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.
SPX
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.
________________________________________________
USDCHF -
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.