In the Eye of the Beholder

Published on: August 14th, 2020

Since May, S&P500 has tracked modestly higher but there have been big moves in relative value, currencies and select commodities, which a disinterested observer will not have noticed. What does that tell us and what should our next steps include? On top of recommendations, there are a few ideas Julian has on his radar.

Comments

  • GM
    Guillermo M.
    18 August 2020 @ 03:21
    Thank you, Julian. Just one question; if the issue of COVID-19 is sorted out in one way or another (herd immunity, vaccine), do you think there would be important and lasting (6+ months) effects from then on regarding precious metals prices?
  • AA
    Alberto A.
    18 August 2020 @ 02:25
    Thanks Julian. Great " In Focus" reviewing the overall strategy framework/thesis and moving into the updated concrete trading ideas. I like the 30K feet overall concept thinking but if it doesnt land into something concrete than is just an opinion. What I like about your thinking and approach is that you trade what the market is giving us and not what we want the market to be. Interesting 90 days ahed...
  • JA
    Joseph A.
    17 August 2020 @ 15:28
    If I may add some technical analysis considerations for EWW entry, there was a gap up after an outside day candle occurred on 13th August. The entry would have been just above the high of that day (3432 spot price). As the market has gapped above that price and Julian wants to wait for a pullback below 34 may I suggest a refinement of that and use just above 3432 as the order entry and also therefore a tighter stop just below the low of the outside day on 13th which was 3373 spot. If this trade works the position size can be larger than using Julians technique or remain small and added to if it rises into profit from 3432. If it fails it matters less as the price would remain below 34 and then another entry attempt can be made somewhere below 34 using Julians suggested stop with the appropriate position size. This idea allows possible capture that might otherwise be missed and with a better Risk Reward Ratio.
    • JA
      Joseph A.
      17 August 2020 @ 15:33
      I can add that if anyone is concerned about the gaps below the August 13th low and the August 5th low then feel free to put the stop below one of those gaps instead of immediately below the low of the 13th as both stops would still be above 30 allowing a better RRR or larger position size if so desired.
  • PC
    Peter C.
    14 August 2020 @ 22:52
    Great report. I only have one big concern: COVID getting worse in autumn and the potential impact this may have on Julian's trades. I believe chances are much higher than 50% and I am not sure Julian considers it. It seems that he is aiming for a decreased impact of COVID at some point in the months ahead while many epidemiologists believe the opposite. The situation in the US does not seems to be as bad as predicted but in practice we are still dealing with a first wave and not a second one. It is only a shift from one hotspot (NY area) to a second hotspot (the South). Cases spiked in the Southern states and the summer parties and angry crowds were definitely part of the deal. Deaths and hospitalizations are relatively lower than the spring peak due to a higher level of testing and relatively more young people that got it but they are still elevated. It remains to be seen how it progresses now 'social distancing' is at least a bit better adhered to but I fear cases will still be very high when schools reopen, work activity increases and temperature starts to gradually drop, all increasing Rt and as such the speed of the infection and the level of immunity needed to reach herd immunity, which will be much more than 10-20%. The study Julian mentions looks promising but there is data that shows population infections in the 40-60% area (e.g. Ischl in Austria and India), which shows that the T-cell response may be weak in practice. Immunity may be short-lived as well if it is similar to other Coronavirusses (6 to 12 months), which means that more than half of the population with antibodies in NY may have no protection anymore when the second wave hits the city. So I really fear for an explosive situation that is not captured by the current models. History migh be a better guide (check the second wave of the Spanish flu). To be clear: I really hope I am wrong and Julian right but I do think the impact of this scenario on the trades needs some thought.
    • SJ
      Sean J.
      17 August 2020 @ 13:44
      Buy physical gold & BTC, guns & ammo, etc.
  • VD
    Vili D.
    16 August 2020 @ 17:55
    Thank you Julian. What are your thoughts on CHF? I have been long CHF on both trades USD/CHF and CHF/JPY for 5-6 weeks and but I closed USD/CHF short recently.
  • BK
    Brian K.
    16 August 2020 @ 01:08
    Interesting note on Mosaic. I think that Boockvar mentioned it, too. I’ve owned CF Industries for a while, and it’s had a recent uptick. Different type of fertilizer, but maybe part of the same trend. Will look into MOS to add to my fertilizer, ag, commodities exposure.
  • BK
    Brian K.
    16 August 2020 @ 01:08
    Interesting note on Mosaic. I think that Boockvar mentioned it, too. I’ve owned CF Industries for a while, and it’s had a recent uptick. Different type of fertilizer, but maybe part of the same trend. Will look into MOS to add to my fertilizer, ag, commodities exposure.
  • AK
    Adam K.
    15 August 2020 @ 18:39
    I am half-way through the article Julian. If there is no mention of you becoming a Bitcoin believer in this article, then you're missing a massive generational opportunity.
    • AK
      Adam K.
      15 August 2020 @ 18:49
      I am disappointed.
  • RM
    Richard M.
    15 August 2020 @ 11:49
    Thanks Julian . I note you mention that your SP500 puts allowed you to worry less etc... and I am neurotic about managing my downside so I like the concept. What future date did those puts relate to and now they're worthless will you be buying more puts with a longer future horizon?
  • HK
    Hendrik K.
    15 August 2020 @ 08:00
    Super Interesting Buffet bought into Barrick now! What do you think of GDXJ instead of GDX or mix (50/50) for Risk/Reward?
  • RM
    R M.
    14 August 2020 @ 16:37
    Since Milton is doing a survey, let me say this report is very much the kind of report I appreciate getting from MI. It makes the macro case and moves to key recomendations. Although I use my own stops, I appreciate Julian's stop suggestions. Regarding the conclusion section: Nobody could have predicted a year like this one! The key thing moving forward is when 60/40 and risk parity roles over and dies, it could be quite ugly. And then what replaces bonds in the asset mix? If it is currencies, then we really have to see key multi-year trends develop to ride them successfully. If I had to guess, it would be commodities, so these plays make sense. Thanks Julian!
    • DB
      Daniel B.
      14 August 2020 @ 18:52
      Correct me if I'm wrong but Gold and Silver appear to be leading the charge to replace bonds.
    • RM
      R M.
      14 August 2020 @ 20:31
      Dan: Agreed.
  • DB
    Daniel B.
    14 August 2020 @ 20:10
    Excellent report - Just need to add bitcoin next time around.
  • JM
    John M.
    14 August 2020 @ 17:34
    Great report again. One thing you didn’t cover - I am wondering how/if to think about the lapse in CARES act? If this causes vol in SPY, how do you think real assets will hold up?
  • JM
    Jake M.
    14 August 2020 @ 16:58
    Recently, we have seen gold/bond/tech growth stocks go down together while value stocks go up. Is this at least partially related to the fact that correlation between stock (say s&p 500) and bond becoming positive? The explanation briefly touches that its explanation lies in the fact that yield is very low. Why would super low yield cause bond and stock to have positive correlation?
  • GJ
    Gino J.
    14 August 2020 @ 16:50
    A very thoughtful and insightful perspective!