Was in wait and see mode, relaxing, but they pulled me back in with that rally ahead of CPI. Now that the number has come out, basically inline with consensus estimates, the market moves on to real fundamentals of earnings season and a dose of reality that falling inflation doesn't improve corporate earnings. And an inline CPI number just means that the Fed will do 25 bps hikes for the next 2 meetings, which isn't exactly a bull catalyst.
There is no point diving in to the CPI inflation underlying details, there are enough geeks out there who will do that and lose the forest for the trees. What matters is what the market is thinking on inflation, and its no longer scared of it. Its now quite sanguine and thinking that inflation will glide down to lower levels for several more months. I don't disagree, but there is no more big positive catalyst for declining inflation. The market has caught up to that disinflationary story line.
Big picture, remember that monetary policy is really tight and Powell seems to be happy with that, and not willing to go for that soft landing by doing an abrupt dovish turn. Powell still wants to be remembered as an inflation fighter, and he has room to act like a tough guy with nonfarm payrolls still coming in strong. He wants to get rid of that money printer label, that Mr. Transitory label. He's trying to rebrand himself as a hawk, and he'll try his best to fool the market into thinking that, and in the process, assure that the US stock market feels some serious pain before he pivots.
I am sensing investors are about to make another mistake by getting bulled up on the China re-opening story, getting excited about emerging market and European stocks. They fail to realize that China hasn't done a money spew like the US during Covid lockdowns. There is some chunky stimulus to keep the property bubble from turning into a total disaster, but not enough to reinflate the bubble. The bubble psychology in China for real estate is gone. Its not coming back. Not with the horrible fundamentals of oversupply with a shrinking working age population. The long term story is the bursting of the Chinese real estate bubble, which is much more important than some temporary blip higher in services demand post zero Covid, which everyone loves to focus on. It figures, considering how most investors' time frame these days is measured in days and weeks, not years.
I wrote on Monday that I was looking at shorting NDX/SPX when SPX got towards the 3940-3980 range. The market has gotten there and exceeded that level, and I've used the rally to put on a small short, with plans on adding more if we grind higher in the coming few days. Expecting a range for the SPX between 3800 to 4000, with NDX lagging SPX in the first quarter. There could be a slight overshoot beyond that range for a brief period, but expecting the majority of trade to happen in that range. Not time yet to go elephant hunting, just hunting deer at the moment. By spring time, it will be a different story and time to go for big game.
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4 comments:
I think short covering is over,so I put small short at es 4020,nq 11550. 더 올라도 어느정도 물타기 madness
@marketowl what are you thinking here. seems like patiently waiting but I feel this is a decent opportunity to short homebuilders and even indices. It may not work but the risk reward is attractive enough ino
I agree that this is a good risk/reward to short the indices. I have a moderate sized short position in NDX and SPX. I will add more if the market goes higher this week. Looking for some weakness starting at the end of the week and going into the end of the month. Haven't really looked much into individual sectors, but I prefer shorting large cap tech over anything else.
Added some more SPX short today. Slowly building a bigger position. The sudden positive sentiment that I see out there probably won't last for long, don't forget this is a bear market and monetary conditions are tight and getting tighter.
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