Loading...
 

Chameleon Asset Strategies Blog

Items filtered by date: March 2016 - Chameleon Asset Strategies

On Thursday of last week, the ECB announced even more robust stimulus measures. They increased their asset purchase program from 60 to 80 billion Euros a month and broadened the scope of the assets that they’re able to purchase. They dropped their interest rates even further into negative territory and exercised additional creativity to address bank balance sheet vulnerabilities. This was an impressive policy response which has real merit in terms of being able to mitigate systemic risk in the European banking system.

On the flip side of this coin, one would conclude that economic conditions in Europe continue to be mediocre/unfavorable to the point that these measures were required. I do believe that they’ve managed to eliminate some of the systemic risks associated with debt tied to depressed commodity producers however this “bazooka” as it’s being called, further impedes day to day banking operations and profits. People are also wondering whether the ECB has any further capabilities should the intended outcome not be achieved. Given the controversy over these actions, I think that support for further easing and stimulus is virtually non-existent.

The Federal reserve will be meeting again this week to discuss domestic economic activity and their proposed path for interest rates in the future.  I’m not going to attempt to speculate on their conversation and the ensuing market reaction. I will however say that the 10 year Treasury yield has increased very significantly in the last few months and now has a great deal of room to move back down if they leave the door open. On a relative value basis as compared to the German equivalent, our 10 yr is now even more attractive and I would look for the spread to narrow as opposed to moving further apart. 

I think that the recent rally in the price of oil and other key commodities has given equity markets quite a bit of leash to move up however I am still far more interested in taking short positions at these levels than chasing momentum and hoping that they can break through the fortress of resistance above. The risk remains to the downside as global growth appears to continue on a contracting glide. The gameplan this week is the same as last – I’ll be looking for quality opportunities to sell equities and buy Treasuries and Gold. A close in oil below $36 will likely bring quite a bit of fear back the market.   

 

All the best,

Stephen

 

All of the stock market index futures have rallied into areas of supply and momentum appears to be slowing. Copper and Oil have blasted higher where they should now encounter selling pressure for the first time in weeks. The US dollar index has been taking a hit as of late and providing a tailwind for most commodities. It still has a bit further to drop before finding demand, but at that point it will likely become a headwind instead.

 

Gains in the Nasdaq futures have been noticeably weak compared to the S&P and Russell due to lack of exposure to energy and materials. Both areas have experienced a combination of bottom fishing and short covering – neither of which are representative of sustainable progress. I’d expect it to try to catch up if for some reason we get wonderful news, otherwise it appears ready to lead to the downside. I’m of the persuasion that we’re still in an environment where investors are shedding risk and seeking stable, more reasonably priced assets so the relative underperformance and further slide fits the narrative.

I’ll be looking for short opportunities in equity futures and buying opportunities in US treasuries and Gold.

 

All the best,

Stephen

 

The markets have recovered handsomely from their recent lows however I don’t think they’ll linger up here very long. I believe that we’ve just entered the narrow window of opportunity that I spoke about previously. Here’s some food for thought-

 Contrary to what most advisors with tell you, taking profits here does NOT mean that you don’t have a long term perspective. As I’m writing this the S&P 500 is down around 7% from its all-time high. In the last 2 bear markets, it declined around 50% from its high. It can happen again, statistically a large move down should happen again, and with each year that ticks by, the odds increase. If you look at the big picture, we have what appears to be the most defined market ceiling of my lifetime and plenty of room to fall below. You are not acting irrationally by choosing to sell into this rally.

 This is a good place to change strategies if you want to. Many investors wait until the worst time to make decisions – Don’t do that. If you’re worried about the global economy, geopolitical risks, etc. act now as opposed to after the damage has been done. It doesn’t have to be all or nothing either; there is middle ground. If you didn’t take any measures to hedge/reduce your exposure at year end when I suggested it, this is your next best place to do so. Consider having at least part of your risk portfolio invested in strategies that are designed to function in a market that goes up or down.

The S&P 500 futures have been battling higher for the last 2 weeks and investors are getting excited again at the prospect that a bottom may have been put in. Hopefully they’re right, but I doubt it. Just above where we are lurks a massive glut of anxious bears who have been patiently waiting for our exhausted bulls to arrive. I’d like to see the rally continue a bit higher, but don’t expect much more. By most measures, price has been stretched, the indexes are overbought and we’re nearing the most logical places for major players to begin selling again. As I’ve mentioned in previous posts, I expect to see the market reverse course within the red box. I’ll be very aggressively looking for short opportunities in the S&P futures near 2000.

All the best,

Stephen

 

 All works
  • Quick Contact

      720-331-2227

      This email address is being protected from spambots. You need JavaScript enabled to view it.

    Send Us A Message