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February 28 2020

Commentary by Eoin Treacy

February 28 2020

Commentary by Eoin Treacy

Lead Indicators of Recession

Eoin Treacy's view

After a week characterised by selling across the board, a great deal of profit taking has taken place and many overextensions relative to the trend mean have been unwound. The question I believe many people will be concerned with is whether the coronavirus is going to be the catalyst for an economic contraction? I thought it would therefore be worth monitoring the kinds of instruments that offer a lead indicator for that kind of concern.

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February 28 2020

Commentary by Eoin Treacy

Kolanovic Says $150 Billion Systematic Selling Drove Stock Rout

This article by Lu Wang for Bloomberg may be of interest to subscribers. Here it is in full:

About $150b worth of stock selling from computer-driven traders and options hedgers drove the S&P 500’s worst two-day slump since 2015, according to JPMorgan strategist Marko Kolanovic.

* The unloading is largely over, Kolanovic wrote in a note to clients on Wednesday
* While the spread of the coronavirus sparked risk-off, traders who watch market trends and volatility for trading signals acted as “significant drivers” of the rout as the S&P 500 broke key support levels
* Exacerbating the sell-off was the dwindling liquidity as a measure known as market depth dropped by more than 50% * The selling trend from commodity trading advisers, or CTAs, now seen over, as S&P 500’s 200d (~3045), 6m (2900) and 12m (2800) signals are not likely being breached
** CTA’s equity exposure fell from ~85th percentile last week to ~40th percentile now
** “Selling will likely stop here”
** “A move higher could prompt CTAs to buy back equity exposure, so we think risk from CTAs is skewed to the upside.”
* Volatility targeters, such as variable annuities and risk parity funds, are likely to continue selling over the next few days to account for the pickup in equity price swings that were too large to be offset by bond moves
** Selling pressure expected to ease once their exposure drops to 35th percentile, vs 75th percentile before the sell-off
* Expected inflows from pension funds, which rebalance monthly and will need to buy stocks to return to prior asset allocation levels following the latest decline, are helping support the market
** That demand estimated to equal to 1-2% upside for the market
* “Option hedgers and CTAs are now more likely to buy than sell, and volatility targeters are still selling but at a lower pace, so we think a short term bounce-back is getting likely given month-end flows”

Eoin Treacy's view

This note referenced above was released on Wednesday and since then the market has continued lower. However, the sharper the acceleration the closer we are to a low, even if dip buying has not worked to date, it will inevitably work eventually. Today was the last day of the month and it therefore represents the last opportunity for institutional investors like pensions and insurance companies to commit capital to the market.

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February 28 2020

Commentary by Eoin Treacy

Gold Joins the Virus Bloodshed With Biggest Slide Since 2013

This article by Justina Vasquez and Ranjeetha Pakiam for Bloomberg may be of interest to subscribers. Here is a section:

“It’s bloodshed,” Commerzbank AG analyst Carsten Fritsch said by phone Friday. “It first started with forced selling from equity investors who also sold their gold positions to cover their losses in equities and also to cover margin calls. Gold investors don’t want to sell but are forced to cover the losses in other asset classes.”

Spot gold fell the most intraday since June 2013, according to Bloomberg generic pricing. The metal was down 4.5% at $1,571.05 an ounce as of 1:35 p.m. in New York. Other precious metals including silver and platinum also dropped, with palladium sliding the most since 2008.

Fear over the economic fallout from the coronavirus has unnerved markets, sending the S&P 500 index toward its worst week since 2008. The outbreak has further undercut investor demand for raw materials, which was already wavering because of increasing supplies and concerns over global trade wars. Returns from commodities have plunged on worries that the fast-spreading virus will crush demand for raw materials, fuel and food across the globe.

Eoin Treacy's view

The baby is currently being thrown out with the bath water, to coin a phrase. Contagion selling sets up some of the most attractive buying opportunities in assets not directly linked to the epicentre of risk. Therefore, this is an important time to monitor the precious metals sector.

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February 28 2020

Commentary by Eoin Treacy

Eoin's personal portfolio: commodity long initiated February 18th 2020

Eoin Treacy's view

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.

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