Dashboard watch: Gold and sectoral rotations
Markets? Same old, same old (yawn 🥱). Slight, barely noticeable pullback, gets the bears all excited, and turns out it was just a regular confirmation of a support zone (see below). We are back close to 7,500 on SPX, a nice close into a long weekend (markets closed on Monday). Even NVDA earnings couldn’t extend the sell-off.
Speaking of NVDA, it did not disappoint. I ran a quick analysis on Tuesday to show you the results of NVDA earnings over the past three years, as NVDA became the most valuable company in the world. For almost two years now, NVDA keeps killing it in earnings, beating both EPS and Revenue expectations, and yet the stock keeps getting punished immediately after earnings. Call it profit-taking, or “not good enough of a beat”, or “this was already priced in” - whatever it is, the outcome is unavoidable. Two days later, the stock is down. And I’ve updated my chart to reflect this (will also use this next time). NVDA is a buy and hold stock, not a trade around earnings.
The one thing I didn’t mention on Tuesday is the inevitable IV crush that happens if you decide to play with NVDA options prior to earnings. Typically prior to major earnings announcements (or events like FOMC), the demand for options goes up, primarily as a source of hedging. The implied (expected) volatility (IV) tends to go up as traders start to price in big moves. This week the IV was pricing in a 5 to 6% move. This also means that any move that is lower than 5-6% will very quickly kill the entire premium of your option positions. This is why it makes very little sense to play things like option straddles - buying both a call and a put, hoping to profit from large volatility in either direction. A much more likely outcome is that the entire straddle expires worthless as neither move is directionally strong enough. A better idea, for example, would be to sell iron condors, as they let you keep the premium if the move isn’t big enough, and you can still limit your losses if the move does explode.
Bottom line: don’t use options around earnings events. Especially with stocks like NVDA or TSLA and the like. You’re welcome.
Preparing you for what comes next…
The ORCA Dashboard is in its final stages. Thank you to everyone for comments and suggestions. I’ve added a few more sections and will roll out the entire package next weekend, going live from June 1st.
The logic behind it is simple: a powerful set of tools, all in once place, used to easily distinguish the signal from the noise in order to build the right macro regime thesis. Each tool has its own probability distribution and a watchlist of what to pay attention to when market regimes start to transition from growth to stagflations and recessions.
I built the Dashboard primarily as a tool to help myself better track all the things I usually look at while formulating my macro thesis. And from this I want to extend it to all of our investors and subscribers.
Therefore, I can honestly say that the Dashboard is built for everyone who wants to understand what’s happening, when the market is shifting and why, and to do it with the same macro awareness that institutional PMs have - without it being your full time job. That’s my job. And Claude’s :)
Also, this is institutional-level access that one can get from a Bloomberg terminal, for a fraction of the cost (new subscription tiers to be introduced), and obviously delivered in tone of voice much easier to understand - my own :)
Right now, in addition to the main macro dashboard introduced last time, the Dashboard will have the following features:
An analog builder - it’s build to automatically find the highest correlations with a historical pattern for each asset class that I watch: SPX, VIX, gold, oil, DXY, and bonds. Analogs are just glorified correlations, but they can be useful, and are certainly interesting. You know that old adage - history doesn’t repeat itself, but it rhymes. Same is true for markets. This one, for example, is a gold pattern analog, showing a very similar pattern of gold today to what it did in H2 1990.
A nice tool to have and revisit every once in a while.
A portfolio backtester - this one I really like. You can toggle between different regimes, to see how your portfolio performs when regimes change, and you can find an optimal combo for each regime and across.
A little hint: ORCA’s long positioning, 60% SPY, 30% QQQ, and 10% cash performs pretty well when invested only during periods when SPX>100-day MA (see image). And this is without its most important parameters: the weekly hedges and the BASON!
Sector rotation dashboard - looking at the technical indicators that tell us when a sectoral shift is happening within a regime. One such example from this week is a very interesting shift into healthcare (a defensive sector) during the current regime.
From all that I can easily derive my simple thesis around the key trends that I see. They won’t always be super interesting or intuitive or easy. But that’s why we assign probabilities and have our analogs and regime trackers - to know what the play at which point.
For example, for this week, I can see that gold lit up and healthcare took the top of the board in terms of sectoral positioning.
