July 28 pre-market (wow, what happened yesterday?)

By: Jeffrey Cohen, Investment Advisor Representative
US Advanced Computing Infrastructure Inc. An Illinois Investment Advisor

July 28 pre-market analysis

Equities

• Big gains in US Equities, multiple standard deviation moves.
• Huge percentage gains.
• These gains started early (pre-market) and accelerated after the FED FRB FOMC press release.
• Hypothesis: This was planned.
• Hypothesis: Covering shorts? Margin calls on shorts? Forcing Panic Buying? Putting money to work safely (in case the bear rally is a bull market)?

VIX

• VIX: Down 6%
• Divide by 19.2 to get the standard deviation of a daily move in the US Equity markets (e.g., S&P 500).
• Big moves should increase the VIX. We had a 2 x standard deviation move in the SPY, and 2 to 3 x standard deviation move in QQQ.
• The price of insurance against stock market moves went down (after a large move, counter intuitive move).

Global equities up too.


US Fixed Income

• UST Fixed Income at strong levels. High prices for bonds and notes, lower yields (but still elevated).
• As the Federal Reserve raises interest rates (short-rates, policy rates), the market kept long-term rates, or long duration rates low as well.
• Hypothesis: Could be a result of tapering accelerating to $95B / month. This makes bonds and notes (UST and MBS) more valuable, as there are fewer of them.
• Hypothesis: Recession Warning, flight to safety. But still need to put professionally managed money to work (*proprietary funds, mutual funds, client managed accounts).

Commodities

• Commodities are up
• Copper, gold, silver are all up.
• Crude oil is up

US Dollar

• US dollar at a strong level
• Strengthened against the Euro,
• weakened against the Yen
• Strengthened against the Yuan RMB
• Strengthened against MXN Peso
• Flat against the CAD
• When the US dollar strengthens, it reduces domestic inflation on goods and services imported (in USD) and consumed.
• Example 1: Oil.
• It does not impact domestically produced and consumed items, unless priced globally.
• A strong dollar helps mitigate US inflationary pressures by making imports cheaper.

Europe

• Why is Europe weaker?
• Why are European Banks weak?
• Putin Natural Gas Shortage?

Money Managers

• Money Managers f(health of investments, health of clients, capitalization of investors, liquidity of markets)

Market Breadth

• New Lows are moderating: FI 3:1 Equities 2:1
• Strengthening of broad market index.

Physical Miners

• Why are physical miners stronger pre-market?
• Short covering, because the bet is the FED is going to push us into a recession, which reduces demand for physical commodities.

Crypto

• Bitcoin f(x) = USD squared, 1 day market returns, implied volatility (auto-regressive)
• Rising out of its support level of $20k

US Banks

• US Banks & Regional Banks
• Our next big bet (US Advanced Computing Infrastructure, Inc.)

COVID

• Covid numbers are rising. This we see in higher levels of new hospital admissions, and slightly higher new case numbers.
• Hospitalizations up could still impact consumer demand due to COVID.