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Weekly Market Report: Market Prophets

The weekly market reports include a market position update, a stock market forecast, and an analysis of capital markets. To access the full report, you must subscribe to Premium ArticlesWeekly Premium Articlesor an All-in-One subscription.

Announcement: This and the next report will be a little shorter than usual due to the holiday week. We wish you a wonderful holiday week!

Included in this report:

  1. Weekly summary.
  2. Market Prophets.
  3. Market positioning update.
  4. Stock market forecast.
  5. Capital markets analysis.

1. Weekly Summary (June 24–June 28, 2024)

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  • Stocks (SPY) fell 0.1% amid continuing economic growth uncertainty.
  • Bonds (TLT) plunged 2.3% in response to mixed economic data.
  • Commodities (DBC) gained 0.1% amid sector divergences and support from the energy sector.
  • The US dollar index (UUP) ended the week up 0.1%.
  • Gold (GLD) has outperformed stocks (SPY) since January 3, 2022, with a return of 25.8% versus 19%, respectively.
  • Since January 3, 2022, bonds (TLT) have been down 33.3%, while large-caps (SPY) have gained 19%.
  • The energy sector (XLE) gained the most on the week, by 2.4%. Utilities (XLU) fell the most, by 1%.
  • All in all, divergences in assets are increasing, with pressure building up in fixed income, agricultural commodities, and emerging markets, while the equity markets are becoming cautious about growth.

2. Market Prophets

This week, a large number of analysts were confident the bond market would rally after the PCE report of Friday, June 28, 2024. Both the PCE and its core measure were in line with expectations. Yet, the bond market headed south, with the TLT ETF plunging 1.9% and the weekly losses rising to 2.3%.

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The following is an excerpt from our article on Substack:

In a single day, the bulls likely forfeited all their small, random gains from the previous two weeks, and possibly even more.

This is another factor contributing to the gap between economic forecasting and trading: it is impossible to predict the extent of discounting or the actions of the market’s major players. The linear-thinking approach to markets just does not work.

Systematic trading is no panacea and can also face large losses, but it at least avoids the irrationality of trying to be a market prophet.

An analyst can be 100% right about economic releases, yet lose money because the actions of market participants, and in particular those who move price action, are unpredictable. Predicting the direction of price after economic releases is likely a zero-expectation game in the long term and a negative expectation game after we include transaction costs. Given a large number of analysts, some may end up with gains, but the distribution in the ensemble domain before costs has a zero mean. The longer an analyst tries to predict the market’s movement after an economic release in the time domain, the higher the probability of reaching an absorbing barrier and hitting the uncle point.

Economists analyze fundamentals to forecast long-term trends; this is the primary and reasonable use of fundamentals, but still, the task is hard, and there are winners and losers. Trying to predict short-term market moves after a release of economic data demonstrates a lack of experience; traders with skin in the game know this is a not a profitable endeavor.

3. Market positioning update

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Specific disclaimer: This report includes charts that may reference price levels. If market conditions change the price levels or any analysis based on them, we may not update the charts. All charts in this report are for informational purposes only. See the disclaimer for more information.

Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.

Charting and backtesting program: Amibroker. Data provider: Norgate Data

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