At the end of March, the Fed reinstated the required reserves into the SLR of the banks. In order to avoid problems with the banks’ ability to maintain their ratio requirements, the Fed opened the overnight reverse repurchase facility where banks could funnel excess reserves into T-bills and earn interest — the Fed swaps T-securities for cash (takes in cash, and puts out T-securities). This is the opposite of QE. This is tightening; reducing liquidity.
However, because the Fed is continuing with the SOMA expansion, the net tightening is somewhat blunted. Subscribers are well aware of the fact that the…
In this piece, we explain why retail investors who wish to accumulate wealth should limit their day-trading activities.
The more frequent the trading (like day trading), the higher the chances of loss overall. This is something I learned both from experience and from observation; wealth is accumulated by identifying the primary trend and staying with it, not by high-frequency trading.
There is a fundamental principle at work which results in a concentration of success in a minority number of players. Two models describe this tendency: Price’s Law, and Pareto’s Principle.
Price’s Law says that 50% of the work is accomplished…
Where are we? At the edge of a cliff, or the foot of a mountain?
In the weekend summary, we pointed out that the McClellan summation index RSI was poised to turn back up while still above 30, like it did at the start of the November recovery, and that is what it did on Monday. This increases the odds that we are at the foot of a mountain (chart below).
The wild ride in the stock market during 2020 has served to underline and support our working hypothesis — fund flows and fear drives the stock market. The market is not driven by news, even news of a once-in-one-hundred-years pandemic. News, whether financial or Geopolitical, can temporarily “jiggle” the market, but it does not drive its primary trend. And the market is not driven by the economy either, even if the economy shrinks by 33% almost overnight. …
By David Huston and ANG Traders
The most over-traded stock in early 2020 was Tesla, which shot up 125% in the first six-weeks of the year, fell 62% during the pandemic shutdown, then climbed 468% by the end of September. While Tesla has more substance than “tulips” or “Beanie Babies,” the continuation of its meteoric rise can be reasonably questioned. Even if Tesla represents the future of electric vehicles, much of that future has already been accounted for in its current stock price. …
It is, of course, too early to call the election, but not too early to consider the economic effects of having a democratic president, especially when the majority rhetoric among those in the investing community — who should know the historical facts, but speak as if they don’t — is predicting economic and stock market doom should Trump lose the election. In this piece, we show that the facts say otherwise.
The Congressional Joint Economic Committee of 2016 (read full report here) showed that GDP grew, on average, 1.6 times faster under Democrats than under Republicans (chart below).
With all the digital ink being spilled over the “problems” with breadth not confirming the V-shaped recovery, we thought we would show how wrong that analysis is.
When we looked at the advance-decline line in ratio to the SPX, price we saw that in both the 2000–02 and 2008 bear markets the ratio dropped significantly, which means that the advance-decline line did worse than the SPX price, but in the virus-induced pullback the ratio increased, which means that the advance-decline line did better than the SPX price; positive breadth even as the price collapsed.
This confirms the veracity of the quick recovery in the SPX (chart below).
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Except for 2018, pullbacks since 2008 have made two down-spikes in the SPX and corresponding up-spikes in the high yield spread. We may be experiencing the second set of spikes now with the current pullback.
The 10y rate moves directly with the unemployment rate, and the SPX moves inversely to the unemployment rate. Major bottoms in the SPX (vertical red lines) correspond with the top of the unemployment rate. Since unemployment is unlikely to increase much further, it is reasonable that the low for the SPX is in already.
Forty years of private equity trading, and still learning.