In this episode of Real Vision Finance, with Jared Dillian (Editor of The Daily Dirtnap Newsletter) discusses the best time to take a profit in the global market.
Read our notes below to learn more.
Q: Did the stock market action today feel constructive or would you be looking to book some profits?
Jared
I was happy to see the rally but you know what's interesting when you listed all the things that happened this week between the FED, earnings, and bankruptcies but the price action was pretty quiet.
I've always been told on Wall Street to never front-run the chart
I don't want to buy here in anticipation of it breaking out to the upside because that might not happen, you want to wait until it breaks out to the upside, and then you buy it.
If we do break out to the upside it is going to be a very impulsive move higher and it's going to continue for about 5-10% in the stock market. if it breaks down the exact opposite could happen.
Q: What are the catalysts that would cause that sort of move?
Jared
It could be something out of the FED.
If you look at the future path of FED funds the only thing we're really arguing about at this point is the March meeting and whether we're going to get a 25 basis point rate hike.
FED Inflation Camp
FED raised rates significantly, it was one of the fastest rate hike campaigns in history.
It was successful in bringing down inflation a fair amount but it did not address the underlying cause of the inflation which was psychological.
They didn't hike rates enough to crush inflationary psychology.
They should have raised FED funds to eight percent and driven us into an actual recession.
I think we're going to get inflation down temporarily by 3% - 4% and then in 2024 and 2025, it will come back with a vengeance.
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Q: You see this window where stocks can rally, yields can come down but then you got to watch as we turn into next year? What do you mean by that?
It's almost too early to be talking about it.
It's good to think long term but you have to trade short term.
You have to trade what the markets are like here and now.
Q: Can we discuss the retail psychology aspect of the FED’s moves throughout the past year?
The market discounts, it's going up in anticipation of a Fed pivot.
FED watches the stock market.
The fact that the market is 500 points off the lows does make them less likely to Pivot.
Q: Is there a level where the FED won't be able to raise anymore because they'll break something too serious?
I think it already happened.
I think when the Gilt Market melted down in the UK, that was the point at which the FED broke something.
Q: What's your thought on the Housing market?
The prices on residential real estate prices peaked a couple of months ago.
The transaction volume is down, we're not getting the number of transactions that we were before but prices have gone back up to the highs from where they were before.
If you stare at the charts long enough you can see that the housing market is doomed. If you go into the real world that is absolutely not happening.
Q: What can you say about the surveys saying from Bank of America that allocators are underweight equities?
I've seen some charts suggesting that individual investors have a higher percent allocation to equities than at any time.
The bond market has been such a disaster that’s why for a lot of people the alternative is to go back into stocks.
Thesis for 2023
We're going to have a decent year in 2023.
You're going to get 10% - 20% returns in the S&P 500.
We're going to get back near the previous highs.
One of the greatest shorting opportunities of all time.
Sell-off at the end of the year.
Q: When should you get out? As you mentioned, we seem to be stuck in this range right now.
You use technical analysis.
That's how I trade, I have a thesis and if the charts confirm the thesis, then great.
The reopening of China
There was that Chinese Communist Party meeting where Hu Jintao was escorted out of the meeting, and that actually was the point at which China was the most investable.
The reopening has been in the process of being discounted for the last three months.
It is too late for a reopen trade of China.
Insight for Europe
I am highly bullish on Europe.
Europe had the best start of the year.
Equities are in the process of being revalued and they're still incredibly cheap.
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Click now on the Oyabun blog, where the story begins, and find clues to what lies ahead in ZKX Yakuza!