(This actual Market Report was written pre-NY market opening, on August 23, 2019, and was updated until the NY market closed. Seeking Alpha has been encouraging SA service providers to become more transparent, and show actual reports and interaction between providers and subscribers. We are providing this report to showcase what PAM provides to the members of the community).
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Robert P. Balan @robert.p.balanLeaderAug 23, 2019 12:10 AM
I just uploaded this report:Market Report At The Chat (Aug 22, 2019): Waiting For Final Uptick In ESc1, Yields, And Last Downtick In Gold
jayn1321 @jayn1321Aug 23, 2019 12:51 AM
""Draining liquidity" happens because the Fed has to debit the bank reserves and transfer the amounts to the TCB. It is "draining liquidity" from the banks, but is it providing "systemic liquidity" as those reserves are transferred to the TCB."
Robert, in layman's terms, declining bank reserves increase systemic liquidity?
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 12:46 PM
There's an inverse correlation between TCB and bank reserves. TCB is an asset in the Fed's balance sheet. Bank reserves are liabilities in that same balance sheet. So the answer is yes.
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 1:25 PM
Rising TCB (rising liquidity) pushes up bond yields, and vice versa
lslu @lsluAug 23, 2019 1:53 PM
robert.p.balan I am confused one thing. Your model ideally peaked last Friday for S&P but the peak that you are looking for is not here yet. It has been a week. How about your initial prediction of the trough? Is it still Sept 2nd or we have to extend another week if your model peak today?
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 2:00 PM
Liquidity drought just set the conditions -- the market still needs a trigger. I made that clear so long ago. So it could happen that liquidity models call the shots to the day, but not always. Then you have the "interpolation" spread. So August 20-21 can extend to August 23. On top of that, the investments banks screw up the timing with their front-running the liquidity seasonality.
Many models don't even come close to tagging the correct month. The models being off by a couple of days is not a big deal. First, lets see a decline happen before we worry about a recovery in yields. It may yet happen that Sept 2 is it. Powell's speech may be the trigger for a sell-off. I don't know for sure, but a negative trigger is due today.
lslu @lsluAug 23, 2019 2:03 PM
Is it really have to go to 2955-2965 for the S&P? I saw the 2940 resistance is so hard to break. What makes you think it will need to reach 2955-2965 level before it drops?
FlatCoated @flatcoatedAug 23, 2019 2:17 PM
Primary dealers may have too much stock inventory to reverse that SP futures drop, depending upon their Vol position.
(and order flow)
(All I'm saying is that it's funny the Chinese dropped that just before the market opened).
I wonder if Powell is re-writing his speech. lol
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 2:22 PM
#What makes you think it will need to reach 2955-2965 level before it drops#
It was more of an EWP structure, and a wish to sell at the extreme high. That is where PAM would like to sell, if we can get it. Like any wish, we may not get it. But you are not constrained at all by PAM's plans. Fell free to front-run us anytime or at any level you like.
goodkind6 @goodkind6Aug 23, 2019 2:31 PM
What is this means ? Primary dealers may have too much stock inventory to reverse that future drop
FlatCoated @flatcoatedAug 23, 2019 2:45 PM
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 2:35 PM
Market Report At The Chat, August 23, 2019
Many market players seem to want to screw up the market before NY trade opens.
The news from China is just one. There will be others later today. That assures that whatever Mr. Jay Powell has to say will have a decisive impact for the near-term direction of equities and other risk assets.
To us (but it could just be us), the market reaction to the news from the Chinese government remains part of a consolidation phase -- further rallies should follow. That will remain so technically until a sell-off takes out 2885.
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 2:48 PM
This is how the liquidity models look like at this point (see charts below).
We are really due, even overdue, for equity declines in the short term: the market could drop below the floor anytime.
That a sell-off is overdue is also confirmed by the 2019 SOMA (FED) Model (bright green line in the chart above), which usually leads the changes in the SPX. The SOMA model is already falling hard. The market should follow today.
IMPLICATIONS -- PAM will look for levels to sell equities TODAY. But whether we do it before, or after, Powell's speech is something we have to decide on the fly. We need to see what NY market's reaction to the news flow will be. We will track the market closely today.
What complicates the equity outlook is that the yield and Gold intraday considerations seem to have completed corrective waves, and are set to rally.
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 3:07 PM
PAM wants to be long Gold and Bonds again, so we will just to watch the timing for these trades carefully.
But what seems clear is that buying gold decisions have to be made TODAY.
Judging the intraday outlook for DXY, it appears that the upside is not over or completed yet. By implications, there should be further rallies in yields.
That is also made clear by the liquidity models applied to DXY, which also implies further rise in yields from here. We sell DXY within two days.
The DXY models (chart above) however also make clear that there will be reckoning for DXY on the downside. It may a while, but DXY should go significantly lower in the short term.
Strangely, the sell-off in oil due to the news from China looks constructive. It completes a consolidation pattern which could be followed by a further rallies.
There will be a couple of things going for oil in the near term: (1) If the US Dollar (DXY) falls in a big away, that should have positive spin on oil prices, even if the negative covariance has not been strong lately.(2) The fundamentals are improving for crude oil day by day. Time is on the side of oil prices.
WTI oil is already backwardated, as the lagged effect of the benevolent trend in global crude oil demand (global inventory withdrawal) will remain positive for prices until late in the year. The more backwardation deepens, the more the term structure will pull up front-end prices --
Our model of oil global variance between supply and global demand shows that we are well past the low of the inflection point in August, and the distributed lag of the burgeoning demand over supply tightness should provide background lift for oil prices.
Money managers (hedge funds, DCC among them) are already accumulating long oil structural positions. It would be folly to do the opposite (go short), as these MM have a way of coordinating their activities, like lemmings (for good or for bad).
Finally, gasoline prices may be at the cusp of exploding upwards in a lagged reaction to the sharp increase in gasoline consumption in recent weeks.
PAM will over hedge long oil exposures with long bonds and long gold (as we expect yields to fall), but will not go negative on oil instruments. Too dangerous to do that.
pa292 @pa292Aug 23, 2019 3:39 PM
Robert : not the time to buy GUSH ?
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 3:40 PM
pa -- PAM has sufficient long oil exposure. go ahead and do it if you wish.
NatGas should also bottom soon, if not today. We may be seeing wave 5 of the correction from the high of August 21.
It looks like the second mini-consolidation of the cryptos is over.
Cryptos will likely be upward bound once more by next week.I will ask DCC to add to my personal long crypto holdings in a little while.
NY market has opened and we are waiting for more data so we can add to the narrative. Open to discussions.
Acetaia @acetaiaAug 23, 2019 3:49 PM
gush you buy on the bottom of of the equities.
pa292 Aug 23, 2019 3:39 PM
Robert : not the time to buy GUSH ?
goodkind6 @goodkind6Aug 23, 2019 3:51 PM
No action on SPXU ?
Waiting for Powell bounce ?
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 3:53 PM
We'll see what Mr. Powell has to offer. But if we get the levels that we want, we will do it, Powell speech or not. But as we always say, feel free to front run whatever we intend to do, whenever you want it.
goodkind6 @goodkind6Aug 23, 2019 3:59 PM
What are you watching now ?
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 4:00 PM
Levels to go long gold and miners.
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 4:28 PM
I believe we will see more downside in ESc1 and yields, but the thrust should be to the upside later, and most of the trading day
Acetaia @acetaiaAug 23, 2019 4:36 PM
Fed saved the day?
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 4:38 PM
Powell is between a rock (Trump) and a hard place (perceptions of growth deterioration). But that perception is false.
The oft-quoted reason for recession is manufacturing. But ISM Manu Index will turn up as from the August month reading, And on the September reading as well. We will see growth during, and after the September month.
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 4:49 PM
The other members of the Fed, especially the Fed regional presidents, are not too keen on a long rate cut regime.
But Powell and the Fed will not also cause a sharp market tantrum, so a Sept rate cut will be there.
But that is all what the market can reasonably expect.
Powell will reaffirm a Sept cut. But will be silent about the longer term rate policy.
Acetaia @acetaiaAug 23, 2019 4:53 PM
Does todays Powell speech affect our expectations on the short-term downmove in equities. I wonder how you always can stay that calm, cause it looked like the train has gone down without us.
The train has not even reached the station acetaia.
Acetaia @acetaiaAug 23, 2019 4:54 PM
Yes i meant before Powells speech
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 4:54 PM
This fear of missing out is what makes traders careless.
Greed will kill you even before you realize it.
Been there. Done that.
Acetaia @acetaiaAug 23, 2019 4:57 PM
You have much better clue about the market thats why you can stay calm. That Greed Trap i found already too often. That´why I´m glad to found this place.
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 4:59 PM
Thanks acetaia. We are all learning together.
Acetaia @acetaiaAug 23, 2019 5:02 PM
Trump uses in these seconds Powell again to go harder on China.
goodkind6 @goodkind6Aug 23, 2019 5:04 PM
Are we close ?
Acetaia @acetaiaAug 23, 2019 5:04 PM
....all deliveries of Fentanyl from China (or anywhere else!). Fentanyl kills 100,000 Americans a year. President Xi said this would stop - it didn’t. Our Economy, because of our gains in the last 2 1/2 years, is MUCH larger than that of China. We will keep it that way!....your companies HOME and making your products in the USA. I will be responding to China’s Tariffs this afternoon. This is a GREAT opportunity for the United States. Also, I am ordering all carriers, including Fed Ex, Amazon, UPS and the Post Office, to SEARCH FOR & REFUSE,........better off without them. The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must STOP. Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing..
goodkind6 @goodkind6Aug 23, 2019 5:05 PM
No political here
let's make some money
I front run SPXU early. Bingo
Yep Gold miner you got it
Acetaia @acetaiaAug 23, 2019 5:16 PM
"To us (but it could just be us), the market reaction to the news from the Chinese government remains part of a consolidation phase -- further rallies should follow. That will remain so technically until a sell-off takes out 2885." Now we are sitting here
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 5:17 PM
Should'nt equities be soaring on this news?!
Acetaia @acetaiaAug 23, 2019 5:22 PM
The last Sell-off we had was also caused by Trump using Powell.
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 5:24 PM
In his speech on Friday, Powell straddled the middle of both views, giving few clues as to what is to happen next at the September policy meeting.Powell said the U.S. economy is in a “favorable place” and the Fed will “act as appropriate” to keep the current economic expansion on track.WRONG HEADLINE! He is not a dove! He is a loon!
Tango Foxtrot Hotel @Tango.Foxtrot.HotelAug 23, 2019 5:35 PM
robert.p.balan - whatever bird powell is, he's a yawn for the market, you need the orange man with a twitter account to rev things up
Cherrytoffee @CherrytoffeeAug 23, 2019 5:37 PM
robert.p.balan , what are your thoughts on bitcoin and gold correlation. If you are expecting gold to top on early Sept, do you also see bitcoin topping out at the same time? I just joined so sorry if this has been discussed before.
goodkind6 @goodkind6Aug 23, 2019 5:37 PM
PAM model front run the news.
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 5:42 PM
Actually relative to the liquidity models, gold leads most of the cryptos by several days.
Cherrytoffee @CherrytoffeeAug 23, 2019 5:49 PM
Ok so once gold tops out you're expecting Bitcoin to top out shortly after?
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 5:50 PM
After a few days, yes
Cherrytoffee @CherrytoffeeAug 23, 2019 5:53 PM
Does your model predict a deep correction or the start of a new bear in Bitcoin? Or is that too far out to say
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 5:55 PM
What you see in the chart above is the high confidence period with regards to Bitcoin, as modeled by liquidity factors.
Cherrytoffee @CherrytoffeeAug 23, 2019 5:55 PM
ok thank you so much
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 6:03 PM
U R welcome CT
DCC added 3 more tranches of GBTC to my personal account, long at 13.60.
jayn1321 @jayn1321Aug 23, 2019 6:49 PM
robert.p.balan Curious to see what you think now after this morning's chaos with regard to the indexes. Do we have any speculation on what Trump can do in this announcement this afternoon? Dollar deval or just a jawbone, etc.?
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 6:50 PM
#Dollar deval or just a jawbone, etc.?# The US Dollar was overpriced in any historical measurement I can think of.
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 6:52 PM
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 6:52 PM
The DXY should be close to 96 by the middle of September
#Curious to see what you think now after this morning's chaos with regard to the indexes. #
Would you believe DCC is using this yield decline to offload long bond positions? They also believe that yields will not fall much much further, and so they are using any market euphoria to exit positions, which have grown very large.
@all This sharp sell-off will be retraced -- that is when PAM will look to add to existing core short equity positions. That is why PAM is not chasing the falling market -- Tim and I are convinced that
(1) this sell-off will be retraced, and
(2) we are already short anyway.
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 7:01 PM
And DCC is picking up large oil refiners like VLO, with an eye on IMO 2020, and the fact that WTI backwardation is well on its way, and Brent will go deeply backwardated in a few days.
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 7:04 PM
The news is not the global or US economy.
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 7:12 PM
#Brent will start going deeply backwardated in a few days.
In a few days (within a week), the Brent-WTI quality spread will start to widen in favor or Brent.
goodkind6 @goodkind6Aug 23, 2019 7:20 PM
What level of retraced u are looking at ?
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 7:22 PM
We will have an idea when ESc1 stops falling and starts moving up.
Cherrytoffee @CherrytoffeeAug 23, 2019 7:25 PM
robert.p.balan what is your margin of error for these models. If you are projecting a big turn date around sept 2, can it occur +-5 days?
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 7:31 PM
Usually plus or minus 2 days. The spread comes from the fact that most data come in weekly form. So the algo also does an "interpolation" and adjusts the ersatz point to the middle of any weekly calendar spread (a Wednesday). Hence, 2 days spread on the left of Wednesday, and 2 days to the right of Wednesday. I am explaining it very thoroughly because this the frequent source of deviation between modeled data and liquidity data. And it is better that this is understood so that there is no very very high expectations from the models.
Like this week. The modeled data is August 20 (some iterations show Aug 21) -- so the actual highest CLOSE is August 22 (yesterday) -- the close today will definitely be lower than yesterday. The model is still doing fairly well with the plus 2 days, minus 2 days spread.
FlatCoated @flatcoatedAug 23, 2019 9:33 PM
robert.p.balan - Weakness until September
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 9:35 PM
FlatCoated @flatcoatedAug 23, 2019 9:36 PM
robert.p.balan - Thanks, enjoy your weekend!
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 9:36 PM
Then a rally to September 16
FlatCoated @flatcoatedAug 23, 2019 9:36 PM
I see it...up...down...up
(from Sept 1...might be off a day Sept 1 is a trade war deadline day thus far -- both sides)
Robert P. Balan @robert.p.balanLeaderAug 23, 2019 9:37 PM
Not necessarily sideways, like in the HF model. The chart below shows the possible trend
FlatCoated @flatcoatedAug 23, 2019 9:40 PM
Rgr...or up consolidation up...
goodkind6 @goodkind6Aug 23, 2019 9:47 PM
TD 180 = Sept 2 Right ?
Hold SPXU till Sept 2
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