Winds of Change
GFBP going to move even more defensive
With California winds stoking massive wild fires across the state, we can’t help but pray for those caught in the midst of this tragedy. The devastation continues and now California can expect widespread rolling black outs to try and mitigate things from escalating any further. Here is a pic from scitechdaily.com of the black carbon column mass density and its spread across the country, greatly reducing air quality across the upper United States:
As the wild fires increase and the heat certainly adding fuel to the flames, Magnelibra feels this natural force that can lead to so much destruction in some regards is also in some strange fashion fanning the flames of market uncertainty as the Tech heavy Nasdaq took a beating the latter part of last week. This is prompting our Global Futures Benchmark Program Positions Tracker to take on a more defensive posture.
As Magnelibra noted and highlighted over the last week or so, the Gamma wave of forced buying has led to profit taking out of Softbank and their positions and led the Nasdaq into a minor free fall.
We have been warning of this over extension and its the main reason the GFBP has abstained from the latter part of the NQ rally here. Yea we missed a bunch of ticks but as a prudent program risk-aversion mandates, we must listen to our signals and react accordingly, even if it comes with a bit of trepidation.
Let’s look at one of Magnelibra’s proprietary charts, this one is the SP500 vs the Nasdaq futures 1 to 1:
As you can see, we have rarely broken the 21 day MA and when we have in the past 9 months its been an easy buy. Yet we have to be cognizant that this trend is prevailing and the extensions in nominal terms seems to be continuing on. However, if the overall market tone in equities is going to become defensive into the uncertainty of the election, then we would suspect that the 50d would be coming into play here soon.
Similarly when we look at the R2K vs the Nasdaq, this chart is a futures 2 R2K x 1 NQ you will notice that the 50 day has never really been broken with much conviction and this nearly 4x out-performance by the NQ is flashing caution:
SP500 vs the R2K index is technically still in the linear trend channel and has seen a nice rejection of the top of the channel, a move the GFBP Positions Tracker has taken advantage of recently. However in this regard, on a time linearity scale, it just seems we are trending and the entire Covid move has been long forgotten. Expecting a massive dip here is probably not going to happen, but we have been expecting a lower to sideways consolidation just for market breadth to catch up to fundamentals:
The European Dax Index Futures for all intents and purposes has gone nowhere over the last 14 months:
We know the sectors that Magnelibra covers have all benefited from QE and we know that when leverage is employed, things can get quite overextended. We believe that this extension is currently being worked off, but we don’t want you to think this means we will simply tank from here. That is something we don’t consider as statistically verifiable, rather suspect this to exhibit a more risk off type consolidation to lower move here.
Even the bond market has been in no man’s land lately falling right along side with the equities. This has all the smell of a relative value blow out of some very profitable trades over the last few months and one which may certainly lead to further liquidation and some much needed mean reversion.
When we look at the settlements for Friday Sept. 4th, we can see Bonds in a bear Steepening, Equities led down by the Nasdaq, the VIX pounded as Softbank liquidated its options and Currencies, Energies and Metals all losing ground with Copper a nice stand out:
Here is how the US Treasury Bond curve settled out across the board:
Finally we want to leave you with an interesting chart from Statista today on the top start ups or “Unicorns.” With ByteDance in the venerable top position by a very wide margin and certainly by no surprise considering every teenager, college age and most likely 30 and 40 somethings blindly succumbing to TikTok, (Some shouldn’t hint Ross Gerber) we can’t help but also think China is leading the way to the dismay of the current administration. The writings on the wall and the US has to do a better job to compete in this space, that point should be very apparent:
Good luck this week, we hope you enjoyed the long weekend and we hope you continue to share our work so that others can be enlightened and inspired as well!
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