Rebound

Hello everybody,
Markets have begun to come to grips with the reality of the new coronavirus. It is bad enough, sure, but not the end of the world. Thus, we saw a strong rebound yesterday, which helped us gain quite a handsome amount on our long position (which remains in force for today, too). Of course, at least in part, the "comeback" was fueled by the expectations that the Fed will step in and cut interest rates to help the economy cope with the crisis. Which, in our view, would be a big mistake on the part of the Fed. After all, it likes to reiterate time and again that its mandate consists in maintaining low inflation and unemployment. Well, those two indicators are at historical lows right now, which means there is no reason for the Fed to interfere. If it does, though, surrendering to the pressure of the markets and President Trump, it will lose its credibility as an independent entity in its own right, and moreover, expend its most valuable and efficient ammunition (interest rates) leaving almost nothing (with the rates as low as they already are) for the future times when it may really need it.
Last week, we announced that we were going to base our calculations on a capital of $80K instead of $70K. I'd like to retract that announcement in view of our strong results, because now we have a sufficient cushion of recent gains which will protect us from downturns. Still, if need be, we retain the right to do so in the future.
Good luck and take care,
ELP team

Superforecasting

Hello everybody,
In a brilliant book by Tetlock and Gardner called "Superforecasting", the authors juxtapose what they call the "inside" and "outside" views of a problem. In fact, the terms were first introduced by psychologist Daniel Kahneman (2002 Nobel in Economics). With the inside view, people pay attention to the details of a specific phenomenon or matter at hand; they find it more fascinating and interesting, there is always a story or many interesting stories to be told. With the outside view, it is much more boring and abstract; it requires comparing things, evaluating results etc. etc.
But the authors claim that it is the outside view that has to come first. They give an example: to the question if a family has a pet, most people would want to know what kind of family it is, if they have kids, what their neighborhood is like and so on; that is, they would take an inside view of it. But a "superforecaster" would first of all take the outside view: he would like to know how many households have pets in that country/city at all. That would be his first estimate, from which he would proceed further.
Now speaking about the coronavirus which is all the rage now: the outside view tells us that similar outbreaks happen every so many years; that common flu epidemics happen every year with thousands of deaths and nobody demand to shut borders (for example, in the US alone, according to the Center of Disease Control and Prevention (CDC), 12 to 61 thousand people have died annually since 2010); that the impact is limited; that, within some reasonable time, a vaccine and effective cure will be found etc. etc. In short, there is no reason for panic.
Nonetheless, panic we do observe. In the markets and in everyday life. Moreover, the panic from the virus, exaggerated as it is, is now being amplified by another: that of a socialist (perceived by many as a "communist") Bernie Sanders coming to power in November. Which is of course another exaggeration and "inside view" on the American politics.
Of course, in terms of trading, these considerations are not very helpful, since markets are often driven by the "madness of crowds". ELP Program, on the other hand, is objective and impartial. Therefore, it may sometimes lag or overtake the market. But sooner or later, the market participants always come to their senses and fundamental patterns prevail again.
Good luck,
ELP team

Weekly performance review

Hello everybody,
See the past week's results below:

Period	ELP	S&P500
5 days	0%	-1.25%
1 month	6.14%	1.28%
3 months	2.62%	7.31%
YTD	1.53%	3.31%
1 year	31.45%	19.52%

Good luck and have a nice weekend,
ELP team

The NBT

Hello everybody,
Amazon and Apple are boring; they are for losers and retirees. Space tourism is all the rage now. The veteran entrepreneur Richard Branson's Virgin Galactic Holding Inc. is worth now 4 times what it was worth just in December. By the way, Amazon's founder Bezos also takes part in the space race, with his Blue Origin. Not to forget Elon Musk's SpaceX. As carefully put by analysts, the demand for such stock "is driven by forces beyond fundamental factors". Well, let's put it bluntly: by investors' greed and hope to hit the "next big thing".
On the political front, yesterday's Dem debate in Las Vegas was so heated that somebody edited Bloomberg's Wikipedia profile with a dark joke that he died on February 19, with the cause of death indicated as "Senator Elizabeth Warren". Overall though, I don't think the debate radically changed their respective standings in the race. That said, the three most probable candidates (Sanders, Biden and Bloomberg) are all pushing eighty and have health problems, which make them vulnerable to Trump's attacks, who is, of course, the same age, but has the advantage of already sitting in the White House. That should support the stock market actually, which is in apparent approval of Trump's presidency.
Good luck and trade carefully,
ELP team

Waiting for Godo

Hello everybody,
For now, our outlook is bearish. That is, strategically bearish, while we hope for a decisive movement upwards to finally open a (short) position. ELP needs some volatility to open a position, but volatility is very low presently, so that may not happen - again.
It you have already seen our signals for today, you know that the trigger price today is 3417. But be careful: one contract should be sold as soon as the S&P500 touches the price intraday, and the second - only if the day's close is also higher than 3417. If, on the other hand, the index hits 3417 and then closes lower, we are to remain with just one contract on hand.
Good luck,
ELP team

Bearish

Hello everybody,
Stocks up, houses up, treasuries up, gold up... What is that? A toxic mix or a blessing? No need to think anymore, just buy anything and you'll be fine?
Meanwhile, Trump's team is thinking how to sustain that bullish run by pumping more money: they are going to promise voters that a portion of their income will be freed from taxation if invested into stocks. President Trump sees the rising stock market largely as an indicator, or even THE indicator, of the strength of the general economy.
Which may or may not be the case, actually. But what is important this time around is that people investing their money instead of spending it on consumption are effectively sterilizing it, lowering the velocity of money circulation and therefore keeping inflation at bay. Which in turn enables the Fed and the government to pump more money into the economy.
When this bubble will burst - no one knows. Technically (as the "technical analysis" of the charts shows), it should burst right now. The investor survey conducted by the Boston Consulting Group in Nov and Dec 2019, found that, on average, respondents' outlook is similar to what it was just before the market correction in late 2018. Nearly two-thirds of respondents have a bearish or very bearish view of the likely performance levels of equity markets over the next three years. Among all respondents, 73% believe that markets are overvalued, an uptick from 67% in the 2018 survey. Still the steroids and anabolics injected in the economy may for some time delay the inevitable. It is better to be prepared, though.

Good luck,
ELP team

Presidents Day

Hello everybody,
Speaking of coronavirus, I came across an interesting chart yesterday:
In fact, the chart is not completely true: there was in fact a fall of about 3.5% when the news of the virus first came out, but still the reaction of the market this time around has been milder - so far. Have we gotten used to such outbreaks? It's still too early to say, though. The average reaction time in the previous 5 cases was 62 days, while in the present case, only 17 have passed.
There was some dramatic news yesterday about the acceleration in both mortality and morbidity from the virus in China. I don't know, having a history of half-truths and cover-ups before, maybe previous information was artificially understated, and now the authorities have decided to come clean and begin to tell all the truth and nothing but the truth, and hence the jump in figures? Hard to tell.
But taking into account an increased - again - uncertainty around the disease, plus some tense news about the Middle East, I will not be suprised if we see some unloading on the part of stock market investors to reduce the risk before the coming long week-end (President's Day). Beware.
Good luck, and happy Presidents Day!
ELP team

The danger of trade wars

Hello everybody,
This week, I gave some thought to why the S&P500 keeps rising. Yes of course, the trend is your friend and all that. But why does the trend persist? Where does the money come from?
First of all, the number of Americans (US residents) participating in the stock market has decreased rather significantly over the last decade, from about 65% of the adult population to about 55%. That means that Americans can not be the source of the money. Indeed, it turns out that about $8 trillion of FOREIGN private capital is invested today in the US stock market, or about 35% of the S&P500 market capitalization. In 2002, the figure was $1.4 trillion (15%). So, it seems obvious that to a large extent, foreign money helped engineer the US stock market rise.
But the question remains, why? Why would Europeans and Asians invest in the US, when more often than not, there is a vibrant stock market locally? The answer, I believe, is the excess of US dollars resulting from the positive (for the rest of the world) balance of trade with the US. Notably, the aggregate balance of payment surplus for the world in its trade with the US almost exactly tallies with the amount of money pumped by the world into the US stock market over the same period since 2002.
So, rather than convert the dollars and use the money locally, the countries and businesses send it back to where the assets are denominated in the US dollars in the first place, that is, in the US itself. And it means that, fighting the US trade balance deficit, which he hates, President Trump at the same time undermines the growth of the US stock market, which he loves. Somebody, tell him to stop the trade wars he has begun, or he will see a stock market crash that will bring him down as president.
Good luck, and happy President's Day!
ELP team

(Rational?) exuberance

Hello everybody,
The House Speaker Nancy Pelosi signed the Impeachment Articles before taking them to the Senate Wednesday. She used 30 customized pens to sign, making each stroke with a different pen, which she immediately gave to someone present as a collectible. She was not the first to do so to mark a historic event. In 1948, President Truman signed The Marshall Plan (Economic Cooperation Act) using a dozen pens, and in 1964, Lindon Johnson signed the Civil Rights Act with 75 pens. Meanwhile, there might have appeared a true "smoking gun" in the impeachment process in the person of Lev Parnas, who claims that President Trump knew and personally endorsed everything that was going on in Ukraine regarding the Bidens.
On the economic front, exuberance continues in the markets regardless the impeachment, maybe more rational this time than in the 90-s. There are indeed some powerful influences that combine to make a strong economy. And one of the main factors is that inflation remains very low in spite of very low unemployment. The Fed Reserve, consequently, does not have to raise interest rates, which additionally boosts the economy.
Our disposition for today remains the same again. With one E-mini (or similar) contract short, we are awaiting a signal for strengthening our short position by selling short one more if the S&P500 is sufficiently high.
Good luck,
ELP team

Persistent market

Hello everybody,
Our disposition for today remains absolutely the same today as yesterday, and the day before, and the day before that (to be confirmed as usual at 2.45 Chicago time for our subscribers). With one E-mini (or similar) contract short, we are awaiting a signal for strengthening our short position by selling short one more if the S&P500 is sufficiently high.
We wrote yesterday that the momentum had stalled for stocks to go higher for the time being. Well, evidently not, since the S&P500 has jumped over the psychological fence of 3,300 right at the start. Some sort of dope is administered to the markets all the time. This time is was the actual signing of Phase 1 of the trade treaty with China.
Russia meanwhile is on the brink of great changes. The Russian society demands change, and at last there will be one: Putin will now not be just President, but Great Ayatolla, the Father of All Slavs. I congratulate all Russians on that.
Good luck,
ELP team

Disposition

Hello everybody,
Our disposition for today remains absolutely the same today as yesterday (to be confirmed as usual at 2.45 Chicago time for our subscribers). With one E-mini (or similar) contract short, we are awaiting a signal for strengthening our short position by selling short one more if the S&P500 is sufficiently high.
Fundamental data brings no surprises, while technically, the momentum pushing stocks higher has stalled for now, and there should be a period of some regrouping if stocks are to go significantly higher again.
On the political front, the House will pass over the impeachment case to the Senate today. Meanwhile, new evidence has emerged of the Trump adminisration attempts to obtain dirt on Democratic candidate Biden and his son in Ukraine. We'll soon see how it influences the case.
Also today, as usual on Wednesdays, the EIA will make public the level of petroleum inventories. Several Fed Reserve officials are going to deliver speeches this week.
Good luck,
ELP team