Loading ...[One last reminder – this is a TRADING CALL. Longer term, all of this China supply disruption means more stimulus throughout the world. The risks with this bearish short-term view is that the market sees through it and realizes the worse things get, the more stimulus will be applied.]
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TIME FOR A STAB ON THE DARK SIDE
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Will Apple warning prove the news that shakes the market into reality?
Remember the weekend of February 1st-2nd? It was the weekend when the market hit its most emotional point regarding the Chinese flu situation. Within the financial community, talk about conspiracies and all other sorts of crazy theories were flying around. Reading my twitter feed that weekend felt like the world was about to end. The talk was so dire, I wrote a special Sunday night MacroTourist piece titled “BUY THE PERIODIC TABLE” in which I argued a massive stimulus was coming out of China and this was not the time to panic.
I was only half right. I was correct in that a massive stimulus was coming, but unfortunately the first wave was mostly monetary. And instead of sending commodities flying, it mainly propped up financial assets.
Let’s look at what has happened to the Chinese stock market since that fateful weekend: Straight up on a stick!
I can already hear the pushback – “the Chinese stock market is not a real market. It’s manipulated.”
Yeah, maybe that’s true, but you could have still traded this rally and I am pretty sure the profits from the rally in the FXI Chinese equity ETF are the same colour dollars as any other profits.
But what about other “real” markets? Like the Nasdaq?Don’t send me your comments about how this market is “manipulated” as well.
I have no interest in debating what price indices should be at. I am only interested in what price they will be at.
That weekend at the beginning of February, with all the negativity flying through the air, with the Chinese stimulus on its way, I thought shorting was a poor risk-reward setup.
However, now that we have rallied hard, combined with the fact that the flu situation has not improved as much as I would have anticipated, leads me to think the right trade is now on the dark side.
At this point the fintwit-doomsayers-turned-infectious-disease-experts will be springing up with a “see! I told you so!” Yeah, ok, but aren’t I putting out my short higher than the hole you sold into?
I have no ability to judge the seriousness of the Chinese situation. I am sympathetic to both sides, but I know one thing, the shorts have been run over so hard, it is now a difficult position to hold. It is no longer as crowded.
As I write this Monday morning, the stock market is down on Apple’s warning that the Chinese supply disruption will be worse than expected.
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