Mechelany Advisors’ MODEL PORTFOLIO has been running in a fully transparent way since January 1st 2014. Its Purpose is to implement the conclusions of our research analytical process in a portfolio managed using institutional liquidity, diversification, risk management and asset allocation processes. In our TRANSACTION UPDATES we keep our reader informed in real time of the transactions in our MODEL PORTFOLIO
With new record highs in the US Dow Jones, the SP500 and the EUROSTOXX50, equity markets are celebrating the V-shaped recovery and the fast spreading of vaccinations around the world.
The International Monetary Fund revised its prognosis for the world economic growth in 2021 with a 6 % clip, the fastest seen since the 1970s. The Minutes of the FED confirmed this week that Central Banks continue to privilege asset inflation and refuse to take into consideration inflationary pressures building-up in the real economy, waiting to see the real hard data rather than relying on prospective models and expectations.
The US SP500 almost reached or ultimate target for this April rally at 4’150, bond yields have stopped going upon, the US dollar is turning, Gold has made a significant double bottom and fear gauges like the CBOE Index are back down to levels that have usually indicated more volatility ahead.
On Thursday, a massive trade on VIX options for 200’000 contracts means that a whale is expecting volatility to come back before July 2021. It is worth noting that we had the same type of trade taking place in February 2020, something that attracted our attention then with out of the money calls with a strike at 50, and again, another of those trades, on Bond yields options took place in September 2020, juts before bond yields started rising sharply.
In a nutshell, what all this is telling us is that we are nearing the end of the bull phase before a sharp correction unfolds in global markets.
Our target on the SP500 has been reached and this week, we reversed the global positioning of our MODEL PORTFOLIO from net long to marginally net short, we increased our long Gold positions and are long Bonds and short Bitcoins.
Our MODEL PORTFOLIO rose 0.54 % last week, for a year-to-date performance of +22.42 %, far eclipsing the world equity indexes.
Our cumulative performance since January 1st 2014 now stands at +273 %, or 3.4 times the performance of the MSCI World Index over the same period, 2.7 times the performance of the SP500 and delivering 40 % more performance than the US Nasdaq.
We stand at a compound average of +19.94 % against 8.04 % for the MSCI World and 11.72 % for the SP500.
Precious Metals and bonds were positive contributors while in individual positions, China Merchant Port Holdings, Shanghai Dong Zheng and BAIC Motors stood out.
One the detractors side, China Minsheng Bank was down -13 % after the privately owned bank reported results showing that they decided to take the entirety of the 2020 shock I n their 4th quarter earnings and our short position in the Russell 2000 and in Bitcoins were also negative contributors.
Over the week, we kept on reducing long equity exposure by taking profits on several Chinese, European and US individual positions, we re-instated our US Tech short position on Friday morning, increased our exposure to Gold and added to Sinopharm and China Life Insurance.
Our MODEL PORTFOLIO is globally balanced and ready to withstand volatility as we enter the Q1 corporate earnings season. We are at 50 % in US Government bonds with an average duration of 20 years, net short equities by 20 % with our constant value theme of shorting overvalued US Technology stocks and being long extremely cheap Chinese Hong Kong listed shares, our commodity exposure has gone up to 27.5 % being long Gold, Silver and Gold Miners while being short Copper and Oil and we are short Bitcoins for 7.75 % of the portfolio.
We are also long EUROs to the tune of 33 % of the portfolio.
The coming reporting season will be interesting as the marked and analysts have already priced in extremely good news and the technology sector has outperformed ahead of the good numbers that are expected.
Again, our Central scenario is one where we should be entering a period of volatility in May and June 2021 that could see global equities fall by 15 to 20 %, bonds rally, Gold and precious metals launch a new attempt at their previous highs and Cryptocurrencies break down with a weakening US dollar.
US and European markets recorded new all-time high last week with the NASDAQ and the FT100 adding more than 3 % while Chinese indexes were still in the red with ALI BAB getting a US$2.8 Billion fine form the Chinese regulators.
At 4128, the SP500 is only points away form our long standing 4’150 target for this rally and the Dow Jones Industrial recorded a new all-time high at 33’800.
Bond yields were globally down last week despite strong PPI and CPI numbers in the US and China.
Oil has clerk broken down closing below our key US$60 level, industrial metals were positive albeit closing at Lowe levels than their previous all-time highs. Gold and Silver are becoming more attractive and soft commodities had another strong week.
CBOE Volatility Index
This is another warning signal, as the fear gauge is falling back towards levels that previous indicated more volatility ahead, with significant short VIX positions having been built.
New record high and target reached for the SP500, which is again trading at 74 % on its RSI.
There Nasdaq has a strong showing and is again trading above its moving average, but the completion of a lower top at these levels would be a negative sign.
New record high in the over-extended Dow Jones Industrial
Europe is recording an all-time high but is clearly overbought with an RSI above 80
The TOPIS Index is consolidation above its previous all-time high.
Chinese equities are finding a floor and a BUY signal is developing on the MACDs
Hong Kong-listed Chinese shares are trying to find a floor…
But as this long term chart shows, this is clearly an accumulation zone ahead of a major break out to the upside in the second half of the year, with significant support at the convergence of the ST, MT and LT Moving averages.
Gold has recorded an important double bottom and is testing both the 1750 level and its moving averages.
SILVER is oversold and a BUY signal is developing at the Moving Averages.
US 30-Year Bonds
US bond yields have stopped rising after a vertical acceleration.
Is this a reversal or a simple consolidation ?
EUR / USD
The US dollar has made a clear bottom with a reversal and its RSI below 25 and a EUR buying signal is developing at the MACd level
Over the week, we have tactically taken our profits on a number of Chinese positions, we switched form Shanghai DONG ZHENG into its beleaguered parent company China Zheng Tong, added to SINOPHARM and added a position in CHINA LIFE INSURANCE.
We re-instated our short Bitcoins at 58 796, added a Leveraged bet on GOLD , sold our remaining European ETF position and re-instated our short positions in US technology stocks ahead of their results in the coming two weeks. We Aldo doubled our short position on the US Russell 2000.
The US small and mid-cap index is the most overbought it has ever been in history after its spectacular 120 % rally in the past year and Q1 earning could be a wake-up call for all the overly optimistic buyers of small caps.
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.