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Friday, March 29, 2024

Apple Is Over FOUR Standard Deviations Overbought!

By Alex. Originally published at ValueWalk.

Apple Standard Deviations

When once caught in the maelstrom of stock speculation the average man becomes more or less mesmerized, and at critical moments his conservatism, his resolutions and his theories all take flight. Under the discomposing influence of a rapid succession of changing values and alternating impulses he loses his perspective, is incapable of calm reasoning, and is likely to do precisely the opposite of what he had intended to do. ~ Henry Howard Harper, “The Psychology of Speculation”


Q2 2020 hedge fund letters, conferences and more

Good morning!

In this week’s Dirty Dozen [CHART PACK] we cover COVID data that lends support to the low HIT theory and then dive into UST growing funding needs. Following that, we discuss what the market is saying about bond yields (hint: they should be higher), cover positioning and technical setups in some major FX pairs, and end with an overbought apple and a bluebird that’s ready to fly, plus more….

Let’s dive in.

The Narrative And Positioning Machine

  1. At MO we try to keep a finger on the pulse of the narrative and positioning machine that is the market. Both have been a strong tailwind for risk-assets these past few months, but no more. Sentiment and positioning are becoming substantial headwinds and trend fragility has increased (chart via Yardeni).

  1. When COVID cases are rising, the news is ALL over it. But when it starts to decline, nothing… Now, perhaps they’re just trying to instill a healthy sense of caution and paranoia. Or maybe they have an agenda and their business model is founded on producing click-bait type headlines. I don’t know, but the recent turn in new case growth and hospitalizations seems noteworthy (chart via DB).

  1. Plus, there’s growing evidence in support of the lower herd-immunity-threshold (HIT) theory. This is the idea that HIT might be reached around 50% or less which would explain why the states that were hit hard in April are not seeing a second wave this summer. Also, why Sweden is doing so well on a relative basis (chart via DB).

  1. And that’s interesting to me because the current narrative is really bearish on COVID and the economic recovery but also increasingly bullish on risk assets because of the Fed. But what if COVID case growth slows much quicker than currently projected at the same time we get a new round of fiscal stimulus which unleashes a lot of pent up demand?

I don’t know, just something I’m mulling over. Anywho… this chart from UBS shows the projected US deficit. This huge funding need is going to continue to put pressure on rates and especially the US dollar in the coming years.

Things End Up Not Being As Bad As First Thought

  1. So part of this “Things End Up Not Being As Bad As First Thought” hypothesis that I’m playing around with is a mispricing of the long-end of the US curve. Inter-market analysis shows that 10-year yields are lower than they should be and there’s an increasing chance wen see a move higher. The current thinking is that the bond market is in a holding pattern until the Fed announces the findings of its year-long policy review (chart via DB).

We should get a summary at Thursday’s Jackson Hole symposium where Powell is expected to speak, and then the rest of the details at the September FOMC meeting. UBS believes the “Fed is likely to embrace any long-end selloff if it is accompanied by wider inflation breakevens and stable to easier financial conditions.” I tend to agree.

This is important because yields are the linchpin behind every major trade at the moment: precious metals, growth/tech, FX etc…

  1. Speaking of FX, here’s another USD positioning chart. Commercials currently hold a rare net-long position (meaning Specs are very short). Like I wrote above, I’m fairly bearish the USD longer-term but things typically don’t move in straight lines and positioning is now pretty crowded short. Plus, the tape looks like a short-term bottom may be in.

  1. Here’s the positioning breakdown by majors along with a chart showing past instances when the ECB has stepped in to soften the euro following a sharp rise (chart via DB).

Feedback Loops At Work In Markets

  1. There’s an endless number of feedback loops at work in markets. One of the critically important ones is the speculative flows —> USD loop. It’s hard for USD to materially weaken when relative equity momentum is so favorable since speculative flows dominate FX movements. The fact that USD has fallen as much as it has despite the relative strength in US risk assets should tell you all you need to know about what will happen when that trend reverses (chart via DB).

  1. I like long EUR, CHF, and SEK here. This is a counter-trend swing trade though so it needs to be done with tight stops and a willingness to quickly admit you’re wrong. SEKUSD is coming off of 3 Std Devs overbought levels.

  1. Warren Pies, the energy analyst over at NDR, recently shared this great short presentation on what’s going on in the crude market. The bottom line of his talk is that “2020 has been the worst year ever for Energy equities. For the first time ever, Energy has the highest dividend yield of any sector. Due to an uncertain future and poor management, Energy Investors have shortened their payback period (ie, Energy is now a “short duration sector”). Sustainable dividend payers will lead the sector out of this pit.

There will be some monster plays in this space once the dust settles. We’re not there yet but need to keep a close watch…

Why Apple Stock Is Now Over 4 Standard Deviations

  1. Since bonds yield nothing or less than nothing after inflation, institutional funds are starting to pretend that large select free-cash-flowing corporate equities are bonds. What could possibly go wrong? Anyways, Apple (AAPL) is the obvious number one target for those flows. And that’s partly why the Apple stock is now over 4 Standard Deviations above its 200-week moving average. An overbought extreme that it’s only seen three other times in its 30+ year existence.

  1. Twitter (TWTR) is a company that I’ve been patiently stalking for a long-time. I haven’t pulled the trigger because the pieces just weren’t in place yet. That has now changed and MO is going to be adding it to our port soon. Collective members can expect our writeup on the opportunity soon.

Technically speaking, the chart is sweet. Here’s it on a monthly basis, making an effort to complete a large cup-n-handle. Plus, DAUs growth is accelerating…

Stay safe out there and keep your head on a swivel.


About the Author

Alex Barrow

Co-Founder of Macro Ops. Alex is a former US Government Counterintelligence Professional, U.S. Army Interrogator, and USMC Scout Sniper. He’s an independent trader with over 10-years in markets.

The post Apple Is Over FOUR Standard Deviations Overbought! appeared first on ValueWalk.

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