Results: the sell-off and the bounce
A lot of data coming up this week.
Quick summary:
New survey, for Q4 competition, is up & running - click here.
Last week started with another large move down following the markets pricing in a new supply of bonds after the shutdown scenario was averted.
I explained how and why the bond market drove the equity sell-off and what we expected from that point onward.
The strong rally on Friday came as a surprise, so the weekly result was capped at a 1.7% loss.
This week opened with the negative reaction to the terrorist attack in Israel, which was faded before the end of the day. It’s also a week with several important economic data coming up, including the CPI.
On Saturday our paid subscribers will get an insight into our long macro playbook.
The Q4 competition officially opened last week, so if you haven’t done so already, do jump into the survey. Prizes are as last quarter, $5,000 distributed across the top 20 participants. Once again, congrats to our Q3 winners, prize payments will start to go out next week.
NOTE: For all those new to the whole thing, here is a video of Scott and myself guiding you through the survey, showing you all its features, and briefly explaining how the competition works.
Last week’s performance
It wasn’t a perfect start to Q4. Given the price action of last week, by now it should be obvious to anyone following this newsletter that we typically fail to make money on weeks like the last one. The reaction to the no shutdown solution was a bond and equity sell-off on Tuesday, as anticipated (with markets likely overshooting a bit). This was followed by sideways price action for the rest of the week before the rally exploded on Friday, closing the gap from the open:
BASON suggested a negative move for the week, and while it was briefly validated on the morning hours of Thursday and the open on Friday, eventually we had to take a loss for the week. No big deal, we still managed to control the risk at less than 2% weekly loss.
It wasn’t that big of a miss actually. Especially since we hit the target on Wednesday. But the Friday rally pushed us outside the 2% confidence intervals for most of our indicators.
This week started on a sour note. After the horrifying terrorist attacks in Israel over the weekend, it was no surprise we opened with a gap down on Monday for equities, gap up for bonds, and oil prices going up over 4%. Investors were pricing in the implications of the conflict on oil prices, primarily due to Iran’s involvement and the implication all this might have on the Saudi-Iran deal. Again, markets like to overshoot on such news, and they did. The sell-off was faded before the end of the day and SPX ended up +0.6% (over 1% swing from the lows). Predicting the impact of geopolitical events is very hard, even for us :) But we’ll surely keep a close eye on the development of this conflict and its implications.
Apart from that, which should be priced in before today’s survey, the Q3 earnings season begins this week, starting with banks (JPMorgan, Wells Fargo, Citi, BlackRock), and big companies like Pepsi, Delta, Walgreens, etc.
On Wednesday we get the FOMC minutes published, and the PPI inflation. And then the key event of the week, the CPI report comes out before market open on Thursday. The week ends with the consumer sentiment index and most of the aforementioned earnings on Friday.
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