QuiCQ 26/09/2024
Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.
— John Templeton
Prefer to read today’s QuiCQ in PDF? No prob, download it here, but don’t you dare complain about the formatting!
Mixed to negative session for stocks yesterday, which were seemingly looking for a catalyst to move in any specific direction and which they only got after the market close.
But first to the session internals ... on the S&P 500 only two out of the eleven sectors closed higher, Utilities and Technology - what an odd couple … And the advance-to-declining stock ratio was about 1-to-3.
However, looking deeper under the hood, we note that 32 stocks hit a new 52-week high and only 2 a new 52-week low, which we would talk as evidence that yesterday’s session was a consolidation of recent gains.
This morning’s futures markets and Asian cash markets would confirm that ‘pause’-theory as everything is pointing sharply higher. Earnings of Micron Technology (MU) were the fore-mentioned catalyst the market needed to rally, as the company reported strong sales and profit forecasts, citing AI spending.
Bond yields traded higher, pushing bond prices lower, a bit more pronounced so in the US than over here in Europe.
The US Dollar developed an important recovery rally in yesterday’s session, pushing the Dollar Index (DXY) just above key support again. The battle for 100 continues …
Today the SNB is due to update on their key police rate in less than an hours time, so let’s do a quick fun poll:
Poll and then enjoy your day!
Early on this year we highlighted in a Quotedian (the QuiCQ did not yet exist then, believe it or not) a possible trading opportunity in Chinese stocks via the FXI. Part of the thesis aside from valuation and bombed-out sentiment was a very elevated short interest on one of the main ETFs, the iShares China Large-cap ETF (FXI), which at those levels had led to tradable rallies in the past. And indeed did we get a nearly 40% bottom to top run until the rally stared to fizzle out somewhere in Q2.
Now, we have been witnessing one of the fastest accelerations in the FXI (upper clip in chart below) in recent history, since the PBOC announced their monetary bazooka earlier this year.
The surprising factor here is that the short interest in relation to shares outstanding (lower clip in chart below) has increased even further.
We already mentioned in the last Quotedian (click here) and pre-PBOC that another Chinese equity rally may lay at hand for the not faint at heart. We continue to think that only elevated risk profiles should ‘play’ a continuition of the trend, but the increase in short interest definitely reminds us of the very part of Sir Templeton’s famous quote.
