July 11: Financial Markets "flight to safety" means less edge & alpha in our CQNS model
We noticed 10 things this morning before the market opened. Some are bullish and some bearish for US equities today.
1. The US Dollar is very strong. The Eurodollar down to almost $1.00. Other currencies as well like the Japanese Yen. One US Dollar buys 137.39 Yen as we write this (higher than we have seen in a long time).
2. Long-term US Treasury interest rate yields are down significantly, while short-term US Treasury interest rate yields are up significantly. This is moving us towards an inversion of the yield curve. This is good for those who hold investments in long-duration bonds.
3. Mortgage Backed Securities (MBS) were lower pre-market, but then they turned higher. MBS are up today. In fact, after lunch-time NYC time, they are up across the board (UMBS, GNMA both, at 4.5% and 5.0%). Mortgage rates are down 7 basis points to 5.77% for a 30-year fixed rate, fully amortizing, and conforming mortgage.
4. Commodities that are sensitive to economic activity (like Copper) are down today. However, they are not down very much, and are up in historical terms.
5. Most economically sensitive stocks were lower in pre-market, including all of the money managers, chipmakers, trucking and transportation, and crypto and physical miners that we track. The pre-market sell-off seemed very widespread and affected economically sensitive stocks. We also notice the VIX is up slightly, although it is up by historical measures as well. This suggests the market is starting to price in the volatility we have been seeing in stocks (rising in the past month +).
6. Many large cap European banks were lower. China videos showing a run on the banks are running wild on Twitter. Looks like the Chinese banking system is in trouble, and I wonder whether European banks have exposure to that crisis.
7. The NASDAQ Composite 100 index is trading in a consolidation pattern. It is in a down-trend and trading in a rectangular box as the price bounces up and down since June 16 with little direction. Which way will it break out? The trend lines point to further losses.
8. The stocks we call 'the Walking Wounded' were almost all down this morning. They are still down as we begin the afternoon trading day. This reminds us that Fear of Missing Out (FOMO) is a cost effective strategy in a down market. The stock you want to buy will likely be cheaper in a week or two.
9. The edge in our Chicago Quantum Net Score model is smaller again. Much smaller edge than buy and holding the SPY. The reason is two-fold. Stocks that kept the edge (those that move up and down aggressively) seem to have been blown out by recent liquidity bursts. The stocks that are atop our list are now consolidating stocks, or low risk stocks. My net-net is that the QQQ looks like a good bet because large stocks in that index are flat-lining (or matching rises to falls) after significant drops this year.
9.a. We spent significant time this weekend tuning and improving our genetic algorithm, monte carlo (not much help there), simulated bifurcator (did ok, not great), simulated annealer (poor) and particle swarm optimization (did ok). There is so little edge that our optimization models are struggling to find better answers. It could be that the edge just does not exist, regardless of how hard and long we search.
9.b. The risk free rate of return has a 'bump' in it for retail investors. The first $10,000 you invest each year in US Savings Bonds can be invested in i-Bonds that pay 9.62% guaranteed for the first 6-months of your investment. We are going to buy some. This is a great rate, and pulls money out of the stock market from retail investors (or at least it should). We recommend this investment for retail investors with up to $10,000 to invest for a period of 5 years. In that case, you do not lose interest on your investment. Here is the link to Treasurydirect.gov.
10. Corbus Pharmaceuticals Holdings, Inc. $CRBP is showing great market strength. It is up again in pre-market and during the trading session. It is still very low by historical standards, but it is up recently to $0.3241. We are very bullish on Corbus Pharmaceuticals.
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