Too late to buy, too early to sell?

With the new month having started and the rest of a big data week ahead, Macro Man thought it might be useful to dust off his equity model for an update.  After all, narratives come and go, ever-shallower dips arrive for FunnyMoney to buy, but the numbers are what the numbers are, with emotion checked at the door.

Regular readers may recall an update a few months ago, wherein Macro Man noted that while his regression model remained very bullish, his scorecard- while still constructive- had recently downgraded to a less than maximum positive stance.  This was one reason among several that your author has not engaged fully with equities for much of the year, as it smelled a bit like "too late to buy, too early to sell."

Well, he re-ran the model with the latest batch of inputs from July, and at least half of that conclusion remains true.  The regression model is as bullish as ever- actually, check that, it's more bullish than it's been since the first flush of QE2.


The scorecard model, meanwhile, ticked over to its maximum-bullish reading for the first time since the end of last year.  According to these battle-tested indicators, therefore, the message is "time to buy, too early to sell."

So does that imply that Macro Man is preparing to jump in with both feet?  Not necessarily.   Models are, after all, not not reality themselves, merely representations of reality.   And in this case, the issue of Fed lift-off and its potential fall-out looms large; this is something that the model obviously knows nothing about.

So while he has intellectual sympathy for the dip-buyers' valuation metrics, if not their smugness, he anticipates remaining on the sidelines for a bit longer.   Six years of mispriced capital has almost certainly led to six years of misallocated capital; as the former begins to normalize, no matter how so slowly, it seems foolhardy not expect at least a little bit of fallout from the latter.


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Gnome of Zurich
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August 4, 2015 at 8:19 AM ×

I would say go with the model. People are too scared and negative at the moment. Roubini et al still getting airtime, unbelievable... Look at the AAII Bull readings, as low as in April 2013. Instos are sitting on the sidelines. A lot of people are expecting armageddon or at least "more clarity" after the Fed hike.

Even with well communicated +25bp, I think there's a reasonable chance that the bond market will not collapse, the economic recovery in U.S. and EU will continue and the equity market will surprise everyone to the upside in the second half, like in 2013.

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Winginit
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August 4, 2015 at 9:29 AM ×

Thanks for summering up my take on it half a sentence. “Is it too late to buy…?” I am leaning towards, yes indeed! At least for right now and since my view is short I am sticking with that. There might not be a stock market crash around the corner but to me it’s not difficult to feel that more correction is due. Another -10%?

Big trouble in little China, deflation focus, the oil nosedive, AAPL, TWTR. I don’t know, but I am intrigued to see that MM models are bullish. My conclusion is therefore it’s too early to sell as well and to maintain a holiday focus.

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washedup
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August 4, 2015 at 12:35 PM ×

Too late to change underwear, too early to buy new pants.
30% upside - the magic of ZIRP working its way through the model I assume - nice - funny money may be able to employ bernanke to fetch him donuts and for general amusement pretty soon.
Never mind, someone already did that.

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Bruce in Tennessee
admin
August 4, 2015 at 1:11 PM ×

http://www.cnbc.com/2015/08/03/the-real-message-of-plunging-commodities-commentary.html

The real message of plunging commodities

...What if you'd asked this question about Au a short while back? Too early to sell?

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Anonymous
admin
August 4, 2015 at 3:04 PM ×

Let's see:

1. Lowest level of mutual fund cash since 1954.

2. Breadth near record lows at a market high: http://jlfmi.tumblr.com/post/124671150790/the-thinnest-new-high-in-stock-market-history

3. Valuations (equal weighted, not cap weighted) at all time record highs.

4. World trade collapsing.

BULLISH!

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Leftback
admin
August 4, 2015 at 3:15 PM ×

Sentiment is too negative for any significant correction to happen in the short-term. All it takes is a little buying in AAPL and the whole happy clappy summer rally machine will be in full swing. So if I was to punt for the short term it would not be from the short side at the moment. August almost always sees one or two silly season rallies. Bonds look a little overbought here also. So apart from one or two tiny punts, we concur with MM that it's still Hammock Time. Stay patient, Q4 might deliver some really nice moves in metals, miners and emerging markets, but for now we have to wait... which, as you know, is the hardest part..

The Waiting

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Leftback
admin
August 4, 2015 at 3:27 PM ×

Speaking of AAPL, that is becoming an ugly chart, and it looks as though it wants to fill this little gap below 115. Of course b/c of its weighting in the indices, once AAPL bounces it's going to be difficult for bears to take hold of the market.

This is setting up like many US jobs number weeks we have seen before. Bearish sentiment, weak data, yields drifting lower, and then WHAM! OK, back to the hammock.

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washedup
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August 4, 2015 at 3:47 PM ×

"Sentiment is too negative for any significant correction to happen in the short-term"

I would really appreciate it if one of us could suggest a neat index on how to spot this unicorn known as 'sentiment' - word gets thrown about a lot and is clearly quite important - but I have always found it quite easy to discover counter-examples to each and every one of the so called sentiment indicators (some of which have been mentioned above).

As for the AAII sentiment survey of 300 high class (actually mostly upper middle class) individuals who may be drawn from professions as varied as chiropractor to furniture store owner , here is a statistical analysis on how well it actually works by none other than AAII - enjoy and let me know if it improves your conviction.

http://www.aaii.com/journal/article/is-the-aaii-sentiment-survey-a-contrarian-indicator

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Leftback
admin
August 4, 2015 at 3:56 PM ×

Any indicator can be critiqued, but when a basket of them seem to be expressing a similar (extreme) sentiment, it can be useful. AAPL filled that gap. Wonder if FM is ready to jump in there? One would not be surprised....

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FunnyMoney
admin
August 4, 2015 at 4:59 PM ×

@washedup :)
@LB - As you ask, I've mainly been a buyer of Dax this week (day-trades only). My opportunities elsewhere have been scarce both due to MM's valid point about dips getting shallower and the recent divergence between EU & US equities. In fact, though I'm loathe to admit it here, I even went short YM yesterday for a brief trade (driven by AAPL weakness).

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abee crombie
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August 4, 2015 at 5:38 PM ×

" Six years of mispriced capital has almost certainly led to six years of misallocated capital; as the former begins to normalize, no matter how so slowly, it seems foolhardy not expect at least a little bit of fallout from the latter."

Its most certainly in credit where the biggest bubbles are. Given the liquidity, ppl will shoot first and analyze later. Maybe not a story this year but will be in the future. For all the excitement of the FB's and Ubers of the world, so far that capital doenst look so misallocated, or even in biotech. Its probably in the 'old' economy. Commodities everyone knows. But what about when ppl stop paying $200 a month for their comcast and verizon bills and just pay for the data, or even get it from a mesh-wifi network. Communications are 23% of HYG....

Short Dow seems like a no brainer here.It looks very toppy. Too many sectors below 200day to make me bullish here. But this is a pure RS market, Buy whats working and sell whats not.

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washedup
admin
August 4, 2015 at 7:32 PM ×

abee - comcast is pure evil - it is the most vile, pernicious, harmful corporate creature that ever lived - it violates consumers every day, sucks out their life essence and strips them of their dignity if they have any left - it prowls around and kicks over old people on scooters - it makes money center banks look like innocent dolphins at sea-world, and hedge funds look like newborn kittens by comparison.
I am already nervous about my next call to them in a few months where I will grovel and prostrate myself before a snooty agent stationed in SE Asia to take $15 off for the next few months, all for the privilege of a connection as reliable as a soviet era condensate pipeline. I pay $100 for 'mega high speed internet' and feel like I am on dial up modem. I started sending this paragraph last night and am hoping it gets to you before NFP, not that my comments are relevant to NFP.
OK that last one was an exaggeration, but you get what I am saying.

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Anonymous
admin
August 4, 2015 at 8:03 PM ×

LOL, Washedup. Recently my "promotional" rate with Comcast suddenly and unexpectedly expired, so my monthly bill went from $110 to $166. Being a good groveler (and +10 year customer all totaled), I got it back down to $117, with about a hundred movie channels added, or so it seems.
Also, I bought SDS calls on 7/31. Current sentiment is a concern, but the market managed to go up and up for years in spite of highly bullish sentiment nearly the whole time. So we shall see.

Rossmorguy

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Anonymous
admin
August 4, 2015 at 11:02 PM ×

You can now add $AAPL to the list of energy, semis, transports, materials, utes as groups that have been taken out while $SPX stays up. No macro worries, MKT cannot stay down. Bad breadth, leaders faltering...it all gets resolved without an exogenous shock. It's been years. In fact, it's been quite exhausting. So when does it end?

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Anonymous
admin
August 4, 2015 at 11:08 PM ×

Rossmorguy

My Time Warner cable expired and I went to one of their service stores. I got 200/20Mbps plus basic cable at $43 per month.
Got a Google Chromecast HDMI Streaming Media Player and dumped the 100's of channels.

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hipper
admin
August 4, 2015 at 11:57 PM ×

Even though the old economy is, you know, old and almost obsolete and commodities so 19th century, it still seems to be a major lifeline of the economy. They say that the new economy is going to be the major growth driver for the coming decades but I wonder how much global investment and multiplier effects its really going to be providing for the economy. Enough to compensate for the problematic old economy built on demand, several years or even a decade away from now? Really not sure but still I'd rather doubt it: http://blogs.wsj.com/cfo/2015/08/03/commodity-companies-dragging-down-global-capex-sp/

I'd love to see a decent flush out in the long bond during the next month or so. For it to move sustainably lower based on the FFR tightening cycle should really have a lot of conviction lasting years from now and it would probably take more than just a couple of tokens, but based on all those reports of world trade growth barely staying afloat now and the resilient general slowdown of almost all things, it's just really hard to see happening. TLT in 2013 went from 122 in April to 103 in Sep, but doubt we'll get that far this time, considering the variation of global circumstances and if they're going the way one might think they're going based on this data? We have to wait atleast a year for sure but the odds are atleast decent I think.

Maybe equities make a correction but wonder if the initial short end moves will really have the muscle to create too much havoc.

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Anonymous
admin
August 5, 2015 at 6:29 AM ×

Does anyone else see this as a little problem?

http://www.bloomberg.com/news/articles/2015-07-31/italian-unemployment-rises-with-youth-jobless-at-record-high

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FunnyMoney
admin
August 5, 2015 at 8:21 AM ×

And this is why I've been buying Dax every morning this week: participants positioned short, as the market rallies +100pts. lol.

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Anonymous
admin
August 5, 2015 at 9:34 AM ×

Dax struggled last couple of weeks on china. Commentary slows down, euro weakens v usd and we get a bounce. Weaker euro had limited impact on exports in H1 coz China wasnt buying. Doubt thats changed. But dont tell the fx equity algo model that!

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Anonymous
admin
August 5, 2015 at 11:03 AM ×

Trade of 2015: Long FM, short Nico.

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Leftback
admin
August 5, 2015 at 11:41 AM ×

Trading DAX seems fairly hard work of late, basically it has been a weakly leveraged € carry trade of late (€ down, DAX up), so there are the constant headaches of worrying about FX hedging, that make this trade not worth leaving the hammock for. We have preferred to play the long bond for what seem like T-ball batting practice swing trades.

LB has noticed a steady growth in articles that proclaim the Death of Gold. Not being a gold bug, he doesn't disagree that the bull market died in 2011 after the reflationistas and HF elephants like Paulson back-tracked their way out of that market. More recently, as the small speculative tin foil hat community has thrown in the towel and exited we seem to have returned to an older more familiar role for the gold market, namely as a traditional alternative to non-US currencies for the dollar averse. In other words, gold simply creates a mirror image of the USD, so that a strong dollar forces down gold prices. With the gold mining stocks at decade lows, there certainly are a few ways of playing a (dead cat?) bounce in gold and silver that might occur once the present move in the USD is completed. The sentiment indicators would seem to be saying that this isn't far away. GDX and EEM should eventually prove to be the trades of Q4, and perhaps Q1 as well, unless China melts down totally.

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FunnyMoney
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August 5, 2015 at 1:41 PM ×

http://imgur.com/ZL5evUL

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Anonymous
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August 5, 2015 at 2:49 PM ×

FM ... that link was priceless! :)

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Leftback
admin
August 5, 2015 at 3:51 PM ×

FM: LMAO. Do you actually work at FRBNY? Perhaps FM is the physical embodiment of the mythical Plunge Protection Team?

Mr Market has deemed the morning's ADP data release to be a non-event, and both DX and US10y have retraced their little knee jerk moves. When you think about, we are smack in the middle of seasonal softness, so the 185k number is more or less what you would expect and certainly nothing to panic about. Even a <200k number on Friday isn't likely to sway the Fed from the course that it has already delineated.

One thing we can speculate on is what happens in the wake of an actual September hike. From this vantage point, we wouldn't be surprised to see a 25 bp hike, followed by major jawboning from the Fed to the effect that there isn't going to be another one any time soon. The resulting $ reversal will be good for commodities, JPY, EUR and EMs, but not necessarily for Spoos which have been positively correlated with USDJPY for some time. What happens with Treasuries depends a lot on the action in that market between here and the meeting.

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FunnyMoney
admin
August 5, 2015 at 4:42 PM ×

@Anon 2:49 - All part of the service :)

@LB: "mythical" ??? ;)

Here's my precis of today's market action: https://www.youtube.com/watch?v=QYEC4TZsy-Y
Special thanks go to the BOJ for their generosity today. Have a pleasant afternoon.

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Anonymous
admin
August 5, 2015 at 6:33 PM ×

Hmm.. Let's see... EM equities are collapsing off the face of the planet, creating a divergence relative to DM equities not seen since 2008. But the crowd is bullish because of "sentiment" indicators and "cash on the sidelines" arguments? Let's all ignore China and the collapsing world trade/industrial commodities, sell gold, and put our faith in sundry policy makers and pray... Momentum and hope -- that's how 98% of HFs make money... must be doing something right, rrrrrright?! :)

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washedup
admin
August 5, 2015 at 10:24 PM ×

anon 6:33 - stop scaring the kids - I am pretty sure the worst case for stocks is that they have reached a permanently high plateau!

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Dan
admin
August 5, 2015 at 10:57 PM ×

A nominal default in the fall forces repricing of everything. What is risk if the real deal is stinky?

September is the month for long-term PM shopping. Be your worst, Miss Market, and send the relic down for one final, glorious panic.

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Dan
admin
August 5, 2015 at 10:58 PM ×

ps - A real default means the bond-holders take a haircut. A nominal default means the payroll takes a haircut.

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FunnyMoney
admin
August 6, 2015 at 9:29 AM ×

So Dax up almost +100pts again on the open (sound familiar?). We've only had 8 consecutive up days on Dax now, with massive rallies each morning. Can you imagine if I'd listened to the EU equity bears? :)

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Anonymous
admin
August 6, 2015 at 10:00 AM ×

We can't imagine you listening to much of anything, FM.

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FunnyMoney
admin
August 6, 2015 at 10:15 AM ×

@Anon 10:00 - lol

Hoping we have a reasonable pullback in EU equities soon (daily timeframe). This weeks upmove seems a little aggressive, even for my tastes. Have a good day.

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Anonymous
admin
August 6, 2015 at 11:51 AM ×

Try a short FM!

Hopefully BOE stirs it up a bit.

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FunnyMoney
admin
August 6, 2015 at 12:17 PM ×

@Anon: 11:51 - Alas, I cannot, I asked IT to remove the "sell" button from my equities trading platform and replace it with "2xbuy" ;)

Interesting move in cable pre-release. Looks like a couple of others noticed it too:
https://twitter.com/TheStalwart/status/629246681595408384

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Anonymous
admin
August 6, 2015 at 3:03 PM ×

Nice report from ABX...and that's not even that good of a management team.

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abee crombie
admin
August 6, 2015 at 4:19 PM ×

MLP's getting crushed today and yesterday off a bad report from PAA and MWE (thought ETE today looks better).... HF fav SUNE down 18%.. media names also in the gutter... look for the rest of the market to follow

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Anonymous
admin
August 6, 2015 at 5:31 PM ×

"You have to step back and look at valuations," Effron said. "The average valuation in the M&A market today is 13 times EBITDA. As a reminder, in 2012 it was 10 times. In fact, the last time we were at 13 times was 2007." "We'll have YTD 40 or so transactions over $10 billion," he continued. "The last time we saw that was 2007."
Blair Effron Centerview Partners

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Anonymous
admin
August 6, 2015 at 6:53 PM ×

More interestedin Zack Effron's thoughts

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Anonymous
admin
August 7, 2015 at 12:27 AM ×

@FM

Anything new to add?
If not, STFU!

You'll ruin this blog!

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Anonymous
admin
August 7, 2015 at 2:41 AM ×

Looks like we have a another troll....don't feed it!

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