The past couple of weeks have been an interesting spot for observation – when it comes not to the market, but people’s pattern of behaviour.
Go away in May, sell in May, smart money closing out etc – are all self fulfilling prophecies – maybe?
Looking at the markets right now – one of the key distinctions between the Australian and US markets is the chart pattern for one, and secondly, what is behind it.
In the US, the current earnings season is unearthing some softer than anticipated figures. And while the figures themselves may be around the mark (Google showed 32% growth in profits, but it was not enough to satisfy investors) A drop in PPC (that is Pay Per Click) advertising spends cast a concern on outlook.
For years, the Technology sector has been at the vanguard of the new economy – but perhaps now, is becoming more the mainstream. 10 Years ago, where did you look up information, where did you pay to advertise etc?
So what was then, the new economy – E-Commerce – is now the normal or traditional economy – and the slow US growth forecast, helped by the Fed continuing to pump air (and Billions) into the tyres is biting as hard in the tech sector as it is for everyone else.
So how do you trade this?
Get short – maybe but I am not convinced on that. Looking at my charts, around 1800/1825 is a big level and if held, merely underlines the ongoing uptrend that we have seen from US equities. If that fails, then 1675 is here we come and quickly. Congestion levels like this are big – they require volume/commitment to establish the next direction and need to be very strictly adhered to.
But here’s the problem. These are directional views – which may prove 100% right or 100% wrong. As an alternative, how about trading the vol (volatility that is) and that is exactly as we are positioning ourselves. Earnings season often creates a volatility crush – and profiting from that is what we are seeking. This would explain why strategies such as condors, butterflys and the like have and will be hitting your phones.
What is the difference in Australia?
Well for one, the Australian economy is driving along without billions of dollars in artificial subsidy a month keeping it afloat. Sure interest rates are low – great! Additionally, the property market is running very hard, housing starts and new approvals continue their 26 month rise.
In short, inflation is a more likely problem than recession, right now. As such, we continue our bullish view and structure of trades toward the Australian market. Within that, of course, we continue to trade short opportunities too – yesterday’s position on Santos being a prime example of that.
However, this is a stock specific play, not an overall bearish view on the market. Going into Options Expiry (for Australia) next week, perhaps this will provide a bit of a washout of positions – clearing the decks to reload for May and what it brings.
Meantime, as per our other article today, Easter brings with it four full days of time decay – and while that is doing its thing – making our clients and myself money –I will be in a paddock full of the world’s best beef – Coombadjha Wagyu!