Is Winter Coming? Being Wrong vs. Not Yet

9:11 AM

I use this euphemism as an example because so many things in my thesis are correct yet last week's comments from Yellen were "dovish" the market rallied and the USD strength fell and the SPX recovered.


Recap of thesis:

- PE multiples are high
- Earnings are likely to diminish
- Interest rates are heading up, risk premia for equities should be higher hence P/E should fall

For my SPX theory, I had reckon that the market is expensive and should not be so high. Nothing has changed. Yet, the market has continued to head higher.

We have had a threat of a POTUS impeachment, higher interest rates and the a "failed" Trump trade. Yet the stock market has not corrected.

Perhaps this is the ETF market has continued to pushed the market higher. A 2% correction was seen as a buy-the-dip opportunity. Either way, this market still wants to go higher.

If winter comes, it may be August, and this is where most traders are not at their desks and where the most unexpected usually happens, but if nothing happens here I will stop out of the trade.

Perhaps a 2500 mark is a good place to double down for a short correction, but at most I expect a 1.5% - 2% correction unless we see a big market moving reaction.



For the CHF the thesis was as follows:

- SNB does not want the CHF to be too strong
- The dollar index should correct somewhat

For the first part it still holds true, both on the USDCHF basis and the EURCHF basis.

While the EUR has strengthened against the CHF it is still below the 1.20 level which was previously the floor for the SNB. There is still some way to go before the SNB is happy again.

The USD may not seem like as big a deal to most as trading between EUR members is more prominent, but the US does make up 21% of exports.

Last week's print in the import export number should be evidence to the need to adjust.

So in view of this the CHF should still weaken. Against the EUR and the USD.

However, the dollar index is falling like a rock.

USD smile theory dictates the dollar should strengthen on global markets being either very weak or very strong. Right now the indices are higher, indicating the market should be strong. Pundits and economic "experts" however, have contradicted this by saying the Trump reflation trade is over, hence the weak dollar.

Both side however, would be supportive of the smile theory with a strong dollar. This has not happened.

Right now the DXY and Dollar index have reversed to levels seen before the Trump trade. A recovery of any type has yet to be seen. If this was any other level, I would say this may never recover but these levels are significant.

USDCHF also has a significant support level at 0.945 or 0.95 level, if it beats this I will exit. But right now I do not see this being a threat.


The SPX has not worked out for me, in the words of the SNB, I have been "overwhelmed by the market". I am hoping for a slight correction off the 2500 level and i will exit at a loss. Hopefully managing this as best as I can. Unless there an altering news event then this is how the thesis has changed will hold.

The USDCHF is looking good despite the large drawdown, i do fully expect this to recover. I have no reasons to believe it will be otherwise.

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