed a fake out. Otherwise, I'm going to stick with my exit strategy mentioned above to stop losses some time this week. 5/18 6:30PM - What happens tonight and tomorrow will determine if there's still a bearish case. We need to close below 294 tomorrow and have a red day, giving us a clear rejection, for any hope of a bearish trend in the near term. Here's the reasons why a close below 294 is needed soon for any near-term downtrend
We have a confluence in 1W and 1D MACD crossing over tomorrow. If we have one more green day, or even a sideways day, these both cross over to bullish - a strong buy signal for short term and medium term
293 is a confluence of both the 62% Fib retracement - the upper bound of any bull rally retracements and also a significant price levels during 2019, acting as a major point of support and resistance. Historically, if a rally goes above a 62% retracement, it almost always was followed by new ATHs.
293.60 is also the 200D EMA. Historically, this is also a significant buy / sell signal for bull and bear trends. It often acts as a support during bull markets and resistance during bear markets, and usually a cross indicates that we're going to be flipping between them.
We need to have a red day tomorrow and close below 294 for a clear rejection. /ES is currently oversold on 1H, and it looks like the 1H MACD is on track to have a bearish crossover. 15M MACD is also bearish. This gives us hope that we might see the gap down needed for the bearish case tomorrow. 5/19 Noon - Sold all my May contracts, still holding some VIX calls and longer-dated SPY puts. Still a slim chance for a bearish thesis if we have a massive reversal later today, but this is starting to look more unlikely. Based on technicals, we are borderline oversold on the 1H with short-term momentum in 15M. This means that we'll probably see a consolidation day today where we just move sideways for most of the day. 1H MACD is still bullish, so it's unlikely we'll be 294. Trading range is 294-300, likely to be constrained in the lower half of it (i.e. 294-297). I'll probably start looking into September VIX calls if SPY reaches 300, anticipating the second wave, and then sign off 5/19 3:15PM - Looking at the 15M chart, it looks like 294 is now becoming a strong resistance - even worse sign for the bear case. 5/19 3:40 - Massive red candle bringing us below 294, with a 1H MACD bearish crossover. If we break below 293, I'm buying back those puts. Will probably wait until 3:55 for that 5/19 3:50 - Got 293/274p 5/22 debit spreads. Short-term bearish thesis still holds if we don't see a massive green candle at the last minute 5/19 4PM - Looks like bears have won today and have prevented bulls from taking back control of medium-term sentiment - 1D MACD hasn't crossed. Bears also have short term sentiment, on the 1H and 15M charts, on both /ES and SPY. Going to see a big red day tomorrow. Trading range 293-285. Interesting watch - https://www.youtube.com/watch?v=vqrjTCPiVcw&t=334s, Cramer doing some TA himself, with similar conclusions about the importance of the 274-293 channel, albiet using the 200SMA instead of 200EMA, which is at 300 instead of 294. Good second opinion on TA, especially since Cramer tends to have a bullish bias. 5/20 9:15AM - Futures and pre-market back above 295. The good news is that 296 is looking to be the next resistance level in SPY. Even though bears got a sliver of hope yesterday, still on shaky grounds. Really depends on what happens in the first hour. I guess trading range is now 296-285 now, likely to be contained in the upper half (ie. 296-291) 5/20 9:45AM - Same thing as yesterday, need to see a close below 294 for the bearish case. Otherwise, looking for an exit again. About to see 15M and 1H MACD cross over, 1D and 1W is in the middle of crossing over. Bears won the battle yesterday, but I jumped the gun a bit on calling victory for the bears. 5/20 1PM - Looking like we might see a reversal later today with bearish 15M. 1H MACD has been in a battle between bulls and bear all day. Will liquidate my positions as soon as bulls get a decisive victory on this, since it'll likely mean that they also get 1D and 1W MACD as well. If bears finally win 1H decisively we might see a reversal again, unless we see a random gap up again like today. 5/20 3:50PM - Last hope here for my long stated puts and VIX calls are the fact that we still have a bearish 1H MACD and 1D MACD can reverse again. Exiting those positions as well if 1H crosses back to bullish 5/20 8PM - At this point I don't think there's any hope for the bearish case anymore since 1D is pretty solidly back to bullish. New channel seems to be 293-300. 1H MACD is turning bearish, so we might see the bottom of that channel tomorrow. Exiting the remaining positions at 293. Going back to plays on individual tickers again; looking at GSX puts right now. I'll be back at SPY when I see another crossover in 1D MACD; Lesson learned - better to be too late than too early. Will be waiting for 3 consistent days of a 1D MACD crossover next time before entering put positions. It doesn't look like rug pull isn't happening until everyone starts realizing another wave of lock downs is happening in fall - even the Fed isn't accounting for these in their economic models saying we're going to recover in Q3 despite all the health officials saying it will happen. 5/21 Midnight - Someone pointed out to me that we've reached a DeMark Countdown 13 sell signal. While I have heard of Demark Sequential indicators, and know that they are generally accepted to be a reliable quantative indicator and used in many institutions, I personally don't understand why and how this works. Here's a slideshow I found from a quick Google Search of this indicator explaining how it works http://www.mysmu.edu/faculty/christophert/QF206/Week_05.pdf My best understanding is that it tracks a new trend building (i.e. "Setup" phase). Once a trend has been set up, it does a "count down" to track when the trend has run out of momentum; this is what the DeMark indicator is indicating right now. It suggests that the bull trend we have been having for the past few weeks has run out of momentum according to this algorithm. This is generally seen as a "sell signal" according to Demark, and means a reversal is imminent. I personally have no idea how it works and is not intuitive to me at all, but this guy is also regarded to be the best Technical Analyst in the world. I'll still continue with my existing strategy of selling most of my positions at 293, but if this sell signal is valid, the 1D MACD should crossover again soon; If it does so with convinction, I'll re-enter. 5/21 10:30AM - Still planning on exiting half of my remaining positions at 293 today. Bears are winning momentum on 1h, but bulls have solidly gained back control of 1D. We'll be at 300 this week. What about after 300? At first, I was convinced that SPY will be going all the way back to new ATHs, but then I saw QQQ. which is within 5% of new ATHs. Since QQQ and SPY have very similar components and tend to be correlated in price actions, it's very likely that SPY 300 will bring QQQ to either a new ATH, or extremely close to the old highs. This by itself can act as another psychological resistance, especially if we break new ATHs, and might be a sign for some investors to exit as they realize that there's not really any room for the bullish case left, and that the stock market is definitely becoming a bubble; especially in QQQ. Nobody is going to be setting their price targets above ATH during the halftime break of a wave of COVID-19 outbreaks and lockdowns. At this point, this isn't TA but just speculation based on psychology (which is the foundation of TA) but this situation is unprecedented so noone has any idea how the stock market is going to react. This can take several days to weeks to play out, so will be sitting mostly on the sidelines until I see evidence of bears taking over 1D again. Even though that fundamentals is clearly bearish, I don't want to fight the trend. 5/21 6:30PM - I've exited the remaining SPY puts I was holding when SPY fell below 294. Looking at /ES and SPY 1H and 15M MACD we'll be in a period of consolidating for tomorrow as well and remain in the bottom half of the channel tomorrow (i.e. 293-297), as we were the past few days, based on slow bearish momentum that's turning bullish again. I think we'll need to reach SPY 300 and QQQ 238 (a new ATH) before we see a bearish case again. While it's possible to shoot past SPY 300, it will be extremely hard since at that point QQQ would be reaching new ATHs. There will also be very strong resistance there, although at this point this rally can no longer be called a bull rally, shooting past the 62% fib retracement, and instead this is a legitimate bull trend. To see another downtrend we'll need some major fundamental catalyst, the most likely cases being something significant events happening with US-China relations, a wave of lockdowns happening in Europe again (China already started seeing this), or a spike in cases in the US. This can take weeks, but I'll be keeping a close eye on SPY during this time for new medium-term entries. I might also play the channel with small amounts of single-day options if I see very good entry points, likely puts if we spike right above 300. Even though I'm personally still bearish and do think the possible downside action is much greater than to the upside, I no longer see this happening for the next week or so, so I'm exiting to have a better entry later on and not have my money slowly disappear from theta. I'll keep this thread updated, but not as frequently for those still interested. 5/21 Market Open - bearish MACD on 15M and 1H SPY. Will probably re-test 293, and based on historical strong resistance, bounce back. I'll sell my remaining VIX calls on that low. Still a 293-297 trading range for today
In my previous posts, I've covered what happened the past few months to get to where we are now and where we might be in a few months when we'd bottom out. In this week's edition of DDDD (Data-driven DD), let's look at what the market's might be heading in the near term by looking at the past few week's price actions, and potential catalysts for the next trend. Possible COVID-19 & Lockdown Events
China - Lockdowns have been lifted in China, with Wuhan even having their lockdown lifted on April 8. There’s starting to be a report of a second wave starting, mostly imported cases from other countries. Beijing announced a few days ago the closure of all gyms and swimming pools, a sign that they might be starting another series of lockdowns to combat the second wave. Similarly, there has been a recent surge of cases in Singapore as well, indicating that a second wave is coming.
Europe - The hardest hit countries, Italy, France, and Spain, are starting to see the flattening of the curve after peaking in new cases in late March, with plans to start slowly lift the lockdown in early May. In particular, Italy will start resuming manufacturing on May 4, and restaurants will be reopening on May 18.
US - The number of cases in the US seems to be peaking overall, with positive cases and hospitalizations going down in hard-hit cities like NYC. Some states are starting to look at doing Phase 1 re-opening, which would include lifting restrictions on construction and manufacturing. NYC is planning on entering Phase 1 reopening on May 15, with many other states like California likely also doing so around the same time. Georgia already decided to reopen businesses, including higher risk ones such as gyms, and not following the Federal government’s recommended phased approach.
Treatments - We’re starting to see some initial results for trials of treatments for COVID-19, most notably for Remdesivir and Hydroxychloroquine. There’s been a lot of leaks related to Remdesivir, with footage of a University of Chicago faculty meeting discussing positive results being leaked on April 17. A few days later, a Chinese clinical study showed that it does not have any positive impact on results. Another study was released on Friday showing hopeful results from compassionate use of the drug. Hydroxychloroquine meanwhile has yet to show evidence in being effective in treating COVID-19, and has been linked to very serious cardiovascular-related side effects.
Vaccines - There are at least 115 known vaccine initiatives for COVID-19 occurring worldwide, with 6 of them having made it to human trials, the stage where most vaccines are discontinued. Despite this rapid progress, most experts agree that we would likely not see vaccines being widely available until the end of 2021 at the earliest. There’s also doubts on whether or not a vaccine is possible, as a vaccine for any forms of corona viruses have never been produced, and there’s concerning signs that natural immunity from COVID-19 after being infected is short-lived and that rapid mutations will make it impossible for a vaccine to be developed that covers every strand (i.e. similar to the cold or flu).
Since the lockdown started, there has been over 26M new joblessness claims. It’s likely that this number is underreporting the true unemployment levels as this metric only tracks the number of people who were successful in filing for unemployment benefits, and most state’s unemployment systems have reached capacity in handling new cases. With a labor force size of 165M in Feb 2020, this gives us a minimum of 16% of the labor force that have recently been unemployed. Economists are forecasting the unemployment rate for April to reach around 20%; the ATH for US unemployment was 25% in 1933.
Q1 GDP growth estimates are all over the place, with the NY Fed predicting -0.4%, WSJ predicting -3.5% and at -15.4%. Q1 GDP will be released on April 29.
Consumer sentiment, which measures the US consumer’s average optimism in the state of the US economy through spending and savings, is at 72. The all-time low, since recording started in the 1960s, was 52 in the 1970s. Consumer sentiment neared that level as well during the Great Recession.
The Purchaser’s Managers’ Index (PMI), which measures business’s confidence in market conditions, measured with a variety of factors such as inventory and production levels, is at 37 for manufacturing and 27 for services. A PMI lower than 50 is usually considered to be a reliable leading indicator of an upcoming recession.
The Federal government is considering a variety of “Phase 4” stimulus bills, many of which will be significantly larger than the CARES Act, a $2T which is by far the most expensive bill passed in US history. There’s a few bills out there, but negotiations between Democrats and Republicans are unlikely to occur until Congress is back in session on May 4. Here’s the ideas currently on the table
A bill to provide a directly monthly payment of $2000 for anyone making less than $130K for the next 6 or 12 months; Costs $450B / month, or $5.4T for 12 months
A bill to cancel all rent and mortgage payments for 1 year. Landlords and lenders would be compensated; Will cost between $1T - $2T
$2000 debit card issued to all US persons, with $1000 reloaded to it monthly. Will cost $2T, however it will not be funded by debt. Instead, it would effectively direct the Fed to literally print the extra $2T to fund the program.
80% payroll tax cut
Balance sheet increased from 4.1T to 6.5T since January. The Fed is now purchasing or lending against Treasuries, MBS, Munis, IG and fallen angel bonds, and junk bond ETFs.
S&P500 is now 15% below its ATH from February, or the same level as the October 2019 lows. We see the rebound in prices being concentrated mostly in large-cap and technology stocks. The Nasdaq US100 is down only 9.5% from the ATH, and now out of correction territory, while the Russell 2000 is still down 25%.
Over 150 companies of the S&P500 will be reporting earnings this week, including all the large technology companies (Google, Facebook, Amazon, Apple, Microsoft). Last week, most of the financial sector reported earnings, with a -56% YoY decline in that sector.
We were in a rising wedge over the past few weeks, which we’ve broken out of last week with no strong price action. It looks like the market has been consolidating between 293 (62% Fib) and 272 (10 year support, coinciding with a key support / resistance level from 2018 and 2019) on SPY for the past few days.
Volume has also been decreasing slowly since the beginning of the rally.
MACD is showing bullish, with a zero crossover recently
Conclusions It looks like we’re past the “panic” phase of the shock, where a combination of a liquidity crunch and uncertainty about the future caused a rapid selloff. Fiscal and Monetary policy caused a rally, as price started consolidating towards the channel we are in now. It looks like most investors seem to be holding off from trading while they wait for more information, which we will be seeing over the next few weeks, starting from this week. It’s waiting for some big catalyst. Things that will cause SPY to fall below 272 and have another selloff
Q1 GDP, released on Wednesday, is much worse than expected
Earnings released this week, especially from the companies in the trillion-dollar club, miss significantly their earnings expectations
Lockdowns in NYC and California get further delayed
Cases surge in Georgia in a week or two, forcing another lockdown
Europe delays the lifting of their lockdown
China completely locks down again
Waves of large companies becoming bankrupt or insolvent
Things that might cause SPY to rally past 293
All the lockdowns being lifted, and businesses magically all restart like nothing happened
One of the treatments are confirmed to be effective across most cases and is FDA approved for treating patients
A significant UBI gets passed by Congress
Congress approves the Fed to start buying stocks
I’m personally bearish overall, and think that the catalysts that will cause us to break out towards the downside is much more likely than the upside. In the meanwhile, we’re going to see smaller companies, especially ones with weak balance sheets, underperform. This week will be important because of earnings and GDP, two key figures that should be basis of a stock's value. If we don't break the channel by the end of this week, SPY will likely stay between 293 and 272 for a while as more COVID-19 data comes in. You can play this by either going #cashgang, #thetagang with short-dated iron condors, or long-dated SPY puts if you want to take advantage of the low VIX and believe (like I am) that we aren't going past 293. If the results from this week is bad enough for us to break 272, the next selloff has started and shorter-dated SPY puts might print. Except for the unlikely case where Congress approves the Fed to start buy equities, it'd be hard to see anything that pushed us past 293 in the short term. TLDR; If we end this week < 272, SPY 270p 5/15. If > 293, the world has gone insane. Otherwise, selling short-dated iron condors, holding cash, or SPY 250p 8/21.
I get a list of 3-5 questions from most people who contact me the first time. When I get them, or if you want to ask here and don't mind sharing, I will try to share here so people can see the responses and avoid repeats Could you explain what Fibonacci retracements and extensions are and how i should be using them. For people who don't know Fib is a series of numbers from a mathematician who lived many moons ago and I actually find fascinating and useful in some things. it occurs in nature and if you want to read more about it, its good stuff to spend some extra time on. If you remember a bad Jim Carry movie where he was obsessed with numbers and many other books/sci fi it originates from this. FIb is used as the "engine" to drive many technical analysis calculations. I trade harmonic patterns and they are entirely fibb. I also know and trained in Retracements and Extentions but I almost never use them anymore. If the "old days" before things got so computerized and so volatile, support and resistance levels were very horizontal. The range between bid and ask used to be massive and on the dollar, .25 .50 etc. so price levels and all those mental resistance was very horizontal. Now things are much tighter, volume is way higher, and volatility is massive so price action moves so much quicker that we rely far move on moving averages, trend lines, anchored VWAP and more to find support and resistance based on where volume came in, how much volume and at what price, and all of that presents an uneven support (like an MA). Retracements https://preview.redd.it/7hmbsaqfshc51.png?width=1527&format=png&auto=webp&s=cea6e29b104efeb9929ac5bb1f74d86321313e07 You simply click this on any drawing tool panel and click a high and a low of a range. It draws the Fib lines based on those. You can change them in a million ways but thats the simple version. I have a lot of indicators that auto draw fib based on previous days, premarket fib, resent high low fib, intraday versus daily fib so where you place them and how you have your settings can change them quite a bit. For the most part, I just found that I put them on my chart and got false senes of security. It's very easy to draw them on an area you "want" and then get the results you "want" but they may not be quite accurate. All in all, I spent a lot of time learning the concepts and a little bit on the indicators and and it's just one of those things I did not find helpful to my trading. Extentions are a little more complicated and can be very useful but I lack the expertise to instruct on them, and would consider myself still at an (advanced) student level. (so take all this knowing it might not be 100% accurate) I know some amazing Fib people who do nothing but trade off of this and they are some of the most consistant traders I know. Fib, however, is far more for swing trading and so trading based on that will likely have a much lower return than the stuff I teach. That being said - if someone wants to add it to their toolkit, its worth learning a bit about, and I am very glad to that I know how to use it because even though I don't use the indicators, Fib is in a lot behind the scenes. (5 SMA 8 SMA 21 SMA all fib numbers. People debate if the things like 21 and 5 are for Fib verses days of the week. I lean toward FIb) Extentions are used to find "three point relationships" of past trends and compare them to the current one to find alignments so we can speculate on the outcome of the current trend when it is still going. If a stock took a dip and you want to go long, you would connect from the low to the high on a previous trend that looks similar to the current one, and then connect it to the higher low of your current trend. (Low High Low for Bullish, or a High Low High for Bearish) https://preview.redd.it/jw1kqy43vhc51.png?width=2461&format=png&auto=webp&s=62d7d5943ca4ab15c0b054135671b615bb932531 As you can see,, price is right on that fibb level so it looks like this trend might line up. Now if you do fib, you would then loook for a retrace to the next line down or nextline up. because it is pretty vague and up to interpretation based on where you place them, good fib traders place multiple of these to find multiple aligning price levels and only when they can find them all aligning on the same trend, are they valid. SO you draw the low-high-low on past trends and click them on your current over and over until they match up. As you can see, tedious and time consuming and not prone for "quick" intraday trading. The main purpose of this, as I mentioned, is for big reversals where you are trying to predict at what level you might get a top or bottom. You are finding past moved to try to figure out what the "measured move" is for the current trend. This is why things like Harmonics that I trade are so accurate.. they all use measured moves. https://preview.redd.it/5r3akorsxhc51.png?width=2142&format=png&auto=webp&s=f6f99860a6a3aaee10f3fadbeb67a8b1acf743e7 For almost all traders, I recommend just using your defaults and see where it puts them if you want to try it. IF you get advanced and start drawing channels etc. then you can anchor them from hgh lows of the channel or other trendlines to find interesting levels. (but again.. i found it interesting and not helpful). I would be remiss if I did not mention my friend who I have great respect for and has improved my Fib a great deal. You can find him on the resources pages under Relax Trading and Fibonnaci Queen (Carolyn Boroden) and her book is my favorite Fib book. How do you come up with strategies? Trial and error. Most of my setups are a combination of techniques and I just simplify them for you guys (and me) . The "inside bar prev range" for instance uses "time frame continuity, broadening formations, short squeezes from previous range, etc" and in total probably incorporate things I learned from 3 different sources and then tweak over the years and as market conditions change. Some are all my own, but things like reversion to the mean have been around forever, everyone just does them a little differently. how to start implementing coding to do multiple things at once and to backtest strategies I don't backtest. I think it total crap. I have tons of profitable setups that return horrible backtest results. I wasted tons of time on it and if I could get it back I would. The main flaw with them is exits (and stops sometimes) They are totally situational, unlike entries) Like paper trading, I think you just don't get realistic conditions in a simulator. I have 10 page emails from peopel asking me to check there backtests they have been working on for a month and I just shake my head. Nothing can prepare you for real trading and the ebst way to do it is just start small, make mistakes and learn from them. You cannot find a perfect setup that will last forever so I don't bother trying. If you want new setups, find ones that work and have been proven (reversion to the mean) instead of trying to invent your own IMO. What software do you use to trade stocks? Do you always daytrade, or you have longer term stocks too? TOS to place myself and Morgan Stanley to handle larger long term diversity holdings. I daytrade all day and swing overnight about half the time if something is closing strong or I expect a gap up, but I do not scan for or take trades with the intention of swinging.
Stock market rallies don't simply end because people wake up one day in mass and decide things are over priced. There's a catalyst. Lacking a catalyst, assuming current assumptions around the COVID-19 recovery hold true, it's fair to expect the market to work higher. Sprinkle in FED action, which while down 89% from it's 3/25 peak, still dumped another $65 billion into the financial system. Bulls are expecting a quick recovery, and while battered, they haven't been knocked off that position. There's continued discussion around a vaccine, optimism, stage 2 trials, and numerous companies and universities pursuing it. We're north of 300k daily tests, and the positive test rate is declining, states are reopening, we got through Easter, and we found remdesivir effective. P/E is high, but even if you believe that governments are propping equities up, this ponzi scheme still puts US equities at the top, likely to bleed the least and profit the most. It's not to say a dip wasn't warranted, it was just an over-reaction, hope you enjoyed the ride back to appropriate valuations. Money right now is easy. Interest rates are low, and will remain there, maybe even negative, with a FED heavily accommodating of markets. Liquidity is flowing like rain, banks across the globe are jumping on the QE train. Shorting the market is shorting the governments ability to continue the rally, and as Buffet says, don't bet against America. Oh, and guess what, Congress is going to hand everyone more money.
Despite the optimism, the Fed can't create demand. Consumer spending is not going to come back to where it was. Millions will remain unemployed, the jobs aren't all coming back. The idea of a V shaped recovery is ridiculous, even a U shaped recover is irrational. Given the market expects such a recovery, the theta from news is going to burn bulls, day over day as the recovery doesn't manifest with the expected velocity, gravity of expectations will pull bulls to the ground. June will see auto delinquencies appear in servicer reports, by end of July extensions 3 month payment extensions run out, auto repossessions will begin again, and the extra unemployment comes to a close. With September comes standard unemployment insurance running out for initial layoffs, followed by the end of our foreclosure moratorium. Now imagine we never get a vaccine, it's never proved easy for other SARs diseases, why would this one be any different? The market hasn't priced in a significant bounce. States reopening too soon. The US outside NY/NJ/PA still rising in case counts, and people are sick of being quarantined. Oh, and good luck getting the US culture to adopt masks. The market expects COVID to be beaten, when the reality is it needs to be endured. We've shot most of our stimulus shots, we shot wildly and while some hit, we wasted too much and we will pay in time. This virus will be with us for years, and so will the impacts. The world is heading for a recession, and they'll drag the US right down with them.
Both cases above have some FUD, but both also have merits. First, separate Main Street (consumer and production economy) from Wall Street (financial markets), as they are different. The FED can do wonders for financial markets and in turn Wall Street, but it can't manifest demand. Congress can. Stimulus can. There likely will be another round of stimulus and it'll boost spending, can kicked down the road. Now it may not come until June, but US equities are strong and as long as the assumption holds, so will the near term impact of it's expected arrival. Sure, the house of cards may fall in time, but what's going to bring it down? We lack a clear short term catalyst. The bulls ate more straw off our camel's back than bears threw on. States are reopening, there's talk of more stimulus, curves are flattening, positive treatments, vaccine's progressing, and the market is recovering. The bearish news is the unknown, the whispers in the wind, we'll see in two weeks, wait until September, and the reality that so much is wrong with Main Street, that things can't be this positive with Wall Street. Can't say they're wrong, but they don't weigh as much. The market's priced in awful Q2 results, with no guidance, and a market that by it's nature wants to rise, there's little besides whispers to hold it down.
In Search of a Catalyst
So what could bring what we feel, and the equity market into better alignment? We need a catalyst, some options:
Consumer Spending - Eventually, Wall Street and the financial market is still tied to Main Street and the need for production via demand from a consumption economy. If unemployment remains low, and wages decrease, you can throw stimulus at it, but spending will drop. As spending drops, the volume of decline, if severe, can open up a world of hurt for equities as guidance and P/E fall as a reaction.
Bankruptcies and Defaults - Governments can solve liquidity issues and prop up prices, but good luck fixing the solvency of a business when margins crash due to lack of spending and debts exceed the ability for business (or people) to pay them. Less hoarding cash by businesses (profitable for financial institutions), more drawing down (cash crunch), more borrowing. Add to that regulatory tightening for banks post 2008 and minimum levels required will strain them further. All this can create a rush to hoard cash, which will restart a massive equity outflow. The challenge is, I don't see this coming near term, even if you believe it is coming.
The Dollar - The dollar is the standard of the world, but that's not always great, especially when supply causes issues. When you have massive debt that results in bankruptcies, the money supply starts to dwindle as unemployment ramps, confidence fades, money gets hoarded, and deflation sets in. This unavailability of dollars is a huge risk. Currencies are getting crushed by the dollar, negative interest rates could become a trigger of insolvency, an outflow of equities to generate cash, and a massive crash as a result.
Significant COVID Resurgence - Obviously, anything approaching a country wide lock down in the US will send markets back to their knees.
Guidance - As the recovery comes, guidance will return. More than half of Wall Street has pulled guidance, less than a quarter are expected to offer full year guidance, and analysts are flying blind. As that spigot turns back on, the reality of impacts could be more bearish than expected similar to how we saw with Q1 under-performing. CEO's tapering FY21 expectations, discussing reduced consumer sentiment, shifts in culture, and a recovery that carries deep into 2022 could be enough to tip companies to truer valuations.
Reality - As all of the above hit in less severe degrees, there is the sum of parts which becomes significant enough that equities fall, perhaps not at an accelerated pitch, but fall significantly all the same.
None of the above are assured. There is an ever increasing reality that this market has a bottom. I struggle to comprehend that at times, and there are so many threads to pull that can crumble things. But perhaps the FED is able to unwind QE without impact, perhaps the dollar's global position is the strength needed for the US to recover faster despite being hit harder. Perhaps. Right now, my sentiment is short term bull. Medium term uncertain. Long term bear. Unclear on if we've found bottom. This past week has trended bullish across the board.
The Next Play
The only thing this weekend tells me is: be patient. It's unclear our direction, even in the near term. I could make a case in either direction. This week, is going to be a short term week. I'll avoid holding overnight, avoid going long (barring very clear signals), and will play the swings (up or down) as my TA dictates. I like to end "plays" when a theme shifts, it helps me avoid chasing losses, so that's what I'm doing and I now consider my prior play done, and failed. I've allocated another $5000 to a new play, I'll call this play "Patiently Waiting". I expect most positions this week to be smaller, in the $500 to $1000 range, in and out, and I'll be surprised if I fully deploy my allocated capital at one time. I don't have a planned entry. I doubt I do anything before noon on Monday, if Monday at all. I'll create a shorter post once I find my entry, and will track critical TA for the week as well as the profitability of the play in there.
There's a bull case, there's a bear case, the bull's had a stronger week. Many links, much news. No clear TA giving confidence in a position, will take short term day trades while waiting for clarity to emerge, will add a post later to track how much I lose.
5/12 @ 7:00 : I said I'd make a new post when I found a move, but also said I didn't think I'd do much Monday. I ended up not doing anything Monday. Wedge forming We saw a major wedge break on the 23rd of April. As it's downside break failed, a new wedge started forming, which lead to my exit from my prior play. The wedge has continued to hold since. I hesitate to trade it yet, but it's a converging indicator along with the .618 FIB retracement, you can see the two together formed a strong resistance to the upward movement on the 8th and 11th, forming a double top. The wedge says it's time to retest the bottom support, and in theory we should see movement downward today into tomorrow. I'm not planning to play it, but you could enter some 5/15 290p if you see it bounce top of wedge today. You'd need to exit by tomorrow at latest, exit by EOD may be the best play, really depends on where it goes. 5/13 @ 7:00 : Bummer. Life got in the way of about a 200% gain trade, would have opened around 1.3 and closed north of 4 on a 5/15 290p. I didn't get to play it. The wedge was strengthened by yesterday's movement: SPY this morning, 200d EMA on 1 HR interval acting as support ES and the same wedge Above you'll see SPY and a slight dip out of wedge, open will see us right back in. ES never broke wedge due to lower lows on 5/4. It's a better than average bet we stay in wedge today, which gives us a 6 point 287 to 293 range. SPY closes with support at 287 in wedge, yet on the ES, the wedge supports at 282, truth might be somewhere in the middle. If we open 286.5 to 287 range, I'll enter a 3-4 contract position of 288c. Be mindful, everyone thinks the FED buying ETFs is a tailwind, I see it as a short term headwind given the outflow of equities to the newfound safety in those bonds as a result. But that's a macro view, and this week, I'm intraday. 5/14 @ 7:00 : Let's start with unemployment. The estimate for claims this week is 2.7m, the smallest gain in 8 weeks, but still pushing us to over 35 million unemployed since early March. Some estimates have ~5m people returning to work in the past few weeks, but the flow is still higher towards layoffs. They've been button on of late with estimates, I expect them +/- 250k, anything with a 2 in the front isn't going to move the needle. As to market direction ... .5 FIB Supporting Bears couldn't break the .5 FIB, it held back on 5/4 and it held yesterday, though saw 15% more volume this go and was a deeper cut at breaking. We have had two straight large red days, we bounced off a support line, and are in oversold territory (that indicator flashed literally right as we bounced off the FIB, trended down since). A really nice bear case would see us retest the FIB, break it, and thus the neckline, forming a really nice head and shoulders from the 4/5 time frame. I don't see it as likely, but breaking the 280-279 churn sees us down towards 272-273. Don't trade this as a prediction, lazily drawn example. A more likely scenario is we track the 5/4 bounce, but don't bounce as high, before regrouping to retest the FIB once more. Our rising channel from the bottom. We've been in a rising channel for some time, quickly bounced into the churn zone, decided we were bullish, and started tracking the upper segment with support holding all the while. Of late we're fading, and there are signs it's time to give our supports a good test. The natural rise in the channel paired with fading momentum could cause us to naturally coil for a while before enough energy returns for a strong move. I'll be watching today, might look to enter a 5/15 283c position, not something that would look to track the full height of the rebound, rather the initial velocity and bounce, which should occur today into AH assuming we confirm that as our direction. 5/14 @ 7:30 : On 5/12 we saw the wedge, and thought it's likely it bounces off the top and test support. On 5/13 it did just that. On 5/14 we expected a bounce off the .5 FIB, and that's what we got: Blue are yesterday's expectations, green what we got. Don't trade that second bounce yet. 5/4's bounce was 115 points, current was 96. The 5/4 pullback was 68 points or 54% of bounce, current is 37 points or 39% of bounce (though still forming, assuming 2824 holds as support). 5/4's continuation bounce was 121 points or 105%, let's assume we get 83% of that bounce (same as initial comparatively), that would see us to about 2924. You'll notice that aligns with my hastily drawn bounce chart yesterday. If gravity is taking hold, you'd expect our second bounce on the second test of the FIB to be smaller, the second dip could go either way:
Smaller: 2824 holds as support. We got a smaller initial bounce, a smaller still dip, and likely a smaller still second bounce, perhaps towards 286-292 range.
Bigger: If our second dip breaks 2824, I'd expect us to retest the .5 FIB. If that were to happen, we're really putting a beating on that FIB level, it's not proving as oversold as it was, and each test weakens it further. We could bounce right off it, or the really bear case bursts through it before bouncing.
There are a lot of scenarios here. I can't make a call. I can say that you can see gravity in the charts. We weren't as oversold on this FIB test as we were on the 5/4 test. We didn't rise as high into overbought territory this time before turning back down. I can see downward momentum building. A head and shoulders that I don't quite believe in. There's a weak head and shoulders that strengthens with a downturn. I don't put much stock in it, but fun to watch anyways. For whatever reason, I just can't get on board with a really bearish short term outlook. Our general channel Instead, my gut tells me we stay in this rising channel, trending towards the middle chop zone. That leaves the market very sideways, with energy continuing to coil, for what could then break either direction, though which my gut says breaks downward. Feels like a roller coaster just being released after riding up, yet we're in the front car, and the back car hasn't been set free. Possible plays: Day trade scalping ... Wait for us to bottom, into calls for rebound ... AAPL calls during rebound ... or given 2824 doesn't seem to have held (for now) go permabear and jump into puts! I'm probably staying cash today. If I had the time, I'd wait for the dip to bottom, then day trade scalp the upward momentum until it stalls (which is the same thing I did yesterday).
The Shadow War: How Thursday and Friday Set Up for Another Engineered Circuitbreaker Next Monday 3/16/20 Are our markets under a coordinated financial attack? We thought MM were tinkering with things behind the scene, but there is an actor with tons of capital squeezing our MM in the USA, draining liquidity as MM face increased losses and are unable to provide transactions for people trying to hedge in these financial markets, and bringing about these engineered drops in the stock market. The timing of this is not coincidental given that we are currently engaging the coronavirus amidst the backdrop of an election year and instability with the oil pricing war. I've created this thread with bemusedfyz after hashing out these thoughts. Part I. Firms/Hedge Funds are Net Short Gamma Resulting in MM Buying Calls to Provide Liquidity In a bull market, firms purchase calls to be long gamma. MM try to capture rebates by taking on the opposite positions since they do not physically own the security. "This means that whenever a market-maker fills an investor's buy order, the MM is facilitating the trade by shorting shares. " They have to go short in order to sell a security they do not own (this is why they are exempted from short selling). In the other case, during a downturn, firms want to hedge using puts and become short gamma, thus MM must take on calls. As people previously noted in my posts, if there is a buyer of an option, there has to be a MM selling the option to provide the liquidity. How then do MM make profit? They make profit from rebates by providing tighter spreads compared to other MM. By narrowing the bid/ask spread, MM keep the rebate, creating very thin margins. Thus, volume and liquidity are key to profits for MM. Part II. How Options Inform Price Action by Identifying the Real Money Flows People have been asking "how do you know which options for SPX/SPY being purchased are purchased by actual firms for a position?" I've been using 3 key metrics to inform me of the direction of intraday trading, and I will explain them more in another thread:
Correlation with volatility, gold, and treasuries
Options data within the last 10 minutes of close has been particularly informative of the direction of the following price action. During the close on Tuesday, volume was strong on the buy side as we bounced from the June 2019 low, and we broke back into the 285 channel which was previously strong support indicating a bullish signal (Figure 1). Figure 1: 3/10/20 and 3/11/20 SPY Chart If someone was purchasing large amounts of puts (this was not just Tuesday, but last Friday and Monday as well), then MM were hugely positioned unfavorably with calls on the opposite end of the trade. Immediately after trading, we had a huge fade immediately after close. There has been strange price action where TLT fades, which indicates more liquidity being brought into the indices along with the short cover rally. However, right after the close, we immediately fade hard and futures dump. MM therefore need to hedge by trading futures, or by delta hedging and selling shares at the open with a significant loss, magnifying selling dips. This is similar to how autists discovered during a rally, MM delta hedge by purchasing the underlying equity contributing to the rally. Delta hedging refers to either having an opposing option with equal magnitude of delta, for instance a straddle, or by purchasing shares of the underlying stock. One key disadvantage with delta hedging is that MM can over hedge if the spot price of the equity changes unexpectedly overnight. This is referred to as gap risk, and compounds with the inventory MM hold overnight, often referred to as inventory risk.[2-3] The overnight moves create huge gamma and vega swings to the inventory of MM who hold overnight, which subsequently create a period of selling or buying which magnifies the intraday swings as they try to reduce their vega or gamma exposure.
... is subject to residual risks due to stochastic volatility and unhedgeable overnight moves in the stock price. These risks highlight the need to keep the Vega and Gamma of the dealer’s inventory under control, and this is reflected in the dealer’s quoting strategy.
Given that we dumped on Wednesday and dropped below 285 support, institutions need to hedge with more puts given the uncertainty about retesting the June 2019 low. More puts purchased by funds, more calls purchased by MM. What happened Thursday and Friday (Figure 2)? Figure 2: 3/12/20 and 3/13/20 SPY Chart Futures limit down on 3/12/20. No matter what, the market opens -5%. Within 5 minutes at the open, the market hits the second circuit breaker at -7%. MM are stuck with short term calls, and need to offload losses by selling like crazy to delta hedge magnifying losses. Then what happens on Friday 3/13/20? Limit up. We next quickly hit one of the largest intraday rallies of all time. Part III. MM Cannot Access Repo Despite Requiring Liquidity During trading on Thursday, the Fed announced an unprecedented amount of Repo operations. 1.15 trillion dollars, signifying significant issues in the market. I stated this before open on Friday.
8 am - Yesterday, the fed offered more than 500 billion in repo. Only 78.4 billion was taken. Today, the Fed just offered more than 1.1 trillion in repo for today. What are the signals? Why is Wall Street not taking the money for liquidity? Check this out: https://www.biancoresearch.com/the-moment-in-this-decline-has-arrived-2/ This could possibly be way worse than 2008. 8:30 - 24.1 billion in repo taken. Last update will be 9am. 9:00 - 45.1 billion. Net repo: 86.5 billion out of 1.15 trillion
"Dealers are telling me they badly want the $1T in repos, but can't take it. Post-crisis rules, among so many different regulators (Basel 3, Fed, OCC, FDIC, etc) make it nearly impossible for them to take the money. They are telling the Fed their problems. The Fed had no clue." https://twitter.com/biancoresearch/status/1238461580314120193 During Thursday's trading, we broke the support. Due to breaking previous supports and being oversold, I had puts. But also noticed huge call volume. If someone is buying calls, MM need to be net "short." Futures limit up. MM need to quickly buy the rally in order to delta hedge, creating an epic rally for the past decade. Part IV. The End Game Someone is taking advantage of the MM delta hedging by limiting down or up futures, vastly opposite of the price action more often than not without regard to support or resistance levels. MM are left bagholding their positions and delta hedging, magnifying the rallies or dips. Repos are not being adequately uptaken due to existing regulations. What happens when liquidity issues arise despite decreasing volatility? MM need to enlarge the spread in order to further manage losses. IV was going down on Friday during the rally, as VIX began dropping. The only way for the option value to decrease is if MM started enlarging the spread, in order to capture diminishing rebates. The only way the bid value is increasing is if a MM is facing liquidity issues, since they cut into the rebate. What happens when these firms become stressed and unable to provide liquidity? Firms will be unable to purchase options with good bids or at all. If people are not able to hedge or use financial derivatives, losses will accumulate such that there will be a mass liquidation event such that it is no longer tenable to hold any positions. What happened immediately after close Friday? Throughout the day there was massive amounts of put buying. Immediately close to the cash close, more puts were purchased. At the cash close, we fade hard. Immediately after, /ES gaps down more than 2% after the close on Friday. /CL gaps down more than 3%. The news during the weekend last week for the oil price was dropped during Sunday before markets opened, causing a limit down last week. Energy is the market. Saudi Arabia is a strategic partner with the US in the Middle East, and asking Russia to aid in production cuts to raise the price of oil. However, Russia refused. Saudi Arabia is not taking these measures to attack US energy markets by increasing production. Despite this, is Russia interested harming US interests? Perhaps. It's possible to think there is another player. And they know that US markets cannot access repo money and are short in liquidity, creating a unique attack vector, straight at the heart of the US financial system. https://news.bloomberglaw.com/securities-law/mnuchin-says-hes-seeking-to-keep-financial-markets-open “We intend to keep the markets open -- that’s a sign of confidence for people,” Mnuchin said in a CNBC interview early Friday. It is not only MM that require repo money. Banks lend out their credit lines to others. It is these businesses that are lent the money that will be the hardest. Given these market conditions, and if they persist, the government needs to intervene and shut down markets. We are already facing close to limit down on the Weekend Dow on Saturday. Sunday Futures are likely to limit down. This will probably be compounded by either worse impending virus news or more bad news in the energy markets. To combat this, Trump has stated the US intends to significantly add to the US strategic oil reserve to put a floor on the price of oil. However, these are being used as a cover to justify lower prices, when in fact, the markets are being engaged possibly by economic subterfuge to reduce liquidity. Someone is purchasing huge options positions before close with MM take the other side of the trade. Futures limit up/down, creating large gap/inventory risk, reducing liquidity for the markets. tl;dr Banks and MM are facing forced liquidity issues by someone taking advantage of limit up/down, exploiting gap and inventory risk. Banks and MM cannot take on repo due to regulations to correct liquidity issues. Funds and trading desks need MM to purchase puts/calls. Cannot purchase them due to MM having liquidity issues with worsening bid price, magnifying rallies or drops as MM delta hedge. If firms cannot stop losses without hedges, they will liquidate everything. This will create a mass panic sell off, which will therefore require the government to shut down the market. tl;dr of the tl;dr Circuit breaker Monday. Possibly two. Update 1: Sushies, satorikang both explained the positioning is probably long gamma on the puts, not short at this stage. Thanks. Update 2 3/15/20: I'm writing this example if a firm is taking a collar position in terms of options. Firms undergoing losses: https://www.bloomberg.com/amp/news/articles/2020-03-13/bluecrest-shrinks-from-relative-value-trades-amid-losses-exits https://www.bloomberg.com/news/articles/2020-03-14/dalio-s-macro-fund-plunged-about-20-this-year-as-market-tanked H2O assets Bluecrest Ray Dalio Update 3 - Liquidity news https://finance.yahoo.com/news/plumbing-behind-worlds-financial-markets-131618535.html https://www.bloomberg.com/news/articles/2020-03-14/traders-nightmare-liquidity-vanished-when-they-needed-it-most Some numbers, 7% drop, 200% Fib at 247.94. 13% drop, December 2018 low 233.86.  - https://squeezemetrics.com/monitodownload/pdf/short_is_long.pdf?  - https://www.forbes.com/sites/petertchi2015/09/03/mind-the-liquidity-gap/#2259300073fc  - https://www.sec.gov/divisions/riskfin/seminavenkataraman0313.pdf  - https://people.orie.cornell.edu/sfs33/StoikovSaglam.pdf
Hey you! Yes, YOU, Ya Glorious Disaster! Click ME! I contain lots of neat things to show you. Knives, Torches, Rare Raw Materials, Key Chains. Now.....Bid your money, "Farewell!"
Well...........when you start out on top, there's really only one way to go, right? If I could go back, I would have never even written such a smash hit Knife_Swap Jam. How could I have known the sort of trouble all of that fame would bring.. I guess we should start from the beginning Can you imagine the immense pressure that was being placed on me to top a post like that? It was agonizing. So, for the the sake of keeping things concise, I will forgo the shenanigans and keep it all business. Once this listing is up and some pictures are posted, keep checking this post for a special update...... Well, let's get on with it, then... The Shocking List of Which Knife_Swap Regulars can be found on the National Registry of Sex Offenders. Wait until you hear how long our MODs were aware of the issue! For your consideration are the following items: Starting from the left: NOS Maxam 1980s almost every single villian in an action film Bowie Knife:(A)-$30 This was in my parents basement for the last 30 years, give or take. I just took it out of the plastic for the first time to get some decent pictures. Knife is sharp as hell. Ever wanted to know what it feels like to be the main villain in the Sylvester Stallone film, "Cobra"....now's your chance. Two Sun TS........I dunnno, it's a cold steel rip-off/Folding Kukri blade. (A)-$25 Boos Blades Smoke TM-1(Amethyst) (C+/B-)-$250 SOLD She's not without a few scuffs to the finish, but the blade itself is perfect, and the action is dialed in better than any Smoke that's come before her(this one is my third). If the money wasn't more important, I would keep this one forever. Two Sun TS58 FS Firefly(A)-$50 She's Tiny, but mighty! equipped with titanium handles and an m390 steel blade, this Bad little Mamma Jamma. Really snappy action on this micro penis of a knife. Bonus: It's not the shitty one that doesn't lock! TwoSun TS80 "Jaeger"(B)-$75 SOLD A Vitesse-designed knife, that is, to date, my favorite Two Sun knife i've ever owned. In my opinion, this one is without an equal in the Two Sun line-up. I tried to capture it in the picture as best as I could, but the level of refinement that they achieved when machining this puppy definitely clearly marks a turning point for the brand, mark my word. Curtis Knives ODT Flipper(B+)-$300 My wife has a pretty bad ass collection of tiny/miniature folders flippers. This was going to be a surprise, but then she pissed me off something fierce. Now it's money back in my pocket! It's incredible this one flips at all, let alone surprisingly well. **From the Top/Middle-ish area** Nova Blades Mule-(B+)-$1200 Recently received this as a commissioned piece from Steve Dumchus over at Nova Blades. Gold ano'd S30v blade, copper bolsters, bone paper micarta scales, and blackened ti pocket clip. I know i'm a little bias, but I think it's one of the sexiest and tasteful knives i've seen in awhle. Once the patina really starts to settle in, ooooo boy. I love this knife, and don't need to sell it it, but if someone likes it enough to purchase it, I can't really justify not putting the money towards other ventures at this time. Also, you'd be getting a discount at the current price. Olight S1A1 Baton-(B?)-$30SOLD! Awesome little back-up torch. Plenty of output with one AA battery. Pre-programmed settings are: 0.5 lumens, 5 lumens, 50 lumens, 220 lumens, as well as strobe mode at 10Hz. There's also a special output option: turbo mode, which bumps you up to 600 lumens. However, that's only achievable through the use of a 14500 rchargable Lieeeeeeeeeeeeeeeeeeeeeeeeeeeeeef (only available when 14500 rechargeable lithium battery is used). For a little light, you're getting a nicely balanced and useful beam for most situations. Aevig Corvid Field Watch-(B)-$350 A fun and original take on the field watch. I'm a huge fan of how the dial was executed. 40mm case, screw down crown and 20 ATM water resistance, double-domed sapphire crystal with some of the best anti-reflective coating i've ever seen. Inside it is powered by a STP 1-11 Swiss auto movement, which is virtually identical to an ETA 2824 movement. The Champagne dial with the stainless case is currently sold out, being a microbrand, it's not likely that you will see this one in stock any time soon(if ever again). The coolest part about this is the lume, which is a secret blend used solely on this particular model. Astrolux EDC Pocket Size Flashlight with Quad Samsun 351D 80+ CRI Quad LED-(B)-$80(or $90 with high drain 18350 battery and li-ion charger) This is a bad ass light custom made by Justin Armbruster. What do you get with this little hand cannon? A stainless steel and copper body, 4000+ floody lumens, great quads with nice user interfacers, and a nice beam for EDC use. Included is a deep carry pocket clip which I think leaves a little to be desired, but it gets the job done. At this price point, you won't find anything near this level in terms of a pocketable Lume-monster. Ahhhh shit, I didn't realize how much more stuff I have to list..... Victorinox Credit Card Thingy-(B)-$25 This is one of the handiest tools that every single person should own. Our Swiss homies thought of everything for this one, including a pen, and a flashlight. How about that, eh? I think these are somewhere around $40-ish brand new? This one technically is not "new", but it definitely has never been used. Pen works great, as does the flashlight, though. Jeremy Marsh Vanquish(B+)-$2300 This one came in on a trade. I've always really loved Jeremy Marsh's work, but this one is just a little big for my personal preference. Acid-etched and stonewashed drop point blade with swedge, along with a notched thumb ramp and flipper. Handle is tumbled and skeletonized titanium over a single ti barrel spacer. Tip up clip. Signed by the maker inside the frame. She's a big girl, alright. 3.75'' blade, 8.75'' overall. Will consider multiple trades or trade+cash for this one. Here is a link from when it was sold a few years ago on Arizona custom knives. Not a bad discount Grimsmo Brass Button Spinner($85) and Grimsmo Top($150)-----or both for $200!!SOLD! If you like to fidget with stuff, you may as well fidget with stuff made by the Grimsmo brothers. I'm not terribly into this sort of stuff, especially the button(it is cool, sure), but I never thought a flippin' top could be so much fun to play with. I don't know much about the world of custom ultra high speed super tops, but I imagine this one is no slouch when paired against the best. 1 80g block of Fordite-$75 If you don't already know what this stuff is, go look it up. It's super bad ass and looks incredible no matter what you end up making with it. Ooga Booga Talismans/Key Chains-$12 Some of you that have purchased knives from me in the past may have randomly received an Ooga Booga from me. These things are fun, They also have the added benefit of protecting the owner from Evil. These are some randoms I had made awhle back, but if someone would like one made using specific colors, let me know. Miniature Tools-$30SOLD! I tossed these in because I figured what the hell, I was selling every other random item I could find. These little guys are vintage/antique hand tools(and itty bitty knife). The cool part, is that they're actual tools, especially the vice wrench. Perfect thing for one of you lucky fellas to add to your doll collection. Berg Blades Iron Wolf Pup-(C+)$185 IRON WOLF PUP IS BACK UP FOR GRABS This is one that I would rank pretty high on the list of "perfect EDC knives". S35V steel, perfectly milled carbon fiber scales. Will also try and include a set of 100% legit Vintage Westinghouse Micarta scales that I was working on last week. Giant Glow in the Dark Shark Tooth(A+)-$10SOLD! This is an exact replica of the Shark's tooth that my grandfather knocked out of the mouth of the white tip shark that among the hundreds that preyed on the survivors of the USS Indianapolis after it was sunk by the Japanese,2 weeks prior to the end of WWII. It's unlikely that he would have thought to collect the tooth on his own acccord, had it not been buried into hamstring. Unlike that tooth, however, this one glows in the dark. Also, unlike that tooth, this one actually exists..........sorry for the fib. This is cast out of an industrial epoxy resin with plenty of lume powder added into it. Hang it from your rear view mirror or your car keys and lie to all of your friends just as I lied to you! Lastly(I almost forgot about this one). Protech TR3 Automatic Knife(B)-$85SOLD I could sell 10 of these a day for that price. This knife is bad ass. Protech makes some ultra-gnarly autos. Why is one of their coolest models being sold so cheap? Well, for starters, it has a small scratch on the back of the pocket clip. I tried to show it in photos. Also, it does not include the box. Doesn't really matter, though. $85 is such a screaming deal for this knife that part of me is thinking about buying it off of myself right now. Any questions, ask them here or PM me, doesn't matter to me. I do, however, ask that any "I'll take it'" comments are posted here, and then followed up with a PM. I will entertain trade offers if they heavily weigh in my favor. So basically, outright sales will get priority unless previously discussed between us. Thanks everyone!!
GTA-O/5/2017 Power Struggle Explained: Weston vs Percival, Professionals vs Merryweather
I scoured the wiki for our favorite HD Universe and have come to a (tenuous) conclusion that Devon Weston is the Professionals secretive "Boss," runs the underworld near completely, is practically running the IAA/FIB from the inside, and is trying to take over Merryweather. I will extrapolate the claim below, so if you don't like long reads, this one is not for you! For those of us trying to understand the interdependent nature of events, this may be very enlightening and benefit anyone making machinima, writing fan fiction, or deep role playing for fun! To start: Assuming canon is correct (and that 14 isn't lying to us in dialogue), the game events start with Online in early 2013, career events happen 6 months later, and Gunrunning/Smugglers Run/Doomsday happen in 2017. It is my contention that since the Iraq war ended in 2011 (per game canon), hindering profits for Merryweather, whom begins operating domestically in 2013 as the IAA faces a massive funding shortage, this puts money on the table, not just for mercs and corporations, but for arms-running spies and the unique vultures that professionally prey on them. I further theorize that contact missions show TPI's war on the Lost, Aztecas, and Oneills, Crest's attacks on Merryweather, Simeon's cornering of the stolen auto market, and Madrazo getting hemmed up in court all work in Weston's/Professional's favor. Our (the protagonist's) involvement is stepped up when Lester notices our work and involves us in a heist of the Pacific Highway Fleeca branch. This Heist was not for bonds but for something else, thus the involvement of Paige (someone with tenuous links to Weston's operation) in such a small job. Paige alerts her superiors to your expertise and 14 arrives, paying you to a) free a spy that b) worked for our government c) on the chemical weapons program at Humane (which is totally secured by Merryweather). The outcome of this is then the Humane Raid for (edit) data on a "nerve agent" where we use Merryweather vehicles to shift blame onto the company. This is the most significant plot point in my theory, as it is here Karen Daniels, formerly undercover for the IAA front United Liberty Paper in Liberty City, first appears in Los Santos. Karen is our contact for the keycodes to Humane. Yet 14 says he has access to her surveillance detail and she states she needs confirmation to provide the codes before the ambush by the FIB (more on that connection later). This leads us to ask: if the IAA is an analogue to the CIA, who watches the watchmen and why are they confirming that you are the same folks from the Fleeca job, as Karen points out you are? (Edit) 14 explains just before the heist that "No one will want to admit anything happened here... Mr. Percival won't be successfully bidding on any government contracts if he can't stop himself from being robbed." Karen also has us destroy the Valkyrie and says "when I ran agents in the field, I had to entrap them, cajole them... now you just have to give them a few bucks and some kind words..." Trevor's heist may also be connected, as his Series A Funding jobs ultimately rob drug production operations we know from our MC businesses, guarded by Professionals. It is therefore unsurprising that the DOA (an organization with the same all seeeing eye as SecuroServ) is running a sting on the guy. It is this heist that basically breaks TPI's hold on Blaine County for the proffessionals forcing you to do the special vehicle work from I/E that mostly takes you up North in vehicles Trevor's Rednecks would have a wet dream over. And where did those vehicles come from? Goes without saying: Warstock is liquidating TPI's assets via warstock after you do work through the AdHawk network that runs your Organization's link to the outside world selling all nature of illicit cargo that can be linked to the Professionals. You do this work for us and we get you a special on these vehicles we need to use. It's a win win for the Professionals in the wake of TPI's fallout. And while most of these missions seem to consolidate control of the drug supply, a couple are worth looking into further. In Firewall Protection we are hacking the hackers trying to break into secure networks with mobile servers and fight the Khangpae. Coast Guard Duty we destroy their offshore smuggling operation. End of Transmission we steal a "Black Ops Transmitter" that we are hired to take possession of, presumably for the Professionals' boss, as this individual is feuding with someone else that has Merryweather working on securing it for them. Through the lens presented here, this can be viewed as follows: Weston wants to do a corporate raid on Merryweather (see his website). Percival is raising the share price on Merryweather by keeping profits afloat, trading drugs for the Korean gang's willingness to hack the government, where they would presumably find more information on profitable investments for the company and/or engage in corporate espionage. When Weston finds out, there is a falling out with Percival. Their black ops transmitter being a key facet of the operation, we end up scoring this for Weston and his Professionals. This leads to the final mission, Arms Embargo, where Weston has us raise the prices of arms on the whole island by destroying a shipment at Zancudo. This plays right in to his attempt to lower the stock price of Merryweather, as who else would transport a shipment that big from the manufacturers (Hawk & Little, whom Weston owns a slice of, too). As far as I can tell, this is the last thing that happens in canon before career events. Part two will cover Caree Events and three the 2017 online events, if anyone is interested. I know this is tenuous, but bear with me, the latter two parts definitely add credence to this theory, especially Michael DeSantos involvement with Norton from the FIB and the events of the Doomsday heist. Edit dos: I have been hard at work reviewing game footage from the career mode, mostly main storyline stuff. I must admit, I was completing my masters program when gta4 and expansions were released. I had to miss out. So I desperately would love help undertstanding personal dynamics from liberty city characters, starting with the Sánchez controversy here. If you know lc and the storyline, i would really love your input before concluding and publishing part two of my research here!
"A Sea Of Red": Global Stocks Plunge With Tech Shares In Freefall
While there was some nuance in yesterday's pre-open trading, with Asia at least putting up a valiant defense to what would soon become another US rout, this morning the market theme is far simpler: a global sea of red. Stocks fell across the globe as worries over softening demand for the iPhone prompted a tech stock selloff across the world, while the arrest of car boss Carlos Ghosn pulled Nissan and Renault sharply lower. Even China's recent rally fizzled and the Shanghai composite closed down 2.1% near session lows, signalling that the global slump led by tech shares would deepen Tuesday, adding a new layer of pessimism to markets already anxious over trade. Treasuries advanced and the dollar edged higher. S&P 500 futures traded near session lows, down 0.6% and tracking a fall in European and Asian shares after renewed weakness in the tech sector pushed Nasdaq futures sharply lower for a second day after Monday's 3% plunge and crippled any hopes for dip buying. News around Apple triggered the latest bout of stock market selling, after the Wall Street Journal reported the consumer tech giant is cutting production for its new iPhones. Europe's Stoxx 600 Index dropped a fifth day as its technology sector fell 1.3% to the lowest level since February 2017, taking the decline from mid-June peak to 21% and entering a bear market. Not surprisingly, the tech sector was the worst performer on the European benchmark on Tuesday, following Apple’s decline to near bear-market territory and U.S. tech stocks plunge during recent sell-off. The selloff was compounded by an auto sector drop led by Nissan and Renault after Ghosn, chairman of both carmakers, was arrested in Japan for alleged financial misconduct. The European auto sector was not far behind, dropping 1.6 percent, and the broad European STOXX 600 index was down 0.9 percent to a four-week low. “Most of Europe had a red session yesterday and that has been compounded by the news on Apple and tech stocks overnight, The overall climate is risk off,” said Investec economist Philip Shaw. “Beyond stocks, the Italian bonds spread (over German bonds) is at its widest in about a month now, and Brexit continues to rumble on - uncertainty is very much hurting risk sentiment,” he added. Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1.2 percent, with Samsung Electronics falling 2 percent. In Japan, Sony Corp shed 3.1 percent. Japan’s Nikkei slipped 1.1 percent, with shares of Nissan Motor Co tumbling more than 5% after Ghosn’s arrest and on news he will be fired from the board this week. Meanwhile, as noted yesterday, the CDS index of US investment grade issuers blew out to the widest level since the Trump election, signaling renewed nerves about the asset class. Exactly two months after the S&P hit all time highs, stocks have been caught in a vicious decline and continue to struggle for support as some of the technology companies that helped drive the S&P 500 to a record high earlier this year tumbled amid a slowdown in consumer sales and fears over regulation, many of them entering a bear market. At the same time, a more gloomy macro outlook is emerging, with Goldman chief equity strategist David kostin overnight recommending investors hold more cash even as it reiterated its base case of S&P 3000 in 2019. Ray Dalio disagreed, and said that investors should expect low returns for a long time after enjoying years of low interest rates from central-bank stimulus. “The easy days of long, global bull markets where you can invest in a tracker for five basis points -- I say this as an active fund manager -- and watch the thing go up, I think those days are gone,” Gerry Grimstone, chairman of Barclays Bank PLC and Standard Life Aberdeen PLC, said in an interview on Bloomberg Television. “It’s going to be a move back to value investing, and back to the Warren Buffett-style of investment.” In the latest Brexit news, UK PM May is reportedly drawing up secret plans to drop the Irish border backstop and win support from angry Brexiteers, while reports added PM May has received agreement from the EU to drop the backstop plan if both sides can agree on alternative arrangements to keep the border open. Meanwhile, Brexiteers reportedly still lack the sufficient number of signatures required to trigger a no-confidence vote against UK PM May, the FT reported. In related news, Brexit rebels reportedly admitted attempts to oust PM May has stalled as Eurosceptic MPs turned on each other. The Telegraph also reported that the confidence vote now appears to be on hold until after Parliament votes in December on Mrs May's Brexit deal. Sky News reported that the UK government are to publish new analysis before the MPs’ meaningful vote on the Withdrawal Agreement comparing the “costs and benefits” of Brexit. The impact of three scenarios will be measured; no Brexit, no deal, and leaving with the government's draft deal and a free trade agreement. In rates, Treasuries rose, driving the 10-year yield down to its lowest level since late September, ahead of Thanksgiving Thursday. Italian government bond yields jumped to one-month high on Tuesday and Italian banking stocks dropped to a two-year low, hurt by risk aversion and concerns over the Italian budget. Euro zone money markets no longer fully price in even a 10 bps rate rise from the European Central Bank in 2019, indicating growing investor concern about the economic outlook in the currency bloc. In FX, the Bloomberg Dollar Spot Index whipsawed in early London trading even as it stayed near a more than one-week low on concern cooling global growth will slow the pace of Fed rate hikes, keeping Treasury yields under pressure. At the same time, the pound stabilized as Theresa May appealed to business leaders to help deliver her Brexit deal, and evidence mounted that a plot to oust her as U.K. Prime Minister is faltering. The euro slid as Italian bonds dropped, pushing the yield spread to Germany to the widest in a month; the currency had opened the London session higher, supported by corporate buying in EUGBP. The yen rallied to a month-to-date high as Asian stocks followed a U.S. equity slide while the New Zealand dollar got a boost from a jump in milk production; the Aussie was on the back foot even after the RBA said Australia’s unemployment rate could fall further in the near term. India’s rupee rallied a sixth day after the central bank signaled a compromise with the government in their dispute over reserves. Bitcoin extended its drop below $4,500 for the first time since October 2017. WTI crude oil futures hovered around $57 a barrel after oil prices lost steam as fears about slower global demand and a surge in U.S. production outweighed expected supply cuts by the Organization of the Petroleum Exporting Countries. Brent crude slipped 0.9 percent to $66.21 per barrel. In other overnight news, BoJ Governor Kuroda said there is currently no need to ease further, while he added that there was a need for bold monetary policy in 2013 and now we need to persistently continue with policy. Furthermore, Kuroda suggested that the chance of reaching the 2% inflation target during FY2020 is low. Japanese PM Abe says the next initial budget is to have measures to address sales tax. India's Finance Ministry sources expect that the RBI will stand pat on rates at its meeting next month. RBA Governor Lowe states that steady policy is to be maintained for 'a while yet' and it is likely that rates will increase at some point if the economy progresses as expected. Expected data include housing starts and building permits. Best Buy, Campbell Soup, Lowe’s, Medtronic, Target, TJX, and Gap are among companies reporting earnings. Market Snapshot
S&P500 futures down 0.8% to 2,676.00
STOXX Europe 600 down 0.5% to 353.25
MXAP down 1% to 150.89
MXAPJ down 1.2% to 481.70
Nikkei down 1.1% to 21,583.12
Topix down 0.7% to 1,625.67
Hang Seng Index down 2% to 25,840.34
Shanghai Composite down 2.1% to 2,645.85
Sensex down 0.8% to 35,498.94
Australia S&P/ASX 200 down 0.4% to 5,671.79
Kospi down 0.9% to 2,082.58
German 10Y yield fell 1.4 bps to 0.359%
Euro down 0.2% to $1.1433
Italian 10Y yield rose 10.4 bps to 3.223%
Spanish 10Y yield rose 0.3 bps to 1.653%
Brent futures down 0.8% to $66.23/bbl
Gold spot little changed at $1,223.14
U.S. Dollar Index up 0.1% to 96.29
Top Overnight News
Bank of England governor Carney appears before lawmakers on Tuesday. He’ll be joined by fellow interest-rate setters Jon Cunliffe, Andy Haldane and Michael Saunders. Treasury Committee Chair Nicky Morgan has already asked the BOE to assess any agreement
While Salvini is threatening to hijack the EU agenda as the dispute over Italy’s 2019 budget heats up, his closest adviser is trying to steer the populist coalition away from a head-on clash with Brussels, according to senior government and League officials who asked not to be named discussing confidential matters
Credit markets are set for the worst year since the global financial crisis as investors abandon hope of a late-2018 rally
Turmoil engulfed cryptocurrency markets again on Tuesday, with every major coin extending a rout that’s rocking confidence in the nascent asset class. Bitcoin, which started the year at more than $14,000, has fallen below $4,500. Rivals including Ether, Litecoin and XRP joined the slide, though they pared losses that reached as much as 17 percent
Evidence is mounting that the plot to oust U.K. Prime Minister Theresa May is faltering. One rebel leader said in private that more than 50 Tories had claimed they would submit letter but they hadn’t all followed through
Germany and France have warned the EU to do more to prevent the U.K. from being able to claim victory in Brexit talks, according to EU diplomats. Spain’s Foreign Minister said the EU shouldn’t accept a text on a Brexit agreement that Spain isn’t happy with
U.K. Labour Party leader Jeremy Corbyn said he wants to keep a second Brexit referendum open as an option
Australia’s unemployment rate may fall further in the near term based on leading indicators of labor demand, the central bank said in minutes of its November meeting
Bank of Japan Governor Haruhiko Kuroda says he welcomes a diversity of opinion on the effectiveness of negative rates. He also said he believes continuing current policy is best approach for achieving the central bank’s inflation target
Asian stock markets were lower across the board as the risk averse tone rolled over from Wall St, where the tech sector led the sell-off as Apple shares dropped nearly 4% on reports it had reduced production orders and with all FAANG stocks now in bear market territory. As such, the tech sector underperformed in the ASX 200 (-0.4%) and Nikkei 225 (-1.1%) was also pressured with Mitsubishi Motors and Nissan among the worst hit after their Chairman Ghosn was arrested on financial misconduct allegations. Shanghai Comp. (-2.1%) and Hang Seng (-2.0%) were heavily pressured after the PBoC continued to snub liquidity operations and as China’s blue-chip tech names conformed to the global rout in the sector, while JD.com earnings added to the glum as China’s 2nd largest e-commerce firm posted its weakest revenue growth since turning public. Finally, 10yr JGBs were weaker amid profit taking after futures recently hit their highest in around a year and following mixed results at today’s 20yr auction. Top Asian News - BlackRock Doesn’t Expect Significant Growth Slowdown in China - China Stocks Lead Global Losses as Tech Rout Hits Fragile Market - Stock Traders in Asia Keep Finding New Reasons to Hit ’Sell’ - World’s Largest Ikea to Open in Manila as Company Bets on Asia Major European indices are largely in the red, with the SMI outperforming (+0.1%) which is being bolstered by Novartis (+1.0%) following their announcement of a joint digital treatment with Pear Therapeutics for substance abuse disorder. The DAX (-0.7%) is lagging its peers, weighed on by Wirecard (-5.0%) following a disappointing change to guidance forecasting as well as weak sentiment across IT names after the FAANG stocks entered bear market territory on Wall St. In particular, the Stoxx 600 Technology sector (-1.9%), dropped to its lowest level since Feb 2017. Meanwhile, Deutsche Bank (-2.5%) are in the red due to reports that the Co processed payments for Danske Bank in Estonia. Top European News
Draghi’s Man in Rome Shows Populists Alert to Budget Backlash
BASF Targets $2.3 Billion Profit Boost From Corporate Revamp
Danske Fights Back as Hush Money Claims Raise New Questions
The One Thing Supercharging Europe Earnings in 2018 Is Crashing
As Things Stand, Spain Will Vote Against Brexit Deal: Sanchez
In FX, the DXY index remains technically prone to further downside pressure having closed below another Fib support level yesterday and testing the next bearish chart area around 96.050-10 ahead of 96.000 even. However, a more concerted bout of risk-off trade/positioning saved the DXY and broad Dollar from steeper declines as the tech-induced sell-off in stocks intensified, and jitters over Brexit alongside the Italian budget returned to the fore. NZD/AUD - The Kiwi is bucking the overall trend and outperforming in contrast to this time on Monday, with Nzd/Usd rebounding firmly to 0.6850+ levels and Aud/Nzd retreating through 1.0650 to just south of 1.0600 following overnight data showing a hefty 6.5% y/y rise in NZ milk collections for October. Conversely, the Aud/Usd has slipped back under 0.7300 again, and close to 0.7250 in wake of RBA minutes underscoring no rush to hike rates and subsequent affirmation of wait-and-see guidance from Governor Lowe. In fact, he asserts that the jobless rate could decline to 4.5% vs 5% at present without inducing wage inflation, while also underlining concerns about the supply of credit. JPY/CHF - Both benefiting from their more intrinsic allure during periods of pronounced risk aversion and investor angst, as Usd/Jpy probes a bit deeper below 112.50 and a key Fib at 112.46 that could be pivotal on a closing basis with potential to expose daily chart support circa 112.16 ahead of 112.00. Meanwhile, the Franc has inched closer to 0.9900 and over 1.1350 vs the Eur that remains burdened with the aforementioned Italian fiscal concerns. GBP/EUR - Almost a case of déjà vu for Sterling and the single currency as early attempts to the upside vs the Greenback saw Cable and EuUsd revisit recent peaks around 1.2880 and 1.1470 respectively, but a combination of chart resistance and bearish fundamentals forced both back down to circa 1.2825 and 1.1425. In terms of precise technical/psychological levels, 1.2897 and 1.1445 represent Fib retracements, ahead of 1.2900 and 1.1500, while the Pound has remained relatively unchanged and unresponsive to largely on the fence pending Brexit rhetoric from the BoE in testimony to the TSC on November’s QIR. In commodities, gold has stayed within a USD 5/oz range and traded relatively flat throughout the session moving with the steady dollar ahead of US Thanksgiving. Similarly, copper traded lacklustre breaking a 5-day rally because of a subdued risk sentiment stemming from ongoing US-China trade tensions; with Shanghai rebar adversely affected from these factors. Brent (-0.1%) and WTI (+0.2%) are following a relatively quiet overnight session, while recent upticks in the complex resulted in WTI reclaiming the USD 57/bbl and Brent edging closer to USD 67/bbl. This follows comments from IEA Chief Birol that Iranian oil exports declined by almost 1mln BPD from summer peaks. Looking ahead, traders will be keeping the weekly API crude inventory data which is expected to print a build of 8.79mln barrels. On today's light data calendar, in the US, there should be some interest in the October housing starts and building permits data, especially following Fed Chair Powell’s recent comments acknowledging a slowdown in the housing market and yesterday’s homebuilder data. Away from that, the BoE’s Carney is due to appear before the Parliament’s Treasury Committee to discuss the Inflation Report, while the ECB’s Nouy and Bundesbank’s Weidmann are both scheduled to speak at separate events. US Event Calendar
8:30am: Housing Starts, est. 1.23m, prior 1.2m; MoM, est. 1.79%, prior -5.3%
8:30am: Building Permits, est. 1.26m, prior 1.24m; MoM, est. -0.79%, prior -0.6%
DB's Jim Reid concludes the overnight wrap With the sell-off of the last 24 hours we have now traded through the last of our YE 2018 top level credit spread forecasts as US HY widened 6bps to +424bps (YE 2018 forecast was 420). We still think US HY is the most expensive part of the EUR & US credit universe but as discussed above, last night we’ve become more optimistic on all credit in the near-term after what has been the worst week of the year. Credit massively under-performed equities last week but equities caught up on the downside yesterday. The sell-off was underpinned by the FANG names selling off, an accounting scandal emerging at Nissan, oil swinging around and the US housing market spooked by weak data. Just on the market moves first, the NASDAQ and NYFANG indexes slumped -3.03% and -4.28% yesterday, registering their fourth and third worst days of the year, respectively. Facebook and Apple fell -5.72% and -3.96% respectively, as the sector remains pressured amid a slew of negative PR and the spectre of stricter government regulation. Over the weekend, Apple CEO Tim Cook said in an interview that “the free market is not working” and that new regulation is “inevitable”. This negatively impacted highly-valued social media companies. Twitter and Snapchat traded down -5.02% and -6.78% respectively. The tech sector was further pressured after the WSJ reported that Apple had cut production orders in recent weeks for the new model iPhones, with chipmakers broadly trading lower and Philadelphia semiconductor index shedding -3.86%. The S&P 500 and DOW also slumped -1.66% and -1.56% respectively while in Europe the STOXX 600 turned an early gain of +0.71% into a loss of -0.73%. In credit, cash markets were 2bps and 11bps wider for Euro IG and HY and 2bps and 6bps in the US. CDX IG and HY were, however, 3bps and 11bps wider, respectively. Elsewhere, WTI oil first tested breaking through $55/bbl yesterday, after Russia stopped short of committing to supply cuts, before recovering to close +0.52% at $56.76. Bond markets were relatively quiet, with Treasuries and Bunds ending -0.4bps and +0.6bps, respectively, albeit masking bigger intraday moves. BTP yields rose +10.6bps to 3.597%, within 10 basis points of their recent closing peak, as rhetoric between Italian officials and their European peers continued to intensify. Finance Ministers from Austria and the Netherlands separately spoke publicly about their concerns, and expressed their hope that the European Commission will loyally enforce the fiscal rules. Italian Finance Minister Tria tried to calm conditions by framing the disagreement as relatively minor, though he also accused the Commission of being biased against expansionary policies, which he argued are needed to avert a macro slowdown. Back to credit, as we highlighted yesterday, the recent weakness in the asset class has become a talking point for broader markets and while our view is now that value is starting to emerge, there are an increasing number of idiosyncratic stories plaguing the market. There were a couple more examples yesterday with the aforementioned story about Nissan removing its chairman after being arrested for violations of financial law. This caused Renault’s CDS to widen +25.0bps (equity down -8.43%), while Vallourec bonds dropped 15pts after falling 11pts on Friday as concerns mount about the company’s rising leverage in the wake of recent results. Like we’ve see in equity markets, it does feel like credits are now getting punished with sharp moves in the wake of negative headlines Certainly something to watch, but as we said above, credit is now much more attractively priced than it has been for some time. From steel tubing to Downing Street, where we’ve actually had a rare temporary lull for Brexit headlines over the last 24 hours, although behind the scenes it does look we’re getting closer to the threshold for a confidence vote in PM May with the Times yesterday reporting that “senior Brexiteers” had told reporters that they had “firm pledges” from over 50 MPs to submit letters. As a reminder, 48 are needed to trigger the process. Looking further out, yesterday DB’s Oliver Harvey published a report arguing that there is still a path towards an orderly Brexit based on the existing Withdrawal Agreement should May survive a confidence vote. This path is provided by the political declaration on the future economic relationship. The latter has yet to be negotiated, and as the EU27 and UK recognise in the joint statement, the existing temporary customs arrangement (TCA) already provides a basis for a future economic relationship. Oli argues that the UK should push for the political declaration on the future relationship to explicitly commit the UK to a form of Brexit that might be described as “Norway plus.” The temporary customs arrangement would become permanent, but under the governance framework of UK membership of the EEA and EFT. The UK should tie the political declaration on the future relationship to the good faith clause in the existing Withdrawal Agreement, meaning that if negotiations were not pursued on these lines after the transition period had begun, the UK could withhold payments from the EU27. This would help to allay concerns from across the political divide that the UK would be “trapped” in a sub optimal customs union with the EU27. Meanwhile, to complicate matters, Bloomberg has reported that the EU is mulling over issuing a series of separate statements on Brexit on Sunday, in addition to the Withdrawal Agreement and the Political Declaration. This comes after pressure from some EU countries not to appease any additional UK demands. Elsewhere, the SUN has reported that the PM May has drawn up a secret plan to scrap the Irish backstop arrangement in an attempt to win over angry Tory Brexiteers after a meeting with them yesterday. However, if a mutually agreeable solution couldn’t be found over the last couple of years, it seems tough to imagine one was finally found yesterday afternoon. We’ll see. Further adding to the complexity of where Brexit heads, last night the DUP abstained on the UK finance bill, which implements the budget. This stops short of their prior threat to actively vote against the legislation, but is still a surprise and signals that further political turbulence between PM May and the DUP is likely. The bill only just scraped through. Sterling finished +0.14% yesterday and this morning is trading flattish (+0.02%) in early trade. Sentiment more broadly in Asia is following Wall Street’s lead with almost all markets trading in a sea of red. The Nikkei (-1.25%, with Nissan Motors down as much as -5.41% and Mitsubishi Motors -6.71%), Hang Seng (-1.84%), Shanghai Comp (-1.63%) and Kospi (-0.96%) are all down along with most other markets. Elsewhere, futures on S&P 500 (-0.29%) are extending losses as we type. Back to yesterday, where as we mentioned at the top, weak US homebuilder sentiment survey data played its part in the moves for markets. The November NAHB housing market index tumbled to 60 from 68 in October after expectations had been for just a 1pt drop. That’s the lowest reading since August 2016 and biggest one-month drop since February 2014. The details weren’t much better and falls into line with the expectation of a softer outlook for housing. As you’ll see in the day ahead we’ve got more housing data in the US today so worth keeping an eye on even if the October data for starts could be distorted by Hurricane Michael. As far as the day ahead is concerned, we’re fairly light on data today with Q3 employment stats in France, October PPI in Germany and November CBI total orders data in the UK the only releases of note. In the US, there should be some interest in the October housing starts and building permits data, especially following Fed Chair Powell’s recent comments acknowledging a slowdown in the housing market and yesterday’s homebuilder data. Away from that, the BoE’s Carney is due to appear before the Parliament’s Treasury Committee to discuss the Inflation Report, while the ECB’s Nouy and Bundesbank’s Weidmann are both scheduled to speak at separate events.
Stocks Slides As Trade Hopium Turns Into Hangover; Curve Inversion Accelerates
So much for the _trade truce_rally. One day after it emerged that nobody in the Trump administration has any clue about what was actually agreed upon during Saturday's historic "dinner date" between Trump and Xi, Monday's market "sugar rush" hopium fizzled and as we previewed yesterday, has turned into a vicious hangover, with US equity futures dropping and European shares tracking declines in Asia despite a modest recovery from Chinese stocks into the close as investors curbed their enthusiasm over any breakthrough in the trade war. S&P 500 futures indicated U.S. shares would give up much of their Monday’s gains at the New York open, while the Stoxx Europe 600 Index slipped led by the same automakers which surged yesterday on a Trump tweet about China dropping car tariffs, which has since been largely disproven. Markets slumped across the globe, with world stocks knocked off a three-week high as a result of dashed hopes of a swift resolution in the US-China trade war after media appearances from Trump administration officials shed little light on the specifics of any Sino-American trade agreement, while growing fears the U.S economy could be headed for recession sooner than expected weighed on the dollar. As Bloomberg notes, the optimism that drove Monday's gains quickly dissipated as investors scrambled to figure out exactly what, if anything, was agreed between the U.S. and China on trade at the weekend. Treasury Secretary Steven Mnuchin and President Donald Trump’s top economic adviser, Larry Kudlow, dialed back expectations and added qualifiers when asked about the outcome of talks between Trump and Chinese President Xi Jinping. China’s government did not help the mood as it was unable to formulate its response to the trade summit - three days after its conclusion - as senior officials are still out of the country with President Xi Jinping. China has said nothing about the commitment to remove car tariffs flagged by the U.S., nor did its statement mention the 90-day timeline for talks the Americans have specified. Following declines on Asian bourses, where Japan’s Nikkei stock index closed 2.4% lower, even as shares in Shanghai and Hong Kong fared better, fluctuating before ending higher as the yuan climbed, the mood was somber in Europe with the wider blue chip index slipping 0.3 percent. Frankfurt’s DAX and Paris’ CAC 40 fell 0.6 percent while MSCI’s index of world stocks declined 0.1 percent. "The initial relief rally was never going to last. Investors need more detail now in order for that risk on sentiment to survive,” said Jasper Lawler, head of research at London Capital Group. “So far that detail has not been coming through and investors have more questions than answers." Adding to market woes, was an inversion of the short end of the U.S. yield curve which foreshadowed the end of the Federal Reserve’s tightening campaign and raised the specter of a possible U.S. recession. The curve between U.S. three-year and five-year and between two-year and five-year paper inverted on Monday - the first parts of the Treasury yield curve to invert since the financial crisis, excluding very short-dated debt; meanwhile the closely watched 2s10s just 13 basis points from inversion. On Tuesday, the yield on benchmark 10-year Treasury notes dropped as low as 2.94%, sliding below its 200DMA for the first time since September 2017. “The focus is now shifting to the inverted U.S. bond yield curve which has negative connotations, while implying the U.S. economy is heading towards what was only a few weeks ago an improbable economic slowdown,” said Stephen Innes, head of trading for APAC at Oanda. “Now, even recessionary fear is starting to raise its ugly head.” German/U.S. yields moved in tandem, with curves bull flatten as the focus on curve inversion gains momentum. Long-dated Gilt yields drop 3bps, dragging peers lower, short dates underpinned by steady demand at the 2024 auction, although attention remains squarely on Brexit developments. As yields dropped and the curve inverted, the USD weakened against all G-10 currencies, weakening 0.8% against the Japanese yen and fell more than 0.5% to its weakest level since September against the offshore Chinese yuan to 6.83 yuan, with the Bloomberg dollar index sliding back under 1,200... ... while the cable rallied back above 1.2800 after the European Court of Justice offers a non-binding opinion on the possibility of an Art. 50 reversal. This was a bounce back from two-month lows it hit in early trade against the dollar on concern about British parliamentary approval for a proposed Brexit deal. The pound last stood 0.7 percent firmer at $1.2814 while weakening 0.2 percent against the euro to 89.10 pence. The South African rand strengthened after a surprise GDP beat, putting in the best performance in EMFX. WTI crude pushes higher through $54, but knocked off best levels after Saudi Energy Min tempers hopes for an OPEC+ production cut Fed Chairman Jerome Powell was scheduled to testify on Wednesday to a congressional Joint Economic Committee, but the hearing was postponed because of a national day of mourning for U.S. President George H.W. Bush, who died on Friday. Elsewhere oil continued to find support, and extended gains, adding to Monday’s 4 percent surge as investors bet a key OPEC meeting on Thursday could deliver supply cuts in the wake of moves by producers to address a supply glut that contributed to a 15% tumble in West Texas Intermediate prices last month. U.S. crude and Brent crude added 1.6 percent to $53.82 and $62.7 per barrel respectively. Later in the session oil pared some gains after Saudi Oil Minister Khalid Al-Falih said it’s too early to say whether OPEC and its partners will cut production. Gold hit a session high of USD 1238.83, reaching its highest value since the end of October, as the dollar continues to weaken on a decline in US yields following the positive G20 trade outcomes. Steel futures have hit a 7-month low as prices are pressured by the oversupplied market, this comes after the positive sentiment seen in base metals on Monday from US-China trade developments. Separately, palladium (+1.0%) hit a record high of USD 1221.95 earlier in the session. On today's economic calendar, no major economic data are expected. AutoZone and Dollar General are among companies reporting earnings. Market Snapshot
S&P500 futures down 0.6% to 2,774.50
STOXX Europe 600 down 0.3% to 359.96
MXAP down 0.6% to 155.59
MXAPJ down 0.03% to 503.44
Nikkei down 2.4% to 22,036.05
Topix down 2.4% to 1,649.20
Hang Seng Index up 0.3% to 27,260.44
Shanghai Composite up 0.4% to 2,665.96
Sensex down 0.4% to 36,113.39
Australia S&P/ASX 200 down 1% to 5,713.14
Kospi down 0.8% to 2,114.35
US Dollar Index down 0.5% to 96.53
Brent futures up 2.4% to $63.18/bbl
Gold spot up 0.7% to $1,239.66
German 10Y yield fell 2.2 bps to 0.284%
Euro up 0.4% to $1.1398
Italian 10Y yield fell 6.7 bps to 2.779%
Spanish 10Y yield unchanged at 1.492%
Top Overnight News from Bloomberg
President Donald Trump left his top advisers scrambling on Monday to explain a trade deal he claimed he’d struck with China to reduce tariffs on U.S. cars exported to the country -- an agreement that doesn’t exist on paper and hasn’t been confirmed in Beijing
The ECJ opinion was seen as potentially helping both May in getting her EU withdrawal deal through Parliament as it could encourage Brexit hardliners to back the agreement in fear of the U.K.’s exit will be stopped, as well as giving hope to those who want to thwart the process
China’s government isn’t yet able to formulate its response to the summit on trade with U.S. President Donald Trump as senior officials are still out of the country with President Xi Jinping. China has said nothing about the commitment to remove car tariffs flagged by the U.S., nor did its statement mention the 90-day timeline for talks the Americans have specified. On Tuesday, China announced an array of punishments for intellectual property theft
French President Emmanuel Macron plans to reverse course and suspend a planned fuel-tax hike that has sent as many as 300,000 protesters into the streets for three weekends in sometimes violent clashes
U.K. derivatives-clearing giants including a unit of London Stock Exchange Group Plc are pushing the European Union to guarantee that they’ll be able to continue serving the bloc’s biggest banks in the event of a no-deal Brexit, according to people with knowledge of the firms’ positions
South Africa emerged from its first recession in almost a decade in the third quarter as recoveries in manufacturing and agriculture contributed to an increase in economic growth
A section of the U.S. Treasuries yield curve inverted for the first time in more than a decade. The spread between 3- and 5- year yields turned negative, and the 2- to 5-year gap soon followed
Theresa May’s attempt to sell her Brexit deal to lawmakers was torpedoed before it had even begun, as opposition parties were granted an emergency debate on whether her government is in contempt of Parliament for refusing to release legal advice about the deal
The onshore yuan climbed for a second day, extending its biggest advance in more than two years, as a rally built on a truce in the China-U.S. trade war continues
The Reserve Bank of Australia left its key rate at a record low Tuesday as it gauges the impact of a housing market slowdown
Oil extended gains above $53 a barrel as investors held on to optimism OPEC and its allies will strike a deal to stabilize the market. The agreement between Saudi Arabia’s Crown Prince Mohammed bin Salman and Russian President Vladimir Putin raises the possibility of a production accord when OPEC and its partners meet this week in Vienna
Asian stocks traded mostly negative as the relief rally fizzled out in the region with investors quick to book their recent profits. ASX 200 (-1.0%) and Nikkei 225 (-2.4%) were lower from the open in which a pullback in consumer and energy stocks led the downside in Australia and with Japanese sentiment dampened by a firmer currency. An indecisive tone was seen in the Hang Seng (-0.5%) and Shanghai Comp. (-0.2%) amid a lack of fresh drivers and as participants await the next developments of the US-China trade saga with China reportedly considering possibilities of lowering US auto tariffs. In addition, US Treasury Secretary Mnuchin was said to be hopeful for an agreement but warned tariffs will be implemented if a deal fails to materialize, while China reportedly censored a post by the US Embassy regarding the recent trade developments and tariff ceasefire which some have suggested could be a possible effort to avoid looking weak or that it gave in to US pressure. Finally, 10yr JGBs traded higher amid the risk averse tone and as they tracked the overnight gains in T-notes. This coincided with the US 10yr Treasury yield dropping below its 200DMA for the first time in around a year, while the US 2y10yr spread continued to narrow to its flattest in over a decade. Today also saw a 10yr auction from Japan, although there was a muted reaction as the auction bore mixed results. Top Asian News - Foreigners Cut China Bond Holdings First Time Since Feb. 2017 - Sri Lanka Court Restrains Rajapaksa Acting as Prime Minister - China Announces New Punishments for Intellectual Property Theft - Rich Asians Are Crazy to Live in Shanghai, Luxury Index Shows European equities have kicked the session off with modest losses (Eurostoxx 50 -0.5%) as markets take a breather from yesterday’s “trade truce” inspired gains. The CAC 40 (-0.6%) is showing some marginal underpeformance relative to its peers in what has been a difficult start to the week for French equities amid domestic protests over the weekend, albeit tensions might show some signs of abating following reports that the French PM is to halt the proposed fuel tax hike. Elsewhere, sectors are relatively mixed thus far with mild outperformance seen in energy names (in-fitting with price action in the complex). Consumer discretionary stocks are a clear underperformer with Volkswagen (-2.2%), Porsche (-2.0%) and BMW (-1.9%) all lower after German car registrations fell 10% Y/Y. Postal names are softer in Europe following a disappointing update from BPost (-20.4%) which has sent their shares to the foot of the Stoxx 600, dragging Post NL (-5.3%) and Deutsche Post (-1.7%) lower in sympathy. In terms of individual movers and shakers have predominantly been the result of broker moves with Rightmove (+1.8%), JC Decaux (-3.3%), BAE Systems (-4.9%) and Continental (-4.0%) all gaining traction as a result of rating action. Top European News
Carney Says Worst-Case Brexit Scenario Is Unlikely to Happen
Danske Has About $2.7 Billion as Buffer Against Fines, CEO Says; Danske Says BlackRock Increases Stake in Bank
Europe Auto Stocks Drop as Jefferies Downgrades, U.S. Backpedals
NordLB to Start Discussions With Bidders After Getting 4 Offers
BT Upgraded to Buy at Goldman, Cost Transformation in Focus
In FX, DXY – On the backfoot again with the index retreating further from 97.000 to trip stops at 96.400 and register a fresh post-G20 low of 96.372. This against the backdrop of broad Dollar losses vs. its major counterpart and a sharp retreat in US Treasury yields with the long-end of the curve outperforming. EUR – Also benefitting from the Greenback’s misfortunes and hopes that Italy vs. EU fiscal friction may be resolved amidst latest reports that PM Conte will deliver another revised 2019 budget draft with deficit circa 2.0%. EUUSD back above 1.1400 (with 1.234bln option expiries between 1.1400-05) but just stopped short of a key Fib at 1.1424. JPY, GBP – Major G10 outperformers with cable briefly breaching yesterday’s high of 1.2825 (vs. intraday lows of 1.2720), absorbing offers around 1.2800-1.2820 on the way to a peak of 1.2839. The Pound may have derived support from another UK PMI beat (construction) having already gained impetus after the ECJ’s senior advisor stated that the UK can revoke Article 50 unilaterally (under certain conditions). The single currency vs. the pound holding just above 0.8900 vs. lows of 0.8890 with stops reported at 0.8950 (though some distance away). To the downside, 0.8861 is reported to be a support level. Elsewhere, the JPY is taking advantage of the ongoing buck decline and a marked downturn in risk sentiment after initial US-China truce euphoria, with USD/JPY taking out the Tenken line at 113.34, a Fib level at 113.17 and the 55DMA at 113.05 to hit a low of 112.75 (ahead of the psychological 112.50 and the 100-DMA at 112.25). EM –Turkish Lira remains pressured by the ongoing recovery in oil prices (large net importer). USD/TRY trading around 5.30 with concerns that the Central Bank may prematurely loosen policy (aided by the slowdown in CPI) also weighing on investors’ minds. However, the ZAR is the clear EM outperformer amid the latest SA GDP figures showing the country has recovered out of recession, while a rally gold (major producer) is also providing the Rand with impetus. Finally, CNY undergoes another day of strengthening in a continuation from the G20 momentum. USD/CNY trading comfortably below 6.8500 after the PBoC set the strongest Yuan fix since June last year. In commodities, Brent (+2.2%) and WTI (+2.2%) have continued to rise on expectations for a cut at the upcoming OPEC+ meeting, with any cut likely to take into account the reduction to Canadian output which is also supporting oil prices. Prices came off highs after Saudi Energy Minister Al-Falih stated that it is premature to suggest that OPEC+ will reduce output at the meeting this week, in turn hinting division amongst OPEC members. Initial source reports suggest that OPEC+ are working towards a minimum output cut of 1.3mln BPD from the October levels. However, Russia’s position of a maximum output cut of 150k BPD is the main obstacle to this, as OPEC want a minimum cut of 250-350k BPD. With sources suggest that OPEC may delay cuts if Russia does not agree to a substantial output cut. Looking ahead we have API data later in the day, with expectations being that crude stocks fell by 2.25mln/bbl for the week; if expectations prove accurate this will be the first crude oil draw since mid-September. Additionally, the weekly EIA release has been pushed back to Thursday at 16:00 GMT, due to the national day of mourning for Former President George H.W. Bush. Gold hit a session high of USD 1238.83, reaching its highest value since the end of October, as the dollar continues to weaken on a decline in US yields following the positive G20 trade outcomes. Steel futures have hit a 7-month low as prices are pressured by the oversupplied market, this comes after the positive sentiment seen in base metals on Monday from US-China trade developments. Separately, palladium (+1.0%) hit a record high of USD 1221.95 earlier in the session. Looking at the day ahead, it’s not the most exciting for data releases with the October budget balance for France and October PPI report for the Euro Area the only prints of note. There’s nothing of note in the US however we are due to hear from the Fed’s Williams this afternoon when he holds a press briefing at the NY Fed. BoE Governor Carney is also due to attend a hearing of the Treasury Committee on the Brexit Withdrawal Agreement. US Event Calendar
10am: Fed's Williams Holds Press Briefing at New York Fed
DB's Jim Reid concludes the overnight wrap Also in credit we’ve just published our two monthly chartbooks. The PowerPoint based one on global credit trends including issuance, flows, performance and relval ( link ) and also the excel based US credit strategy one with everything you wanted to know about US credit in a spreadsheet including up to date fundamentals ( link ). Elsewhere in today’s PDF link we’ve updated our PMI vs equities analysis. It shows equities as ‘cheap’ at the moment to current activity levels. Click on the full link for this report at the top for more with the commentary below. Bourses yesterday closed well off their early highs with the follow through from the trade ceasefire a little disappointing. This reversal has continued in Asia to a large degree with the Nikkei (-1.72%), Hang Seng (-0.52%) and Kospi (-0.95%) all lower alongside most markets while the Shanghai Comp (+0.04%) is flattish. 10yr USTs yields are 11bps lower than their peak yesterday at 2.939% (-3bps this morning) with the curve flattening further (see below). S&P 500 futures are down -0.58% as we type. Notwithstanding these disappointments, the reality is that yesterday US stocks did continue on what was a strong rebound from last week. Indeed after taking into account the +1.09% jump yesterday the S&P 500 is now up +5.99% over the last six sessions which is the strongest such run since February 2016 and second strongest since 2011. Tech led the way yesterday with the NASDAQ rallying +1.51% and the NYSE FANG index returning +2.80%. This was after the STOXX 600 finished +1.03% in Europe and the DAX +1.85% - albeit with both also closing off the early session highs. It was a similarly strong day for credit with Euro and US high yield cash spreads tightening -6.5bps and -11.7bps respectively – the latter by the most in a month. Despite the lack of follow through, there were some outsized winners. President Trump’s tweet about China agreeing to “reduce and remove tariffs on cars coming into China from the US” helped the S&P 500 autos sector to close +2.14% with Euro autos also surging +3.04%. In addition to that, we had the +4.30% jump for WTI oil (an extra +1% in Asia this morning) on the OPEC +/ Alberta production cuts stories we discussed yesterday. Markets are also digesting Qatar’s decision to exit OPEC from January 2019. Qatar has been a member since 1961 and while it’s not a huge volume contributor, the suggestion was that the country’s role as a diplomat had been significant. So a bit more uncertainty in the oil market. A reminder that the much anticipated OPEC meeting arrives Thursday/Friday. Treasuries also reversed the post G-20 sell-off, which saw a +6.0bp climb this time yesterday result in a flat close. Two-year USTs did rise +3.5bps though leading to the 2s10s curve flattening to only 15bps (down to 13.5bps in Asia with 10yr another -3bps) and to the lowest in the current cycle. There was also some talk of 5 year notes inverting through both 3- and 2-year notes for the first time in this cycle as well. So the curve is getting very flat, especially at this point. As a reminder 2s10s has inverted ahead of all the last 9 recessions. The good news is we haven’t inverted yet and that the average time between the two is 16 months, with the quickest being 9 months. So we have some breathing space if history is your guide. The bad news is that we’re getting closer and closer and a circuit break to this flattening would be helpful to risk and the economy over the medium-term. Several factors have combined to support the flattening move. The big rally in oil supported near-term inflation breakevens, with 2-year breakeven up +4.7bps and driving the entire move in nominal 2-year yields. Ten-year inflation breakevens were flat, explaining the flattening yield curve. WTI oil prices and 2-year breakevens have a high positive correlation of around 0.75. After both peaked on October 3, the former is down -30.5% and the latter has fallen by -57.0bps. At the long end, a steady flow of real money into Treasuries weighed on yields, possibly just due to rebalancing on the first day of the month after equities outperformed versus fixed income in November. To a lesser extent, markets continued to focus on communications from Fed officials, though comments yesterday from Fed Board Members Clarida, Quarles, and Brainard broadly met expectations and confirmed the sentiment from Powell’s speech last week (note that Powell’s Wednesday congressional testimony has been cancelled and not yet rescheduled due to the President Bush’s funeral). They reiterated the recent emphasis on data dependency and described the economy as at or near full employment and inflation as at target. Minneapolis Fed President Kashkari, a known dove who will be a voting member of the FOMC in 2019, departed somewhat from this assessment, saying that the economy “cannot be at maximum employment” if it continues to “create 200,000 jobs a month, month after month.” In the US, the final manufacturing PMI was revised down 0.1pts to 55.3 however the more important ISM manufacturing printed at 59.3 (vs. 57.5 expected) and jumped 1.6pts from October. That’s still below the 61.3 high made back in August but was clearly reassuring in the face of some more mixed data of late. New orders (62.1 vs. 57.4 previously) and employment (58.4 vs. 56.8 previously) also lept higher, however the softer inflation story was maintained with prices paid falling over 10pts to 60.7 (vs. 70.0 expected). Some suggested that seasonals may have slightly distorted the decline. Another small negative was the fairly benign new export orders reading (52.2) which failed to climb from October. Making less of a mark yesterday were the final global November manufacturing PMIs in Europe. Indeed the final Eurozone reading was revised up from the flash reading of 51.5 to 51.8 but was still the lowest since August 2016. That upward revision was helped by modest 0.2pts and 0.1pt upward revisions to Germany (to 51.8) and France (to 50.8), however these readings are also the lowest in 31 months and 26 months, respectively. Italy fell further below 50 to 48.6 and is now at a 47-month low, however, there was better news for Spain (52.6 and 3-month high) and Ireland (55.4 and 2-month high). Greece is even back to a 6-month high at 54.0, which means the 2.2pt differential over Germany is the highest based on data back to 2014. Meanwhile, there was a notable upward surprise in the UK (53.1 vs. 51.7 expected), a jump of 2pts from October and seemingly supported by domestic contracts picking up. In contrast, exports dropped for the second straight month with the report noting external weakness. Outside of Europe, China catches the eye with the Shanghai Comp actually 27% ‘cheap’ compared to the implied PMI. Interestingly only the S&P 500 is pricing in an implied PMI above 50 with Europe in the 45-48 range and China 46.9. We try not to over-analyse these results, preferring to use them to look at more general levels of global undeover valuations. However, they do support our view that markets have probably got a bit too negative of late. Over in Italy, two- and 10-year yields fell -17.4bps and -6.8bps yesterday as headlines suggested policymakers were receptive to less confrontational budget deficit targets. Prime Minister Conte is reportedly aiming to convince Salvini and Di Maio to shift the budget deficit from 2.4% to below 2.0%. The latest economic data (yesterday’s included), which has shown a marked slowdown in growth momentum amid the higher BTP yields, may be incentivising policymakers to back away from their more confrontational stance. However these were all headlines. There’s no firm evidence as yet that the deficit target will be markedly lower but the momentum seems to be moving in that direction. However last night Ansa reported Italian Premier Conte as saying that he is not trying to cut the budget deficit to below 2%. Last night in the UK, Parliamentary Speaker Bercow granted an emergency debate to determine whether or not Prime Minister May is in contempt of Parliament over her refusal to release the government’s full legal advice about the proposed Withdrawal Agreement. The debate will take place when Parliament convenes this morning, and it currently looks likely that May will lose a vote, since lawmakers from both sides of the aisle have expressed their interest to see the information. As for the day ahead, it’s not the most exciting for data releases with the October budget balance for France and October PPI report for the Euro Area the only prints of note. There’s nothing of note in the US however we are due to hear from the Fed’s Williams this afternoon when he holds a press briefing at the NY Fed. BoE Governor Carney is also due to attend a hearing of the Treasury Committee on the Brexit Withdrawal Agreement.
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