After a rocky few days since my last update, it seems that markets are finally catching a break. I’ll try to walk you through my interpretation of what happened, and then discuss a few relevant developments.
𝟭. 𝗪𝗵𝘆 𝘀𝗼 𝗺𝘂𝗰𝗵 𝘃𝗼𝗹𝗮𝘁𝗶𝗹𝗶𝘁𝘆? 𝗔 𝘁𝗲𝗰𝗵𝗻𝗶𝗰𝗮𝗹 𝗲𝘅𝗽𝗹𝗮𝗻𝗮𝘁𝗶𝗼𝗻.
We initially saw a combination of worrying news about Omicron and a hawkish tone from the Fed igniting a sharp selloff in the markets. I did say that it seemed overdone at the time, however it accelerated further into last Friday’s close. My bad.
What we saw was one more leg in a continued and substantial liquidity withdrawal trend. Hedge funds have been reducing their exposure for many months now. They have been selling their books, and in particular small cap and tech names.
A number of hedge funds were deep into those names (the $ARKK type), lost big money this year, and were forced to liquidate positions in order to meet margin calls and investors' withdrawal requests. The Fed’s increasingly hawkish tone added fuel to the fire – higher rates and lower liquidity are bad for growth stocks.
This created a snowball effect and was further accelerated by algorithmic trading (“Omicron + USA” = sell) and option trading (Gamma Trap) – fear pushes funds to buy puts, which forces put sellers (banks) to hedge by shorting futures, which sends markets further down, increases fear, etc. Essentially, the opposite of the gamma squeezes that we saw with $GME (GameStop Corp.) and others this year.
As more funds faced margin calls, they liquidated their riskiest positions, which is why small caps and crypto had a particularly horrendous Friday – Saturday.
It's all quite technical, but this is my best understanding of what happened since mid-November.
𝟮. 𝗪𝗵𝗮𝘁’𝘀 𝗮𝗵𝗲𝗮𝗱? 𝗔 𝗳𝘂𝗻𝗱𝗮𝗺𝗲𝗻𝘁𝗮𝗹 𝘃𝗶𝗲𝘄.
Markets are rebounding nicely since Friday’s close and the pre-market looks strong today. It does “look like” we hit a bottom on Friday. Are we heading towards new ATHs or is it merely a corrective bounce before another leg down? I lean towards the former, but nothing is certain.
What gives me a bit of confidence is that the bounce is supported by a few positive developments:
✅ Omicron seems to cause fairly mild disease, and shouldn’t have too much of an impact. I already discussed this in my last post: etoro.tw/3E7Pdf3
✅ China is restarting its engine, as expected, ahead of the Beijing Olympics and the CCP Congress next year. It seems to have dealt with its energy crisis and is back to stimulus and infrastructure spending. Imports rose substantially in October and this is good news for everyone.
✅ Germany printed an excellent industrial production number in October and could benefit from any rebound in Chinese growth
𝟯. 𝗟𝗼𝗼𝗸𝗶𝗻𝗴 𝗔𝗵𝗲𝗮𝗱
Short term moves will likely be determined by (1) what the Fed does, (2) inflation and (3) hedge funds behaviour.
Longer term… looks quite good in my view. Nothing is really different from two – three weeks ago.
Finally, I made a change to the portfolio.
$MELI (MercadoLibre) is a great company which has been building a strong moat in LatAm. They have built a winning full service offering to e-commerce merchants, with an e-commerce platform, logistics, payment solutions and financial services. The stock took a beating this year due to the situation in Brazil and poor sentiment for the sector and now looks quite attractive to me.
I had to sacrifice a position and $PTON (Peloton Interactive) took the axe. I still think that it is worth much more than where it is trading, but I always prefer to cut my losers rather than my winners. Peloton’s management has been a disappointment, and the technicals still look weak – it made another low yesterday…
That's all for today, I hope you have a great week!
$SPX500... Show More
Thoroughly enjoyed reading your analysis of the sell-off last week. Thanks for your insight, as always, Hugo! Keep up the great work, I really am learning a lot from you and appreciate everything you do. I look forward to many green months together soon ;)... Show More
Thanks for the analysis Hugo! I was out for a few days focusing on my exams and I definitely needed this to keep up with the what's and how's of the current market trends. Keep up the good work!... Show More
@hugomanenti95 désolé de vous spammer Hugo mais je souhaiterais savoir si vous avez une préférence pour un livre surles rouages de la finance en particulier. Je me fais opérer du bras dans 2 jours et je vais avoir deux mois à tuer donc autant que je m'instruise. 😊👋😉... Show More Translate
I have copied you with more than $20k right now, i would like to add another $10k but I am not sure if next year would be great, could you let me know what is your expectation for the next year?
Also do you think it is better to add gradually or all in once?
Cheers... Show More
Position $UVXY ouverte (+5.39% d'achat sur les dernières 24h). Entre $03333.HK (China Evergrande Group) et sa faillite à 300 milliards, Poutine et ses lubies d'invasion de l'Ukraine et les menaces de papy Biden, Omicron qui divise, $AMZN (Amazon) et son amende de 1,15 milliard, etc.. ca risque de fluctuer... Show More Translate
Hi @hugomanenti95, I have been following you for about 6 months. I have a question. It appears that my portfolio presents some "actions" more than yours. For example, when clicking on a position, my portfolio will show 13 actions and yours only 7. Is this a problem I should communicate to the etoro... Show More
@hugomanenti95 Hi Hugo, a question about the strategy: you are a long term investor but I see that recently you have been making quite a few trades every single day (although seemingly from the same pool of companies which you have conviction in). I am just having a hard time understanding the frequency... Show More
You are still one of two favorite PI's to me, but I really would like to see more regular an update from you. Since you're doing eToro fulltime you're almost never around anymore... At least, that's how it appears to me.
I don't blame you for losing some money, it's part of the process.... Show More
Hugo is my number one too (with a certain "Jay' i would say)...
I began with 12 traders last year like if they were the 12 apostles, ending now with only 5, it's enough...
So Hugo is John the Apostle for my money ;-)
I very rarely post but since it bring some luck , let's hope !... Show More