Investments

Entered Short Positions in EUSTOX50, SP500 and Long Position for Volatility Index

Posted by Stoxster | on 24th July 2012 | 23:24PM | 0 COMMENT
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We have been monitoring short signals since May 2012, when we were holding nearly 100% cash. The technical signals and sentiment from our system are flashing near perfect short signals in almost every global index – From Asia to the United States.

Today we have entered positions in shorting the EUSTOX50 (top 50 European stocks), SP500 index and longing the Volatility Index (VIX). In total we used 43% of our capital. Rest of the capital remains in US Dollars (which is now also a pretty good investment).

In the media, news are the same old – European crisis, US slowing down and so on. But this time it seems like markets are more unforgiving than they were in 2011 and 2010.

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April Portfolio Update

Posted by Stoxster | on 8th May 2012 | 01:48AM | 0 COMMENT
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Global Macro Portfolio

In the month of April, we have not altered our positions until the very last day (30 April 2012) when we started accumulating positions. Although the portfolio has outperformed most of Stoxster’s comparable benchmark indices, the “Sell in May and go away” phrase is definitely taking place. As for April, Stoxster’s portfolio fell 0.17%. Here are the monthly returns:

Month on Month / Total Return

Stoxster’s Take

Optimism has waned

Markets have finally started its corrective stance. As mentioned in the March report, S&P500 has not corrected far enough; but it is now in correction mode, and starting to look a bit out of control.

S&P 500 Chart (www.sharechart.com.au)

The news of analysts predicting that Apple Inc’s stock would go from $600 to $1000 is a sign that market sentiment seems to have reached an extreme peak. But our own proprietary sentiment indicators show that we are still very far from our peaks in the medium term. With the Volatility Index (VIX) forming a higher low (as shown in the chart below), it does signal more downside.

CBOE Volatility Index (www.sharechart.com.au)

The heated presidential election in France is one of the largest events that, in our opinion, affecting world markets. The iShares ETF of France is shown below – a very significant lower high.

iShares France ETF (www.sharechart.com.au)

As we now know, Mr. Hollande has won, and markets are currently pricing in instability with his leadership. Mr. Hollande is known to be a socialist and does not agree upon the views that Angela Merkel has – austerity and protecting the value of the Euro. Mr. Hollande believes that austerity is not helping France and that spending is the way out – hence markets are pricing in that the Euro may see a drop.

EURUSD currency pair (www.sharechart.com.au)

However Stoxster views the markets as getting oversold and will be reaching to a point of extreme in May and onwards. We do not think shorting is the appropriate point of action as we do see more upside after the coming correction.

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March Portfolio Update

Posted by Stoxster | on 6th April 2012 | 00:51AM | 0 COMMENT
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Global Macro Portfolio

 

In the month of March, we have not altered the state of the portfolio, that is, we still kept the China and India positions opened. As expected from the last report, we wanted to see a correction as the markets have been seriously overbought. Emerging Markets have started correcting, but the developed markets, especially S&P 500, is still overdue for a correction.

We have added a small hedge position in our portfolio, a VIX derivative, to hedge us against the coming correction. The investment is equivalent to 2.46% of our total portfolio. We will exit this position when we find appropriate.

S&P500 was again the winner for the month.

Month on Month Return and Total Return

 

Stoxster’s Take

Optimism is waning but still above average

As of 4 April 2012, markets have officially begun its corrective course. Comparing S&P500 and Emerging Markets ETF (see below charts), S&P500 has not corrected far enough yet. Technical indicators are still flashing overbought signals.

S&P 500 Daily Chart (www.sharechart.com.au)

Emerging Markets ETF daily chart (www.sharechart.com.au)

However there are signals that are showing that Emerging Markets and commodities are reaching a bottom. And also because the S&P500 will definitely affect the Emerging markets more severely when it does correct, we are still skeptical in entering any positions, just yet.

The VIX, the volatility index below, at its lowest levels since 2007 and that bullish divergence signals are also forming. That indicates there is still a lot of room for the correction in asset markets to continue.

CBOE Volatility Index daily chart (www.sharechart.com.au)

Currently what we are experiencing is a correction. A combination of technical factors and the fact that Federal Reserve Chairman Ben Bernanke’s reluctance to inject more stimuli for the markets is contributing to the short-term downside. The upward thrust in the USDJPY pair is something we should take note of. Would this be the end of the long yen trade? Policy-wise and fundamentally, it does certainly suggest that. Historically, the Japanese government has failed many times in trying to stimulate their economies. But we believe the short yen trade will continue.

USDJPY Daily Chart (www.sharechart.com.au)

It’s a holiday long weekend, Happy Easter to all!

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February Portfolio Update

Posted by Stoxster | on 7th March 2012 | 00:45AM | 0 COMMENT
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Global Macro Portfolio

In the month of February, we have kept our small positions in China and India indices that we opened in January 2012. We were expecting a correction to come soon, which is way overdue. Thus, this month, we have seriously underperformed the S&P 500.

From this month onwards, we will be adding another two benchmark indices, giving a better gauge of our performance. The two indices are the Dow-CS HFI and Emerging Markets ETF. The Dow-CS HFI stands for Dow-Credit Suisse Core Hedge Fund Index, which can be found at www.hedgeindex.com. The Emerging Markets ETF (EEM) is a product developed by iShares to represent the growth in Emerging Markets. The two indices are shown in the tables below:

Month on Month Return and Total Return

S&P500 was obviously the best performing for the month. However, we at Stoxster are not that disappointed with our results as we have only invested a little bit over 10% of our capital, and have not leveraged up as many hedge funds would have.

Stoxster’s Take

Too Much Optimism In The Markets

Looking at both the S&P500 and the Emerging Market ETF (EEM), we are seeing way too much optimism. Buying with the herd will be a big mistake.

S&P 500 (www.sharechart.com.au)

Emerging Markets ETF (EEM) (www.sharechart.com.au)

US Housing Index (Case-Shiller Index) Made New Lows

The weakest link in the markets today is the US housing index. The index has made new lows.

US Housing Index (www.thechartstore.com)

Due to problems in Greece, markets have not been focusing on the US housing situation. In addition to this, markets are happy to see that US exports have been increasing thus decreasing the deficit. However there is no concrete sign that US will become the net exporter in the foreseeable future. Americans are still enjoying the cheap imports from emerging markets.

Trade Balance (goods) (www.thechartstore.com)

As you can see, the chart above is still in negative territory , meaning that US is still importing more than they are exporting and they have been doing this since 1974. Habits are very hard to change.

DXY in Bullish Divergence Mode

Another interesting observation is that the Dollar Index (DXY) has given a bullish divergence signal. This goes to show that the US Dollar will likely be rising against major currencies. The major trend for the last ten years has been that when S&P 500 rises, the dollar falls. Right now, the S&P 500 is rising with the dollar. We believe this is because of the uncertainty in the European situation, which will eventually push the Euro down further, giving strength to the US Dollar, in turn the DXY index. The DXY’s uptrend is a factor that shows that a correction is near, but not a factor to show a crash is coming.

Investing More After A Correction

Stoxster believes the markets are very optimistic and rather overbought from all perspectives – fundamentally, technically and even psychologically. A correction is overdue, and when it does happen, we will be investing more into emerging markets as we believe the indices are relatively undervalued compared to the S&P 500. Most of the information here in this very blog post seems very negative. Yup. Stoxster is very bearish at the present moment, but this does not mean we should short all the time. Governments worldwide have been putting in an overdose of stimuli, which has made us bullish for the medium term.

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January Portfolio Update

Posted by Stoxster | on 4th February 2012 | 01:11AM | 0 COMMENT
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Global Macro Portfolio

In the month of January, we opened small positions in China and India indices, using a total of 10.8% of capital. We don’t know how long this rally is going to last so we decided to enter the most undervalued markets as explained in our last post. The Indian position has performed relatively well, rising 9.34%. But the positions are relatively small, so the gains on total capital are not that much.

Returns since 30 Jun 2011

Stoxster’s Take

The Facebook IPO; Lifting Sentiment

With the filing of Facebook’s IPO, sentiment is rising and is becoming extremely positive. This is very normal. Back in 2007, when the so-called largest IPO in the world, PetroChina filed for listing, sentiment in Hong Kong also rose to the extremes. Not to mention Facebook is much larger than PetroChina.

Wave C? Or Wave 3?

As mentioned in the Global Macro Outlook of the December Portfolio Update, global markets will inevitably face an upward wave. Whether it is Wave C, or Wave 3, it is yet to be decided. If you look below, the Hang Seng Index has charged out of the triangle (Wave B or 2) very rapidly. If it is a Wave C, then the index should fall pretty soon, if not, the Hang Seng Index has a long way to go.

Daily Hang Seng Index Chart (www.sharechart.com.au)

 Wave of Downgrades Yet to Happen

Although positive sentiment is filling the investment space, the European situation has not improved much. The media has recently tried to divert our attention elsewhere e.g. Facebook and stock sentiment. Once Facebook is listed, the market will focus back on the European situation. One of the catalysts for a change of focus would probably be when the ratings companies start to downgrade banks (French banks in particular) and government bonds again.

Bulls are Ruling the Scene

Analysts are making wildly positive predictions:

1. Emerging bonds good buy for the long term

2. Global Strategists Abandon Bearish Views After Missing Rally

3. “GOLD” RISK FREE INVESTMENT: Goldman Sachs

It makes you have the urge to follow and buy equities; but in investing, you need to assess and compare your emotions. Bill Miller of Legg Mason has once said that when your feelings tell you that you should not touch that stock, that stock is the gem. Long story cut short, logic does not always work in markets, not even your instincts.  Don’t always buy when your instincts tell you to as it may not always be right.

In the short term, we do see a continued rise in the markets due to the hype of the Facebook IPO. Obviously it is not the only factor affecting the markets but it is a major one. When it is listed, the bears should start crawling back in.

In conclusion, adding to our current long positions is a bit risky as sentiment is currently high and flying. Technical indicators such as MACD (Moving Average Convergence Divergence) and RSI (Relative Strength Index) are all in the overbought range for most of the global indices. With the European situation still not showing any major changes, Stoxster will still be relatively bearish for the mid-term, yet short-term bullish.

 

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Global Macro Trades: Long CSI300 (China) and India50 (India)

Posted by Stoxster | on 27th January 2012 | 16:24PM | 0 COMMENT
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For all Chinese readers, Happy Lunar New Year to you all as we welcome the Year of the Dragon! Dragon is known to be mysterious; many Feng Shui masters have explained that Dragon is a year of hope and volatility. How apt for 2012.

We have added small positions on 19 January 2012 in the most unloved markets – China and India. The total positions used approximately 10.74% of Stoxster’s total capital. Markets are heading up faster than a rocket, yet we don’t know how long this is going to take. We might as well ride on the short-term bull market on the most unloved markets, targeting an upcoming catch-up rally. We will allow a maximum of 1% loss on total capital if the markets turn against us as there are a number of factors that make us cautious about this rally:

1) Eurozone debt crisis still not solved

With Greece debt yields reaching 1000% and that the European Central Bank (ECB) have bought out a lot of Greek Bonds, this crisis is seriously far from over. Everything will get much worse before it gets any better, it seems. Markets are taking a very huge breather, before falling like never before.

2) Volatility Index (VIX) likely forming a bullish divergence

With the VIX likely forming a bullish signal, this suggests that investors are getting very complacent and we will experience volatility in the coming months. Hence we are expecting the current rally to be short-lived.

Stoxster will monitor the current uptrend and see when it will be appropriate to short again.

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December Portfolio Update & Outlook 2012

Posted by Stoxster | on 5th January 2012 | 23:43PM | 0 COMMENT
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Global Macro Portfolio

In the month of December, we opened and slowly accumulated several positions between 9 December 2011 and 17 December 2011. However, once we entered our third target amounts, our trail stop loss signals were triggered on 23 December 2011. So we exited all the positions that were entered since 9 December 2011, causing a 1% loss on total capital.

As can be seen from the table below, Stoxster’s month to month performance was down 4.79% whilst S&P500 rose 5.40%. In terms of Total Return (from 30 June 2011) however, Stoxster was up 3.20%, whilst S&P500 was down 4.70% as of the last trading day of 2011 (30 December).

 

Performance since 30 Jun 2011

 

Global Macro Outlook 2012

Back to Business and Europe is still the Main Focus

The 2011 Christmas holiday season was a very interesting one. Trading volumes were exceptionally low especially with the ongoing demise of (both Western and Eastern) European nations. Just on the second day of trading in 2012, the rise of Italian bond yields has once again started to scare investors.

I was interested to see what returns currency-linked structured products related to the Euro would give me so I paid a visit to my personal banker. He instantly discouraged me of the investment referring to the uncertainty in the Eurozone and its currency. Have they all forgotten how they were pushing me to buy Euro structured products in April 2011 when I was already getting very skeptical of the rise of the Euro then?

Does this seem like a bottom? From a sentiment point of view it does seem like it. But investing purely on sentiment is suicidal.

Many indices are showing bullish (albeit weak) signals. According to Elliott Wave Analysis, most indices (see chart below) are experiencing a corrective C wave pattern:

 

Hang Seng Index (www.sharechart.com.au)

 

Unsustainable and Uneven European Economics

Europe is entering a recession soon, if not already. The only good news that came out of Europe was that German unemployment rate hit its lowest level since 1991, which was offset by the bad news from the Spanish unemployment rates reaching 23%. With Germany being the only European country doing well and the surrounding countries falling into recession (depression in my opinion), we should not expect Germany to be the bellwether for too long. I am not sure which angle most analysts are using as they expect Germany to be able to save the whole of Europe. Germany has a Gross Domestic Product (GDP) of USD 3 trillion, and the Eurozone GDP as a whole is at least 4 times larger that of Germany’s. How in the world can Germany save the Eurozone? When everyone else is sick, no matter how healthy you are, you will eventually fall sick together.

Elections, Elections, Elections!

As real estate investors always say – “Location, Location, Location!”. 2012 will be a year for elections. During an interview on CNBC television, Jim Rogers estimated that there are about 40 elections around the world. The US elections will be the most discussed about globally. China is also having a leadership change with Xi Jinping as the president hopeful (assuming no surprises).  Elections this year will inevitably add to the uncertainty the world is already facing.

Highlights of Current Bullish and Bearish Events

There are a number of things that are currently happening that may either flip or cement our bearish expectations for 2012:

  • US and Iranian tensions in the Gulf;
  • Uncertainty around the leadership of the new North Korean leader Kim Jong Eun;
  • China’s rising social unrest situation;
  • Rising Libor rates (which has not been talked about much at all);
  • The Mayan 2012 “End of the World” prediction;
  • American troops have also totally pulled out from Iraq which may cause post war recession.

The events below are keeping up our bearish expectations:

  • Rising European bond yields;
  • Falling housing prices in the US, with increased consumer spending (very unsustainable);
  • Asian governments’ constant tightening of their economies;
  • High unemployment rates in the US.

Stoxster is still Bearish

Although we are still very bearish on the world economy, there will be upside opportunities due to technical rebounds. If technical rebound opportunities on the upside are estimated to exceed a 10% return, Stoxster will invest in these for the short term. The sentiment is getting too bearish over Europe that right now it does not seem like the appropriate moment to go short.

2012 will be a very interesting year. We hope we can help our readers protect their wealth, stay firm and disillusioned from the fluff as we surf through another profitable year.

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Global Macro Trades: Shorted EURUSD, EUSTOX50

Posted by Stoxster | on 15th December 2011 | 01:14AM | 0 COMMENT
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Macro Trading Positions

We have started to “re-short” positions. On 9 December 2011, we shorted both EURUSD and EUXSTOX at 1.3365, and 2335.20 respectively, allocating 1% of total capital to stop loss.

Reason

Technical indicators are turning down again. However, we were also planning to short S&P500 on the same day, but we were a little skeptical due to the fact that the VIX is falling pretty rapidly and still has no visible signs of turning up yet. So the EURUSD and EUSTOX50, at this moment, are considered as test positions. If technical indicators of S&P500 gives us a short confirmation, and that the VIX starts to rise, we will be confident of shorting the S&P500.

Ho-Ho-Holiday

Stoxster team will suspend weekly updates until the new year. We will still be presenting the December 2011 report at the end of the month. Merry Christmas and a Happy New Year!

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November Portfolio Update

Posted by Stoxster | on 2nd December 2011 | 22:46PM | 0 COMMENT
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Before reading any Stoxster articles, we encourage you to familiarize yourself with the details on the Disclaimer page.

Global Macro Portfolio

As of 28 November 2011, Stoxster’s Global Macro Portfolio is up 2.98% month on month (M/M), compared to the S&P500, which is down 6.31%. During the month, Stoxster added positions to shorts of EURUSD, S&P500, and EUSTOX 50 derivatives. The portfolio at one point was up 10% whilst the S&P was down over 10%. However, due to the sudden announcement of Central Banks (US, UK, Canada, Switzerland, Japan) adding liquidity into the markets, the markets have jumped up more than 15%. This has caused the positions we held to reach our stop losses for all three trades. However we have in place trailing stops for all three trades so any losses are only minimal. If no profits are made in December, this will be reflected in the December report.

Month on Month and Total Return since 30 June 2011

Stoxster currently does not hold any positions except cash, as elaborated below.

Stoxster’s Take

The Ultimate Global Bull Trap

Although the Central Banks mentioned above have declared that they will be injecting liquidity into the markets and that our positions have reached our stop losses because of that, this has not deter us to think the way we should. We still have a bearish view of the markets – from both fundamental and technical  standpoints.

Fundamental Analysis

There are many factors that helped reinforce our deflationary view:

  • No solution on how to reduce the PIIGS’ high bond yield rates;
  • In the US, housing prices are rapidly decreasing, with consumption merely increasingly – hence unsustainable;
  • Various government statistics are constantly being revised downwards.

Italy is now the third largest debtor nation in the world. With their bond yields hovering around 7%, that’s a lot of interest to pay. The European Central Bank, France, and Germany till date have not offered any feasible solution. France is also at the crossroads, deciding if they should help other neighboring nations. Credit rating agencies have warned France if they participate in various bailout funds, they will show no mercy and remove their AAA rating. As mentioned in last month’s report, we still believe that austerity without organic growth cannot save Europe. Leveraging on debt for growth will only make the situation even worse.

As for the US, 70% of its Gross Domestic Product (GDP) is consumer spending. And their usual habits include monetizing the value of their houses and spend that money. With housing prices back on a downward spiral, and unemployment rates hovering around 9%, US is also on a deflationary spiral that even the Fed may not be able to stop.

Technical Analysis

Using Elliott Wave analysis, what can be interpreted from the last few days, is a strong Wave 2 retracement, as can be seen in the graph below. Wave 2s are known to be sharp retracements and not sideway retracements and this is exactly what it is.

Elliott Wave Analysis (www.sharechart.com.au)

Stoxster will continue to monitor this retracement. If the retracement of the S&P500 continues and goes above the highs on 2 May 2011, then we will need to reanalysis the situation. However if the S&P500 starts falling, and stays below the highs of 2 May 2011, Stoxster will start shorting again, and may leverage much more than we did previously.

Conclusion

Stoxster’s take on the global economy is very bearish. Governments around the world are using Italy’s demise as a scenario for their countries and will be more cautious over printing more money. Bond vigilantes are all on watch for the “next Italy”. Shorting opportunities aplenty.

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Global Macro Trades: Added Final Batch of S&P500 Shorts

Posted by Stoxster | on 21st November 2011 | 22:13PM | 0 COMMENT
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Macro Trading Positions

Our macro portfolio is now leveraged up to 144.24%. That goes to say for every $1.00 invested, we are borrowing $0.4424. Here is a table and chart of Stoxster’s macro portfolio distribution:

Macro Portfolio Distribution

Reason for Entry

Stoxster’s investment process requires us to invest our last amount of capital when the weekly bar (the price bar that shows the open, last, high and low prices of the week) turns bearish. Although we believe that markets make the news and not the other way around, governments of countries in the European Union and the Deficit Supercommittee in the United States are amplifying the uncertainty in the markets – catalysts required for perfect bearish trades.

The European Central Bank (ECB) has recently retaliated against regional politicians saying that they should not be used to bail countries out, but to keep prices stable. Although what they mean by “keeping prices stable” is very unclear,  the ECB has indicated that  there will be no stimulus in place. The US Federal Reserve has also been silent about Quantitative Easing III (QEIII). As a result, the stock markets are left alone to deal with the uncertainty.

At this moment, we have finished entering our targeted amounts. Our maximum stop loss, that is, if all trades hit our stop loss levels, will be 8.59% of the portfolio’s total capital.

Stoxster is now into its next phase of investments – to monitor the timing of our exit of current investments, and to enter event-driven deals and emerging markets.

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