SPY best weekly gain since Nov 2022 | 2023-11-05

Hey, welcome back. So I guess everyone is doing pretty well this week. So same for me. So I'm up around 9 percent in this week. My best positions are long Shopify and Palantir. So both company released very good earning results. I think the stocks are up like 20 percent in this week for both of them.

So my worst positions of this week are short Apple, short KBH and KLE, so basically they are up because of the boarder market rally. As for my position changes, I've cut my long META and MSTR positions.

So for the meta stock, I simply think there are way more opportunities elsewhere with the lower market cap stocks. So I just cut meta two, three up some margin for other positions. As for risk off hedges like gold and Bitcoin, I think that could be less fear in the market going forward.

So I just cut my MSTR position and. , just to free up margins for other opportunities. So this is my actual option positions. So my top positions right now by market cap uh, Palantir and Shopify and ASML as well. And I'm very likely to just take some profits from my PLTR positions and Shopify because they have a very strong spike of their price action after they are very good earning results.

As for my overall portfolio risk by industries, I'm basically long the markets for a lot of industries like consumer discretionary, industrial technology, something like that.

And I'm still short financial stocks, basically expecting some recession scenario going forward in the next year.

And that's the end for my portfolio review as for the market review, we have a very strong broader market rally in this week. But in terms of economic development, I don't think we have much new development going on. , so I will just go for some coverage for the macro.

So the first is the Japanese yen situation.

So this week, we have an update from the BOJ on the new curve control policy. Basically they are saying that instead of having a fixed 1 percent threshold for their Japanese bond yield, they are going to allow a flexible movement around the 1 percent level.

So what it means is that there is no yield curve control anymore. So it's just the market force taking over the Japanese bond markets. Because even if the yield rise to about, let's say 1. 2%, they are just going to say, oh, they are going to allow it float flexibly around the 1.

2 percent level, something like that. So what it means is that we should expect more gradual increase in the Japanese bond yield.

And this is going to have an effect on the markets because Japan is the world largest net creditor, meaning they have a lot of assets in foreign countries. So if we see an increase in the Japanese bond yield, those assets are going to be sold in those foreign markets and go back to Japan.

So what it means that we are likely to see a higher risk for a rising Japanese yen because of those unwind of carry trades positions.

. So in summary, I think the current monetary policy in Japan is bullish for the Japanese yen. But what about the fiscal policy in Japan government?

So this week we have seen that the Japan Prime Minister is going to release a government stimulus package. Basically, they are going to have a one off 40, 000 yen tax cuts, which is of around 300 US dollar.

, so personally, I don't think that it's going to do anything to the economy, either good or bad.

And I think it's more like a desperate attempt for the PM to get more votes in the next election because he now has a very low negative rating from the public.

Yeah, so that's pretty much the summary for the Japan coverage. I think in the long term, we should still see more bearish Japanese yen because of their structural problems.

But in the short term, like three to six months, I think the probability is higher for a stronger Japanese yen Because currently the yield curve control policy is more important in affecting the FX market compared to the Kishida stimulus package.

So this is the chart of the government bond yield market. So we can see the yield just keep rising because of the high inflation in Japan. And since we now see a lower likelihood for the BOJ to defend the bond market, we should see a higher yield and a stronger Japanese yen going forward.

So I think in terms of technical analysis, we are now at the bottom and I think we could see the Japanese yen getting stronger at around 140 level. But if we take a look at the dollar yen chart, we should also consider the U S macro. So in terms of the U S macro, I do think we could see a falling U S dollar going forward.

So I think in this scenario, if we see both the JPY strengthening and the U S dollar weakening, we could see 130 in six months.

So how I'm going to play this scenario. So I just launched the FXY which is Japanese ETF call option. So my target is around 70 to 72 by March next year. And this is my current structure in my portfolio.

So I just have this for fun. I'm not going to put a lot of risk on this. So just around 1, 000 US dollar on this position. So it's just a out of the money call option on the FXY.

And this is the current structure on the left side. So we have the Canada call spread with a out of the money strike price. So I basically expect it to expire still below 65 by January. But after that, we could see keep rising up to our 72 level. And if it is going according to my expectation, we could see around 15 times of risk to reward ratio on this.

So that's enough for the Japanese yen coverage

so going back to the U S we have the strongest stock market performance since one year ago. But interestingly, we have seen worsening US macro data in this week. So basically stuff like GDP or PMI data, they are missing the expectation globally.

And on Friday, we also have a worse than expected non farm payroll number, which is basically signaling recession going forward. And these, the job numbers previously, they are all getting revised every month, basically.

So the biggest driver in this week, in my opinion, is the falling of the US bond yield. So interestingly, since we have the resonant macro data with the falling bond yield, it's actually like the market is expecting quantitative easing going forward, which is not going to just happen so soon.

And this, the S& P 500 chart obviously is very strong in this week.

So in summary, I think it's like the market is very strong because of the expectation for easing monetary policy. But this is not going to just happen so soon. So I think currently the falling bond yield is supporting the U.

S. stock market, but at some point, the falling yield could also mean the recession is coming, so we have to be cautious.

So I just think we kind of have a honeymoon period for the rest of this year. And it's very easy for everyone to just make money in this stock markets by buying anything, but we should also prepare

for the coming recession in next year. So basically my strategy is just don't get too bullish on the markets and keep taking profits on my long positions and gradually add more short positions going forward.

And by the way, two weeks ago, I've talked about that I wanted to short the Royal Bank of Canada for the Canadian recession in the next year.

So I just kind of have a limit order and forget about it. And this week, the order got filled nicely. . So the RY put option is going to expire in April next year. So the strike is 80 and I think the price is right now around 83 and my target is around 70 by April next year.

So this is a new position to short the Canada recession.

So that's the update for this week. Thanks for watching. See you next week. Bye.