25th Dec 2022 – Merry Xmas and a profitable New Year!

2022 coming to a close. Things went comfortably and I am very uncomfortable with that.

• Trading was ok. I got lazy on and off my own routine. The same goals for 2023 is to:
  1. Continue improving on the discipline aspect (create an environment where I am just there to trade)
  2. Improve on other mental aspects (observe myself and actively prevent the swings in confidence, anger, fear, greed from interfering with my decision making. too many flaws to list but remember the inchworm concept)
  3. Take bigger risk – counterintuitive to point 2 but it is something I got to do and have to change my current mental mode to handle. (make “uncomfortable” trades & focus effort on higher value trades, not on everything. Stop being greedy)
  4. Browse through an old school technical analysis book.
• System wise not really ok. Theres technical development in PennyTurtle as well as dabbling with Crypto Arbitrage in the past month, but no monetary outcome. Got to focus development on things which produce the money, not on things that satisfy my technical curiosity.

Market Analysis

Current Themes (Big Picture): 

No strong theme currently. Markets dragging along 

• BOJ end of YCC?  
  • What are the repercussions if things start to unwind? 
• China COVID Reopening 
  • deflationary or inflationary? 
• Rates: Inflation vs Recession 
  • Inflation tapering in US, other countries also? 
  • Economy still good for US, other countries not so? 

Weeks Ahead: TradingEconomics 

• Fk it. Holiday period liao. Nothing moving the markets 

Longer Term Views: 

Everyone is focused on what’s going on now. But we should focus on what’s likely to come next. That’s what bigger bets are on.  What’s going on now is important for current trading. Longer Term bets (options, stocks holdings) should be based on what’s coming next! 

• Rates Hike tapering but not reversing?  
  • Risk on hype of lower terminal rates/earlier reversal from recessionary fears will not last? 
  • Reversal coming only in 2024? Expectation from most banks 
   
• USD weakness in 2023H2 
  • Related to rate expectation. But USD usually does well in uncertainty. Peaks only when market tanks. People expecting market uncertainty ending in 23H2? 
    • H1  Weaker equities (stronger usd) -> H2  Stronger equities (weaker usd)?  will this pan out?  [immediate executable via spot & options] 
      • What is the scenario that USD will just tank in 23Q1? Quite unlikely given FED message. 
       
• China Reopening 
  • What’s the trade for this? Deflation/inflation?  
  • Reopening stocks in china? E.g. consumer, travel? 
  • Repositioning has paused. Expecting a 2 step forward, 1 step back 

• Revival of the old economy 
  • Commodities Supercycle not stopping  (deglobalization play also for energy sufficiency?) -> old economy coming back -> 
    •  long term investment in commodities companies? (Equities)  [what companies? US shale? Or just commodities producers? GoldenAgri etc hahaha] 
    • Commodities ccy going up next year? What? IDR have not move (FX) 
    • Commodities itself lah. Oil (Commodities) 

• Eurozone is in deep shit with Russia (aka energy prices, economy etc) 
  • EUR still going to stay strong? GBP still going to stay strong? (likely strong from usd weakness next year bah)  [immediate executable via spot & options] 
  • Europe defence stocks 

• De/Re-globalization  
  • semicon, china adrs, Non sanctionable assets <- commodities, friendly nations assets 
  • how to trade the other upcoming economic bloc of China,Russia,Iran,Turkey++. Especially ccys. Russia putting trade surpluses into china yuan, lira etc  
  • Reverse ccy war to prop own ccy up to fight inflation? 

Scenario Playout 

Equities: 

a) A lot of expectation for recession in 23  b) A lot of expectation for 1 more bout of drop in equities (before allocating money in) 

• Recession -> lower rates -> better for economy -> better for equities 
• Buying in drop -> no drop in equities 

Both scenarios point to equities not dropping much/recovering. Downside capped. Good bet? Upside potential is another thing altogether 

FX: 

Broods well for risk on ccys in longer term? Are the same risk on ccys still going to perform? At least the risk off ccys like USD, JPY, CHF might take a hit? 

The picture haven’t got so complicated for quite a while with opposing factors playing out. No firm view on most things. Maybe a more straightforward way is to just trade the price action and get out when I am proven wrong. (make sure to set a cut loss criteria for every trades. Options included!) 

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FX:

Rate Expectation / Balance of Trade / current positioning 

Countries are trying to curb inflation. A strong ccy helps in that battle. Drop in export from a stronger ccy is a lesser factor now with re-globalization going on. Rate hike as a tool will harm internal economy, more countries will resort to ccy intervention moving forward? 

USD –  short term mild bullish. Longer term bearish.  

• People all predicting economy recovering in H2 next yr (lousier USD, better AUD,NZD etc) 
• Most people are with this view? Y is USD still weak? Although drop has paused 
• Overtightening + recession should be in favor of USD in H1 
• USD peak when global economy stabilizing / peak inflation/recession over (23H2?) 

JPY –  Bullish. But mild. YCC policy changed b4 I even got to publish my original analysis… 

• Rangebound 150140 top and 130120 floor. Skewed to floor side now 
• How strong is this change? 
• Against USD might not be optimal given that there is chance of USD reversal back up in Q3H1. vs NZD? Vs EUR? 
• Inflation 
  • Supply side inflation up or down from oil? Likely ard 90s. Not high, not low. 
  • Ccy down -> inflation up -> likely reversal -> JPY up 
• https://www.bloomberg.com/news/articles/2022-12-20/kuroda-shocker-is-just-the-start-of-boj-s-risky-path-toward-exit?srnd=premium-asia 
  • Fund repatriation will screw other countries investment-> global drop in investment money -> equities drop?  

CHF – Mild bullish. At least against EUR. With ECB hawkish, CHF should at least stand up vs the rest. Downside risk more contained. 

• SNB fighting inflation via ccy intervention rather than interest rate change. With europe as main trading partner, got to fight against falling too much vs EUR. Big figure of 1.000 good resistance level I guess. 
• Recession comes, flight to safety will have money going to CHF too 
  • Short GBPCHF looks like a good way to express this trade 

NZD – Bearish. Already showing relative weakness against AUD in last 2 weak. Signs of exhaustion from the recent run up. But has the more hawkish CB. 

• Market direction analysis 
  • Market cheong -> usd rate hike more -> stronger usd -> ok trade 
  • Market crash-> usd hike less but nzd down more on risk off-> ok trade 

AUD  – Neutral.  Dovish RBA. not reacting to china reopening. Commodities not up. Interest rate hike will hit smaller economies like AUD, NZD, CAD more (higher % of money in mortgage debt) so they unlikely to hike as much. 

CAD – Neutral/mild bullish short term. Dovish BOC.  Mild bullish because it has dropped significantly. Laggard vs the other commodities currencies. Downside compared to them should be smaller. USD’s robin, could move up if USD recovers ground in H1. 

EUR – Mild bearish.  Hawkish ECB. Everyone is ignoring the risk of the war in Ukraine escalating. At mercy of US for energy now. Upside capped cos ECB is unlikely to be able to raise rate too high.   

GBP – Bearish long and short term. High inflation figures + depressing economic outlook. Lousy technical. Good short candidate 

SGD – Neutral. Already rose pretty significantly in the past months 

CNH – Neutral. Divergence rates policy from other CBs.  CNH might not be a good play from china reopening because current account surplus from covid is reversing.  Earlier spike pass 7.2 caused PBOC to ask banks to support CNH. At least PBOC do not want yuan to drop too much 

SEA ccy:  Except IDR, the others (MYR, PHP, INR, THB, SGD) have ran quite a bit in Nov. Fk that I got this right but never execute. Worry on risk of liquidity risk/usd denominated debt risk did not happen. 

• Sea countries have depleted quite abit of their reserve and should be using the move down in USD to replenish their reserve, thus limiting their ccy appreciation. 
• IDR’s current trade balance is flat and foreign countries holding of bond is at low of 15%. (Commodities 2^nd leg up might move this market??) good bet on both usd down turn + commodities up turn 
• THB might benefit in H2 with china tourist flooding out. 

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Indices:   

US indices – I have no good sense of where they will be heading next. If I am like that, others will also be? Rangebound. When fall, there will be buyers, when rise there will sellers. If people are like me, we will not be spooked by negative events, will just long short term if it falls. 

https://www.forexlive.com/news/this-is-a-casino-on-crack-20221216/ interesting phenomenon on ultra-short dated volume taking 44% of SPX volume 

CN50 – Trade on long side.  

• Move up from reopening news is losing momentum 

Nikkei – Short this shit. Policy reversal will kills leveraged companies. Fast Retailing, softbank etc. Kishida asked for investment by Japanese companies. Not sure how this will pan out.. But the obvious trade is short this shit. 

Volatility – damn low. VVIX also damn low.  

Bonds: – 

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Commodities: 

Oil: mild bullish.  

• There is support from OPEC+, Russia, China reopening.  
• There is resistance from a slowing economy, Russia supply still flowing to other non nato countries. 
• Analysis is brent will stay elevated ard 70 – 110. Wun go too high up and neither will it crash big? Shale supply is limited by its production cap. Will take time for US companies capital investment to take effect. Years from analysts. 
• Might be good time to long now if the war rhetoric come up again in 23. 

Commodities Supercycle not stopping -> old economy coming back -> long term investment in commodities companies? Ccy? (deglobalization play also for energy sufficiency?)  

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Equities:

The new landscape for equities should favour tangible assets such as logistics, commodities, energy, infrastructure and defence. Longer term investment.   

• China Equities: 
  • Positive on consumer goods, hotels from reopening. Got to diverge from current more tech focus ETFs for playing china longs. 
  • Property stocks have moved and needs years to recover. Fk them. Local china IT companies etc  
  • +ve: Government support + easing. Positive long term on policy divergence from the west. Valuation low.  -ve: potential china-us escalation risk on ADR, US equities pull them back. Common prosperity theme limits companies profitability. Western investment not leaving now but might take chance to leave when prices move up. 
   
• South East Asia equities 
  • Long commodities related companies for the commodities cycle. Indo and Malaysia companies? 

• Whack down stocks (instead of US indices when going long) 
  • Us charging -> dun look go but longer term cos their biz models are now selling charging station rather than long term revenue from charging. BLNK etc 
   
• Euro defense stocks (longer term) [no time to research] 

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Crypto:

Crypto has fallen quite abit but there could be more room to go..  Probably good to enter after next FUD. Everyone is thinking like that. Then how? 

Ape in on things being pumped. less things to buy -> more people apeing in on the same thing -> more likely to cheong. (just see altcoin daily for fun and potential apeing opportunities. Trump NFT was 1. Or where else have such source which i do not have to spend too much effort to monitor?? Via crawling and NLP) 

Is crypto still a good long term investment? The next bull run if it ever happens. What to invest in?  

• Just buy BTC, ETH (will not huat lei) 
• DEFI (Permissioned) 
• NFT with utilities (but how will this cheong? Is traditional business liao) 

MT Gox reimbursement starting Jan23. Likely downward pressure on BTC. 

Same thing on un-staking for ETH. But not sure when. Impact supposed to be small cos amount that can be un-staked each day is small compared to number of validators. 

https://capital.hashkey.com/en/insights-and-research/2022-defi-ecosystem-landscape-report

https://www.tbstat.com/wp/uploads/2022/12/Digital-Asset-2023-Outlook.pdf

https://coinbase.bynder.com/m/4888c95272561d10/original/2023-Crypto-Market-Outlook.pdf

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Systems

Reflection on my past and existing works. What failed previously but might work well for the current market regime now: 

• Alternative data – Social Media, Earnings, Thematic  [to improve for 23’s regime] 
• Cross crypto exchanges arbitrage  [version 1.00 up in dec22] 
• Statistical Arbitrage (Cointegration)  [code updated apr 22] 
• ML Event Prediction 
• Technical Mean Reversion 
• Trend Following Portfolio 
• Portfolio Optimization 

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Trade plan for this week