BaseOp2

Zombie Rally

2017-01-27T17:26:00.002-06:00

As January ends indexes are at record highs and a new euphoria has hit the general market as well as the hedge industry as even their legions have entered into long only strategies in an effort to hopefully undo year after year on dismal returns. But it has to be an uneasy long for all who dare since it rests on a mad man's actions and a public so easily duped and already holding record amounts of passive ETF's which have never been tested by potential nuclear volatility. But as indicated in the last post, this is a time for selling nearly all assets into the welcome arms of the zombie rally. The likes of Warren Buffett have dismissed the current executive new comer and has proclaimed that regardless of who is in charge, America works. Well America may want to work but market history is filled with times where the only thing that works is down. The market is so uniformly in tune with the notion of upside opportunity that prospects of a cascade of systematic selling in an arbitrage adjusting, AI and Machine Learning, high frequency front running, Fintech application trapped into buying but can't get out selling, kind of disaster.

Cubs, Trump, and the big payoff

2016-12-22T15:05:00.002-06:00

2016 sees the Cubs win the World Series and Trump elected. The two do not seem to have much in common but both represent brand economics. The Cubs finally make it to the big event just at a time when almost all sports salaries are rewarding water down talent and feeding a wider spread between their fan base and player incomes. Cable sports has helped generate huge revenues to push player contracts to a level where there is no way an average fan can possible relate. The election too also represents brand economics where high wealth performers soon to be in power seemingly will be basing their economic vision on ensuring greater gains for an elite class well above what might be called their own fan base, a group seemingly willing to vote against their own interests. Both the economy and sports may have entered an era where the product is just not going to get any better.

The the new stewards of the nation believe the markets will decide what is good or bad, unencumbered by regulations and fueled with promises of lower taxes. But be careful what you wish for. The economy has had a huge run and notions of extending equity gains on lower corporate taxes is a stretch. The rally since the election displays a confidence which appears to be based on all the economic benefits of looting. The hard parts lie just ahead and waiting for what may be an inevitable government shutdown in March will be a challenge for the confidence boys. Markets don't play fair and certainly rarely accept a quid quo pro reasoning that things will be ok because billionaires are in charge. What market participants may be asking at some point is, " If you are so rich, how come you're not smart?"

Stocks In Beginning 2017 Have Rich Premiums

2016-12-19T15:26:00.001-06:00

Looking for opportunities in the Q8 looks a bit daunting relative to where these stocks were when Obama took office in January 2009. CoverRisk calculates the value of a stock, futures, whatever based solely on price and the performance of long/short models. Discounts in 2009 reflected near panic liquidations leading into the March 2009 lows. Today, premiums reflect a complete reversal from the 2009 discounts as large premiums have developed to accommodate the reach for price in thin declining volume markets.

Fat Shares and Donald

2016-11-28T10:01:00.001-06:00

S&P 500 sits with the bulk of equities still maintaining what appears to be the premium created by share over subscription while in search of returns, all under the protection of Fed accommodation. A few stocks stand out as fat, Google and Microsoft are two, while Ford appears to be the only gift out there of the Q8 (AAPL, BAC, GOOG, GS, IBM, MSFT, F, PHE). Long only metrics favor point to F and PFE. AAPL seems a bit tired as it has been nearly 1900 trading days since it has traded down to to what CoverRisk considers trailing value.

So the world equity markets are fat and now enter a period in sharp contrast to those started in 2008 which necessitated lower rates and steady leadership. Now, numerous rate hikes are forecast along with what looks like might be an unsteady, unpredictable national steward. Remember, equities can act happy, such as in the current rally, but they are not always so smart. One only has to think back the subprime disaster whose warnings had been telegraphed for years leading up to a point where the equities gave it all up quickly. Premiums created to accommodate share over participation since 2008 have been ringing alarm bells for the last two and a half years and may finally catch fire with the Donald tweeting all the way down.

Markets Nervous

2016-10-21T08:41:00.001-05:00

Right now the markets are slowly heading into the final turn of the year, but spinning into the final turn is still possible. If in the coming days it looks slightly more likely the Democrats will win both the House and Senate as Hillary wins the White House, then look for a sharp sell off into the end of the year. Most major investment banks are looking for a bear market to begin but to date equities have remained stubbornly just off their highs. Big overplayed stocks such as Google and undervalued stocks like AAPL represent a market divided. Calls for a recession beginning next year are being pushed.

What still remains in question is how will the years of accommodation play out. Bears believe the clock has run out on fixes and unprecedented stimulation has brought only temped growth. There are many examples in the economy of odd weakness in real estate after such a long period of low rates and there are on the other hand signs of broad growth in jobs as represented by the current employment numbers.

The pros seem to be a bit short the markets and the general institutional players seem to be cautiously nervous. Look for volatility to pick up either way as we end the year.

Hillary's 75% Retracement

2016-09-18T09:47:00.001-05:00

CoverRisk's model of aggregate tracking polls has Hillary experiencing a 75% Fibonacci retracement event. After climbing dramatically after her convention a retracement was inevitable when considering the polar opposite political divisions in the United States. The polling should trend up for the Democrat from here till the debates at a minimum if not for the remaining election cycle. Models still shows Hillary's probability of winning greater than the Republican candidate.

Stock indexes and their underlying components of stocks have played with large value premiums over the last few years. These premiums are presumed to be from accommodations on a global scale by central banks. For example, CoverRisk calculates the trailing value for the S&P 500 is around 1500 or around 30% lower than the close on September 16th, 2016. A Republican presidential victory in November might begin the decline which would test these trailing values. This type of macro move is always unpredictable since all successful macro predictions are based purely on luck. However, if such a decline were to take place one could image the demagoguery blame from which would spew into an even greater unfriendly and declining investment environment. The I, me, mine make up of the traditional Republican base could see a devastating blow to their financial conditions should all the index premiums disappear.

Markets as September Begins

2016-09-06T08:32:00.001-05:00

Equity markets remained quiet in August with the Fed engineered intervention butterfly spread of long equities, short volatility, and short fixed income continuing to work. Despite the bearish calls on equities from Bank of America, Goldman Sachs, and Merrill stock indices keeping making all time highs.

National election data has had little impact though the bid under the market continues to point to the belief that Hillary will win. But in trading and politics one should never forget the "now I've seen everything" events which appear from time to time. A loony vote could put U.S. international companies and their shares in the dinger as attempts to implement trade and immigration promises are endeavored.

CoverRisk's Q8 shows GOOG and MSFT as the most overvalued.

Pres Race Over / How About Rally ?

2016-08-05T17:22:00.001-05:00

Presidential Race for 2016 is about as interesting as it gets but the bid underneath the market has already figured it out and clearly sees the Democrats winning and extending the pro Wall Street tilt. The plans are already being set for a Ryan vs Hillary in 2020 but Republicans may have trouble putting the blood back in the bottle.

The S&P 500 and Nasdaq made record highs this week. AAPL is beginning its run to test all time highs while GOOG's rally is a bull trap. Relative to the rest of the market, BAC and GS have room to run while MSFT is a bad bet. As CoverRisk claimed in its last BaseOp2 post of 2015 "IBM has cleared the worst of the riskvalue issues and has the best relative outlook. " The stock is up 19% so far this year, the best of CoverRisk's Q8.

Market Rally Prefers Clinton

2016-08-01T10:10:00.001-05:00

July was marked by low volatility and evaluated equity prices. This buy stock/sell volatility trend has worked since the first quarter . Markets will be sensitive now to presidential election polling. Up for a Democratic gain, down for a Republican. The election itself will probably not be as close as some polls currently indicate. CoverRisk believes it will be a Democratic victory. If it is not however, equity markets will enter a downside testing phase with negative rates presenting new challenges for quantitative easing.

GOOG All In

2016-05-31T09:19:00.001-05:00

GOOG is at the top end of its riskvalue and continues to reflect a safe herd bias. Much like AAPL when it was on or near its highs last year, GOOG has managers believing in price while underlying analytics show significant vulnerability. AAPL holds a much better profile.

April Action

2016-04-28T15:07:00.001-05:00

April has been another lousy month for front running volatility nerds. The VIX has been range bound between 17 and 12 which is nearly half the value from the top of the range in January. Equities have been supported by a variety of central bank chatter though many of the tech stocks such as AAPL and GOOG look to have some serious price fatigue. Negative rates are ultimately a sick cousin which may infect the notion of central banks being able to cure all that ails the markets. If things are getting better how come the world needs negative rates?

The Fed believes it can lead rates higher just as boldly as it aggressively accommodated lower rates in the worst of the 2009 to 2014 economic down draft. Equity prices however are not cheap and several keys to growth such as real estate are looking as if they are ready to heave into another leg lower. There has been a fundamental shift in opportunity growth in the U.S economy and it has had a direct negative impact on the largest investment in most peoples lives, their homes.

March Action

2016-03-30T08:31:00.001-05:00

March like February has been primarily a short covering month, squeezing managers to make purchased they thought they might get a lower prices. Volatility certainly has been subdued despite all the claims at the beginning of the year of powerful ranges for as long as the eye could see. Selling volatility it seems is the only thing to do when the Fed plays such a powerful role supporting equity prices. The VIX once again has proven to be the most useless predictor of volatility and has as much validity as the put/call ratio.

While the correction was scary in January, it did little to correct much of the ratios which indicate overbought values. But equity prices, especially U.S. equity prices, are the place of intervention and provide the most immediate gratification for central banks to influence the real time value of world equity prices. And though the commodity crash of the last eighteen months caught the Fed and central banks by surprise, they have effectively scripted a dollar play to allow then to have the largest economy raise rates while the rest of the world goes to negative rates.

As the world of trading and investment moves toward smart systematic solutions it will be interesting to see if the interventionist maintain the same level of influence. The best algorithms make money no matter what is going on, and that in itself indicates the machines might ultimately drive prices to values, up or down, nearly isolated from a speech or human method of intervention. That is unless they turn off the machines.

February Action

2016-02-25T21:09:00.000-06:00

February has two trading days left and has not followed through on the downside. Trend picking managers who picked the downside trend category will have decent give back for the month but even more adaptive and certainly more successful approaches than pattern recognition may have some blow back on their big January gains. Suspicious price action looks a bit too convenient for the bulls and may represent the unrestricted financial instrument purchases by sovereigns. It is all part of the make up of market participation these days. Still the battle will be to make sure first quarter lows hold. If they do not then a severe break will unfold.

Searching for a Market Low

2016-02-11T10:41:00.001-06:00

Looking for a bottom in markets is always a blurry view of the present. As posted here in September, markets seemed to headed to a 20% to 25% correction but whatever the ultimate low move, that low occurring in the first quarter of 2016. The sideways to higher move off the lows would then be tested probably in August. A failure of that test would take the market to the unpleasant territory of a chance of producing a 50% correction from the May 2015 highs in the S&P 500. All markets have a 50% correction at some point in their life cycle. All markets.

2016-01-01T11:59:00.003-06:00

BaseOp2.com has now moved over to CoverRisk.com. Both links get you there.

Loading Up Up Here

2015-12-30T11:48:00.002-06:00

Recent pushes in GOOG and AMZN is clear evidence that loading up certain stocks is a soft spot for managers needing help to click the buy button. These two stocks in particular, as many before them, have to stretch price to accommodate all comers. GOOG oddly does not have extreme riskvalue problems but that does not mean it could not have a 150 dollar correction. CoverRisk data says GOOG is better than AAPL but on a pure dollar down basis GOOG will decline more than AAPL, it is just that more owners of AAPL will be underwater than GOOG.

IBM has cleared the worst of the riskvalue issues and has the best relative outlook.

GOOG or AAPL

2015-12-27T16:44:00.002-06:00

With one week to go, AAPL is a bit lower to unchanged on the year with GOOG up $224 per share or about 42%. So it would seem GOOG may be more extended but it is still AAPL carrying the over value based on the algorithmic scoring data calculating the QRiskValue from 2008 to present.

Markets Slide

2015-09-28T10:35:00.003-05:00

Markets continue to slide as the retracement of the bull run evolves and the 2008 trading pattern takes hold. October will be the battle ground to determine if equities accelerate towards a low correction bottom in the first quarter of 2016, or are able to stabilize within the -20% to -25% pull back zone.

Fed Basically Admits It Is Afraid To Stop

2015-09-17T14:15:00.002-05:00

Fed action basically admits it is harder to sustain any asset value now and will need negative interest rates to keep the economy afloat. The greatest bubble in modern times may have gotten new life as Yellen cannot stop the life line to equities. Keeping it all in the air may be difficult as there is little the Fed can do to cure a panic.

Fed Day

2015-09-17T11:07:00.000-05:00

Whether the markets explode higher, crashes lower, or just lays an egg in the next few hours, alternative strategist should have already banked more than enough return this year to easily handle any volatility. Buy side investment bias is the trading opportunity gift which keeps on giving and is based on bizarre notions of market efficiency and macro trend expertise. Successful alternative strategies execute a in probability game where positive outcomes are not dependent on a bull market or a Fed which has helped float an industry based on a faulty decision bias.

September Rate Hike and Government Shutdown

2015-09-16T13:34:00.002-05:00

September, the month where the Fed raises interest rates and the markets get a government shutdown.
So if neither happen the markets still have to deal with trading and investment fatigue where there is more downside than upside for the first time in six years. A 14.2% break in the S&P500 since May of this year leaves plenty of room for more down. A minimum 20% correction is indicated by decision models.

Market Bears Still Have The Edge

2015-09-13T19:06:00.003-05:00

Fed should raise rates this week as it will make no difference whatsoever to the world economic order. Markets do not need anymore protection than they receive everyday from sovereigns and normal central bank interventions. China is a fraud but what's new. It is an overplayed card. Markets could withstand another eight to fifteen percent break just on normal retracement action. We still have the 2008 downside pattern intact which would lead to a terrible October.

How Eight Stocks Are Doing YTD

2015-09-02T09:19:00.000-05:00

AAPL

BAC

GOOG

IBM

MSFT

PFE

181

1118

103

125

431

1290

642

on20000

-29

-2418

2985

-1000

-2062

-1856

-2284

398

-6266

-3.92%

Fools

2015-08-27T11:20:00.000-05:00

Markets rebound as happy central bankers do what they can to remove corrections from the world financial instruments. The world loves up and the thoughtless fools who own stock are happy again. Life is good and down is bad. Fools are happy and usually own stock.

Slow Death Ahead for Buy and Hold

2015-08-25T15:02:00.000-05:00

Heard many stories today how people bought the break and made money. Every financial adviser telling people to stay the course and think long term.

Well, it is not the hard breaks that kill the most, it is the death by a thousand cuts for the buyers. This hard break may be the the arrow pointing to future long term direction.