While we have not yet published OUR SEVEN INVESTMENT CALLS FOR 2021, the market action of the past week and this week requires an update on how we see things developing in equity markets.
Since 2018, it was our belief that the 2009 bull market in US equities was nearing a significant peak and cracks started to appear in February and December 2018. Donald Trump’s counter cyclical 2017 tax cuts send a new lease of life to equities, while his ill-conceived trade war against China forced the FED to change tack in December 2018, reversing QE tapering and lowering rates again.
The reversal in monetary policy sent equities flying in 2019 ( SP500 +28.8 %) and extended what was already the longest bull market on record.
At the end of 2019, we correctly predicted the 2020 bear market where US equities and world equities lost 40 % in March.
The massive stimulative interventions caused by COVID sent money market rate to zero, Bond yields to record lows and equity markets flying again in the second half of 2020 with the Nasdaq ending 2020 +42 % higher than where it started the year and the SP500 + 16.2 %.
This new bull market that started in March 2020 is actually the wave V – or last wave of the entire secular bull market that started in 2009 and, as we have highlighted many times before, it is being accompanied by an increasing number of bubble phenomena and signs of extreme speculation.
Bitcoins, Dogecoin, Spacs, Reddit, Gamestop, WallStreetBets and Robinhood are just a few examples of these bubbles, which are all sending out the same message.
Global markets are moving into the same kind of irrational behaviour that we experienced in 1999/2000 and in 2007, which all ended in sharp bear markets.
All these new (but in fact all seen before ) phenomena are even further evidence that the 2020 bull market is very late in the cycle, and that a major market top is not far.
Last week’s 61% spike in the VIX index, the sharp sector rotation and the high volatility in global markets, makes the first 4 trading weeks of the year feel like we already have 6 months trading behind us.
This extremely high volatility and the madness around market phenomena such as Gamestop are early warning indicators that together with our anticipated continued squeeze up in global equities into early Q2, we must be prepared for a major market top, which should be in Q2 2021.
The current extreme levels of speculation and volatility requires extreme agility in the management of global equity exposure.
This week, we may have seen a temporary bottom that could lead to a new attempt a new highs, even if we start having some significant warning signals.
In the coming up-phase leading to the secular top, our preferred markets are China, Japan, Europe and Emerging markets and we see only marginal upside left in the US with an ultimate target for the SP500 at 4150 in the best case ( + 8 % from here )
In our Model Portfolio, we have cut a number of our shorts today, being disciplined on chart breakouts. We stand ready to re-instate our shorts at anytime but will not ride any crazy squeezes in this environment.
Our 62 % short exposure is now concentrated in only 4 stocks : TESLA, AMD, FB and AMZN.
Google and Amazon are reporting their 4th quarter results tonight. We expect the numbers to be good for Google and less good than anticipated for Amazon.
This weekend’s craze on Silver is actually a good sign technically for the precious metal and we have traded Silver quite nicely between yesterday and today. Today we have also added to our Gold Miners exposure and are waiting for the right entry point into Platinum as we see a new breakout to new highs in Previous Metals.
DISCLAIMER Mechelany Advisors FZ-LLC or www.mechelanyadvisors.com, is not a registered investment advisor, nor a capital management firm or broker-dealer and does not purport to tell or suggest which securities customers should buy or sell for themselves. Mechelany Advisors FZ-LLC operates as a private advisory and research company where we provide consulting services to pension funds, investments funds and private clients. Our analyses and conclusions are ours and they only clarify and highlight the investment rationale behind our own investment decisions. The analysts and employees or affiliates of Company may - and usually do - hold positions in the stocks or industries discussed here. The Company, the authors, the publisher, and all affiliates of Company assume no responsibility or liability for your trading and investment results. You understand and acknowledge that there is a very high degree of risk involved in trading securities. It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results of any individual trader or trading system published by Company are not indicative of future returns by that trader or system, and are not indicative of future returns. The indicators, strategies, columns, articles and all other features of Company’s products are provided for informational and educational purposes only and should not be construed as investment advice. Examples presented on Company’s website are for educational purposes only. Such examples are not solicitations of any order to buy or sell securities, commodities, investment products or engage into any kind of trading activities. Accordingly, you should not rely solely on the Information provided in making any investment decision. Rather, you should use the Information provided only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment. By navigating on our website or remaining on our subscription lists, you accept our terms and conditions and discharge us irrevocably form all responsibility.