European PMI Data

It seems that manufacturing PMI data shows some sign of life in Europe.
In France it makes a four year high:

In Europe as a whole there is also a new high:

How would that translate to inflation is yet to be seen. But it seems that inflation is catching up in the main economies:

source: forexfactory.com

Equities rally, EUR is under pressure from both sides of the Atlantic

I had had a bit of break due to other business activities, so now I'm trying to catch up with the markets.

Equities:
SP500 broke out from a 5 months range. The next target is a measured move around 2300. 

Nasdaq is still within the range as we saw some asset rotation after the election. DAX made a fierce breakout from a 4 months range after ECB announcing the extention of its QE easing program. The next target is around 11500 that is the 2015 november high and alsa a measured move.

Gold broke the 1200 and no resistance in sight other than the 2015 Dec low of 1050. The retest of the 1200 could be a good entry point.

EUR/USD is near to the 2015 low of 1.0500. Both the US election and the ECB decision worked against the common currency. The retest of the 1.0800 could be a good short opportunity.

GBP/USD retested the 1.2750 level it broke before the flash crash. Apart from the flash crash big shadow candle it made a measured move before retracing.Another test of the 1.2750 and perhaps a false breakout could be a short opportunity.

AUD/USD is very noisy on many timeframe and it is difficult to trade. The same applies to NZD/USD. 

USD YPJ reached the level it broke in February. It is very overbought now so the outright trade of the break of 116.00 is difficult. The retest of the 112.50 are would be a long opportunity.

USD/CAD is back to the 1.3000-1.3250 range. 1.3000 is a long opportunity.

Lithium Battery Sector: LIT ETF

As I wrote here, the clean energy sector is under pressure, I think mainly because of competition forces. Energy storage will be an integral part of cleaner economy. oilandenergyinvestor.com has a great post on the subject.

It is worth to put Lithium ETF (LIT) on the watchlist. It gives a great vertical exposure in the lithium battery sector. The technical picture is mixed. The monthly chart doesn't look great. Though we have a higher low (1), trendline break (2) and the retest of the previous high (3).

On shorter timeframe there is a consolidation range after a bull run. On the daily chart the lower highs are somewhat bothering, but there is a triple bottom. This is a nice setup for betting on the range breakout.

US inflation expectations are rising

USD
There is no doubt that USD and the election implications will remain the key driver on the forex market. There are two forces that shape US economic projections:
- fiscal stimulus that is an upside risk
- and protectionism that is a downside risk.
But both forces are inflationary, therefore market pricing for Fed hikes is rising. This could fuel more USD strength. I think it is likely that the USD Index will challenge the upper bound of the sideway channel. 

Bonds
Given how dovish market inflation pricing was there might be still room for yields to rise. Treasuries look extremely bearish.

Equities
I struggle to understand how all this would impact equities. There was a rebalancing to traditional sectors, but that wasn't enough for SP500 to challenge the all time high. It is a little bit bearish sign. 

The very good news is: clean energy is a bad investment

Let me say something in advance: what is good for the investors is often bad for the society, and vica versa.

I had been working in the green space for some ten years, but I'm still following the industry related news. It was a bit shocking to see in the US election aftermath the coal company shares rally and the renewable sector plummet. It was a terrible headline, but clean energy is under significant pressure for some time. 

Solar
The best proxy for the solar industry is Guggenheim Solar ETF (TAN). Sowing it with SPDR S&P 500 ETF (SPY, right axis, orange) on the same chart, leaves no doubt, that it has been under huge pressure from 2011. If I recall it right, the German rooftop subsidies were running out that time and the government was reluctant to replace it with similar measures.

But I don't think that the main problem is regulatory related. Of course, regulation is very important until PV economics doesn't break even the fossil mix average prices. I think the main issue here is the competition. It is bad news for the investors, but very good news for the society. There are many PV panel producers on the market. The mostly traded companies (First Solar, Trina, Yingli, JA, Canadian, Suntech) market share is only some 35%, whereas other (no-name I may say) producers make up 48%. This suggest that barriers to entry are very small. One might thing it is a sophisticated technology. I think relative to semiconductor industry (approaching quantum physics theoretical limits) it is not a rocket science. Probably that is why the technology develops so fast.The price Wp is declining extremely rapidly. It is difficult to compare the costs with the traditional electricity generation (average cost vs marginal cost issue), but at some point it will competitive without subsidies. It might come sooner than we may think at the moment.

Wind
The best proxy for the wind industry is First Trust ISE Global Wind Energy Index Fund (FAN). The similar chart with SPY looks a bit better, but still not for putting my pension into this instrument.

The competition here is less intense, but still enough to drive the prices down by some 30% since 2008. Obviously the cost cutting potential here more limited relative to PV. I have to admit, that due to lack of tradable companies I followed much less wind industry developments, so I have much less understanding. But to me it is blade design, generator, voltage and frequency control and civil engineering. There is nothing they don't teach you in the university. People say that it is (obviously at some places) even now competitive with traditional power generation. But wind project development is much more difficult than a rooftop installation. 

Tesla
I can't exclude Tesla Motors Inc (TSLA) here. It is not a clean energy company (yet), but very much associated with the green industry. The usual chart again:

Yes, participating in the IPO was a very good investment so far. The question is will it be a good investment in the future as well? As an electric car-maker I don't think so. The German auto industry is coming to the marketplace soon with very competitive models. They develop their new electric cars with full throttle. Make no mistake, if the German car-makers commit to something, they will make it in very good quality and efficiently (unless it is some sort of software related minor technical issue:). Tesla US subsidy will also run out early next year. So the pressure on margins will be substantial that won't help the share prices. Musk is an extremely smart guy and perhaps that's why he is pushing SolarCity Corporation (SCTY) acquisition. And that is where we come back to clean energy. His vision about total off-grid vertical integration is really a great idea. The big question is whether it can be done globally. Is there an economies of scale, know-how or something else that would require big players on the market. I have some doubts. Projects are small, require flexibility that is not for the big companies, local guys are much better in that.

So the bottom line is that clean energy is not where you can make big money as an investor now. The competition is intense due to lack of barriers to entry. But, this is a very good news for the society. Prices are declining rapidly and the innovation is fast. Hopefully the industry soon will need no more subsidies, that should result in a kind of boom. It would be great for all of us and the investment setup will also change significantly. There are still a lot of problems to resolve that are not in the hands of the competitive space. Grid management is still a big challenge. But this is where utilities can do their part and politicians love to pass the costs to someone else.

The dust settled

I did not daytrade the post election hectic price moves, it is time to look at the shorter time frames again.

SP500: I don't see the risk reward on the long side, whereas I don't like the short because of strong market sentiments.

NQ: I missed two entries on the long side, so it is time to wait and see.

Gold: the chart is too noisy for me to trade at the moment.
Update: Gold is heading to 1200.
Update2: Thinking this through again, it was a very big mistake not to expect Gold short. Obviously massive risk-off positions were built up before the election that are being unwound. 

EUR: it is at a long term (March 2016) resistance, so I look for come correction. I missed two entries here again, stop would be at entry now.

GBP: I do not trust this rally and I will look for short entry around 1.2800 if it gets there. 

Aussie and Kiwi: both charts are too noisy for me.

JPY: approaching a major resistance at 107.50. No risk reward on the long side and I'm bearish on JPY.

CAD: it is also too noisy.

After the US election

I think the bond selloff was one of the most important event. I believe the election was just a catalyst of accelerating something that started somewhere in early October. There was simple too much talk about helicopter money and fiscal stimulus. I don't have doubts that Trump will go on this path. Therefore, I'm bearish on bonds over longer term, I will look to sell pullbacks.

 

Front end Yields changed little, whereas significant moves on the back end. We see this not only in the US but to some extent in the Eurozone as well. If this is to continue the financial sector (as it is a highly leveraged position in term mismatch) could rally significantly.

A re-balancing is going on to traditional sectors that could benefit somewhat more from any fiscal stimulus. SPY-QQQ spread could be an interesting trade on longer term.

Healthcare rally reflects the expectations on relaxed potential drug price regulations. Utilities were the worst performers since they acted as a bond substitutes.

USD and GOLD: honestly, its difficult to read any potential longer term implications from recent price moves. The USD Index is sideways on the weekly chart from March 2015. If I should bet which way it could break out I would say the upside is more likely. More budget deficit could force FED to be less accommodative, this could boost the rate differential trades. But, I would leave this for the economists.

Brett Steenbarger: Overcoming Boredom and Overtrading

This is really a great post from Brett Steenbarger that sheds light on perhaps the most important point about trading. 

Trading for me is not about the excitement of entering and exiting from positions or making money. Though, the latter is the final goal of the whole exercise. The point is that if I do everything well, if I continuously improve myself and try to be more and more professional, it must be profitable at the and of the day.

Trading is about continuously feeding my intellectual curiosity. Finding out the real cause and effect relationships behind price moves and try to project or feel what is to come is the goal. I like the video How The Economic Machine Works by Ray Dalio. It is a good example how we should think about the economy and the markets. We should try to find the main cause and effect relationships, positive and negative feedback loops and create a simplified model of the issues we try to understand. Each model has a great deal of simplification as our word is extremely complex. But, having a simplified model that covers at least a few very important relationships always better than just tossing a coin. This makes trading so much different than "pulling the levers on slot machines".

Strategies update after the US election

I tend to agree with people who say that Trump is best in raising money (especially debt that he sometimes doesn't even repays). So the bottom line is, that we might expect much more US government spending (mostly infrastructure) financed from the markets. So I add long PKB and CAT to my Asset Classes Absolute Return strategy. Whereas, I think the renewable industry is not going to enjoy much support, so I add FAN short. It is also widely mentioned that less regulation would help the pharma and biotech industry, so add PJP and XBI longs.

I add AXP long

and HD short to the Equities Market Neutral portfolio.

Risk-Off

Markets are clearly in risk off mode today, most likely it is to do with the upcoming US election. I would refrain this week doing any risk-on trade as the risks are pretty asymmetric that puts the odds against any such trade. 

Economic Data
Both BOJ and RBA announced the leave the rates unchanged. Aussie rallied whereas JPY is unchanged. CHY Manufacturing PMI was much better than expected.

FX
CHF and Gold gained some 0.90. CHF is sharply down after a HS formation (4H chart). 

EUR exhibits a nice relief rally as I don't think it has anything to do with the risk-on sentiment. The short side was simple too crowded. Though, I try to fade the rally as I think it is technically driven.

The AUD rally was sparked by the RBA  on-hold decision. I don't have much faith in the move so I probably will look for shorting it on lower timeframes. 

Perhaps the NZD is a better short should AUD turn north.

USD/JPY looks bearish as risk-off developed. I would see how it develops and look for long around 104.00.

Equities

Both SP500 and DAX are near pivot point especially the latter one and it looks just before falling off the cliff.

Market is to test FBI probe sparked moves

Economic Data will be very muted. In the US Personal Spending m/m and Chikagi PMI will be released, non of them are of high importance. Though the PMI is a good indication of the uncertainties surrounding the recovery:


In Europe the preliminary GDP and the Flash CPI estimate will be released. It is to see whether better than expected data will continue coming. EUR CPI looks as if the inflation is ticking up:


EUR/USD pushed through the 1.0950 resistance the follow through will be critical. We should see some consolidation before considering any trade.
















GBP/USD move was much less muted on Friday evening that suggest weakness. I think it is difficult to trade the 1.2250 level. It should approach other levels to consider any entry.


AUD/USD was one of the weakest on Friday. I will lokk for short entry targeting 0.7500.


NZD/USD looks much stronger. 


AUD/NZD short also could be an interesting trade if the 1.059 breaks.

USD/JPY is still a buy.


USD/CAD is too noisy for me.


SP500 looks more and more bearish, though 2210 is a strong resistance.
DAX looks more attractive from the long side,though 10800 a very strong resistance.

Dollar sideways, equities are widening the range

The good US preliminarily GDP (+2.9% q/q annualized vs +2.6% expected) did little with the USD.

EUR is within yesterday's range. There are two forces drive EUR rates:
- Policy divergence trades fueled by the increase in December FED rate expectations against the common currency.
- Better than expected Eurozone data helped the EUR. Coming releases will be important in this respect.
Look for short entry around 1.0950 or 1.0965 and false breakout, strong rejection bar at 1.0850.


There is not potential fundamental catalyst in sight that could significantly move GBP. Brexit talk ignited moves were faded quickly recently. Look for short at 1.2250 and long at 1.2080.


Aussie gave back the better than expected CPI gains and more. Its is in the middle of the 0.7500-0.7700 daily range. Look for opportunities at these levels.

Kiwi is somewhat similar to AUD on daily basis but looks technically stronger on the hourly chart. AUD/NZD cross seemingly rejecting the 5 months old resistance at 0.7700. Iron ore prices rose for the seventh day by 10%. Aluminum prices have also rallied strongly to five-year highs. The commodity complex should support the AUD, so I would not short at 1.0770. I would rather look for the false break of the 1.059 0 resistance.


USD/JPY exhibits some consolidation. I look for long at 104.85.


USD/CAD breakout loosing steam. Look for long entry at the retest of 1.3250.


SP500: long at 2124/2110 short at 2150/2170.