Risk assets make yet another V-shaped recovery

My observations about the v-shaped crash-rebound leading up to and after Trump’s election victory. I connect the dots to all market action so far this year. Also share some ideas for investors and traders.

 

Dump and pump comic-tragedy

The whole episode yesterday leading up to Donald Trump’s victory can only be described as Whiskey Tango Foxtrot – I wonder what it was all about. Mind you that whole S&P500 and Nasdaq futures going limit down and then posting a miraculous recovery to go into new high of day/week. The hell.

This is a comic tragedy. I was in the stock market in the late 90s, started trading e-minis 2 years after 9-11. The markets never behaved like this. It is one thing to get the direction wrong but another thing to have this kind of extreme V-shaped setup. Unless one didn’t put in stop loss orders and slept through the whole episode, the problem is these kind of V-shaped moves cut down both bulls and bears alike with a scythe. This is a real widow-maker. Not once but this is already the second one this year, the first being the whole market action up to and after Brexit.

Sigh.

Market round up

  1. EURUSD lost all of it’s gains.
  2. Yen crosses recovered almost all of losses.
  3. Stock indices posted new intraday highs even before 24-hours was over. They are also at high of week.
  4. XAUUSD got whacked down but retained some gains.
  5. USDSGD was unfazed and continued on it’s upward climb throughout the whole episode.
  6. Brent and WTI appeared to brush off the whole comedy.

 

Features visible in these charts of S&P500, Nasdaq

  • Both indices went down steeply, bounced off the year open (see bold horizontal black like) and then posted a miraculous recovery (best see on H1 – H4 charts).
  • Both are back above 2015-high or into the vicinity of 52-week high. Forget about bubbles, forget about systemic financial risks, forget about all the narrative to justify ZIRP and NIRP policies but technically these indices are in very bullish mode.

The way this one market operates despite all the things that are fundamentally wrong, I have now zero doubt we are going to see S&P 500 at 22,000 and Dow Jones Industrial Average at 180,000 before we ever see a meaningful correction of 15%. I kid you not.

Nasdaq weekly chart showing post-Brexit, post-US Presidential Election '16 stock market dump and pump

Nasdaq weekly chart showing post-Brexit, post-US Presidential Election ’16 stock market dump and pump

S&P500 weekly chart showing post-Brexit, post-US Presidential Election '16 stock market dump and pump

S&P500 weekly chart showing post-Brexit, post-US Presidential Election ’16 stock market dump and pump

 

Manage risk; ideas to look at

I still believe that the financial markets are meant to be rational price finding mechanism but these days it is more like operating on some kind of perpetual stimulus mode mixed with jawboning and rumour-mongering. On the other hand, one can’t just go all in on the long side either. This is how I reconcile what I am seeing and some ideas to follow-up with investigation and then possibly some kind of action:

  • This is how I see the craziness right now.
  • The markets are going full risk-on rally because of search for yield pushed by ZIRP and NIRP.
  • Keep gold as a hedge against stupid policies, political risk. If this is not clear, ask the Brits and the Mexicans.
  • Look at market sectors that are recovering such as commodities - copper has already broken out of a 1-year triangle consolidation since I wrote this blog post just a week ago.

    Copper weekly chart; bullish breakout 2016

    Copper weekly chart -bullish breakout

  • Look at rising sectors in stocks – there are still stars trading near 52-week high for example in the healthcare sector in Singapore.
  • There are also segments that deliver positive yield over deposit rates.
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.   Soh's Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX.   Disclaimer notice: "I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."
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