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It pays to hold on to your hats!

Amidst the recent inexplicable onslaught on risk assets, we urged restraint.

Amidst the recent inexplicable onslaught on risk assets, we urged restraint. Yesterday we warned that despite the heavy buying of put options on the US stock market since last Friday, VIX (a measure of US stock market volatility) has dropped below 20 (after spiking from 16 to a high of 25, the highest level since the stock correction in May) is a sign that a bounce back in risk sentiment is on the cards.

And indeed, as the market got used to the headlines of the Delta strain spread and the report that two doses of Pfizer or AstraZeneca are effective against the highly transmissible strain of the Covid virus soothe market jitters and lit a fire under the stock market.

Risk assets were off to the races from the get-go and never looked back as the losses from the rout since Monday were wiped off. The USD was on the backfoot as risk sentiment recovered strongly.

The fundamentals remain favourable for higher asset prices as any prolonged worsening of the virus situation will lead to more stimulus and monetary easing from the policymakers. Stay on the path!


This Too Shall Pass

Source: Effectiveness of Covid-19 Vaccines against the B.1.617.2 (Delta) Variant published in The New England Journal of Medicine. By Bernal et al.

Two doses of the Pfizer-BioNTech vaccine were 88% effective in protecting against symptomatic COVID-19 from the SARS-CoV-2 Delta variant, according to a The New England Journal of Medicine. This is good news as we suspect that this fear is “transient” and the fundamentals will take precedence again. In addition, we think that we will get more easy fiscal and monetary measures thrown in if the uncertainty continues and the reopening of economies remains in doubt.


Currency markets are looking ahead to the European Central Bank’s (ECB) meeting on Thursday. A dovish tone is expected after ECB President Christine Lagarde foreshadowed a guidance tweak in an interview last week.


1. Currencies:

Keep short USD and long NZD, & CNH. Remain short USD vs NZD & CNH. Finally, the USD is on the retreat as risk appetite bounces back strongly.

2. Commodities: Uranium & Energy — As we said, fundamentals remain strong for an eventual push higher in prices and the bounce is starting.

Key risks: Spread of the delta strain that could worsen the risk aversion sentiment is the key risk for now.

3. Equities:

Equity Index: Long Nasdaq futures. Another day of recovery, and as fear ebbs, the market is likely to test new highs soon. Stay long and patient. Approach of support levels at 13950–14000 will be a good opportunity to add to longs.

Single Stocks: Stocks are bouncing hard and will continue to test new highs in the weeks ahead. Don’t miss out on the asymmetric opportunities we have highlighted in our TrackRecord Model Portfolio.

Key risks : Spread of the delta strain and geopolitical worries are the key risks.


Market movements as of New York Close 21 Jul 2021
  • The U.S. Dollar Index decreased -0.2% to 92.76 as risk aversion sentiment ebbed when the US stock markets roared higher. CAD again led the charge in the recovery against the USD, rising more than 0.8% as a recovery in stocks and oil price (Brent +5.15%) helped its cause. GBP, which on Tuesday hit its lowest since February, was up +0.6% at $1.3715.
  • Elon Musk, Jack Dorsey and Cathie Wood, speaking on a panel in a conference about cryptos, cheered the market with their crypto-positive views. Musk’s reiteration that SpaceX, Tesla and he himself remain invested in bitcoin, helped push BTC back above $30,000, having dipped below this key level for the first time in a month on Tuesday. It last traded up +7.4% at $31,991, while ethereum surged more than +10% to $1,971.79.92.
  • US 10-year Treasury Bond yield increased 7 basis points to 1.30% while the 2-yr yield increased 2 basis points to 0.22%. On a related note, the $24 billion 20-yr bond auction received soft demand, but that didn’t invite additional selling interest in the Treasury market.
  • The stock market extended its rebound bias to a second day on Wednesday, as economic concerns surrounding the Delta Covid variant continued to subside. The S&P 500 (+0.8%), Nasdaq (+0.9%), and Dow Jones Industrial Average (+0.8%), while the Russell 2000 rose +1.8%.
  • These easing concerns were supported by earnings commentary from the CEOs of Coca-Cola (KO 56.55, +0.72, +1.3%), Chipotle Mexican Grill (CMG 1755.91, +181.56, +11.5%), and United Airlines (UAL 48.10, +1.78, +3.8%), who said their businesses haven’t been impacted by the spread of the Delta variant. A strong earnings report from semiconductor chip equipment maker, ASML Holding (ASML +5.40%) lit a fire under chipmaker stocks as the boom in demand for semicon chips continues unabated.


Two doses of Pfizer, AstraZeneca shots effective against Delta variant: study

Notable Snippet: Two doses of Pfizer (PFE.N) or AstraZeneca’s (AZN.L) COVID-19 vaccine are nearly as effective against the highly transmissible Delta coronavirus variant as they are against the previously dominant Alpha variant, a study published on Wednesday showed. Officials say vaccines are highly effective against the Delta variant, now the dominant variant worldwide, though the study reiterated that one shot of the vaccines is not enough for high protection.

The study, published in the New England Journal of Medicine, confirms headline findings given by Public Health England in May about the efficacy of COVID-19 vaccines made by Pfizer-BioNTech and Oxford-AstraZeneca (AZN.L), based on real-world data.

THEMATIC CONTEXT: “Is this a sign of things to come? We suspect that the Delta variant will prove to be a challenge in the coming weeks, although most developed world countries at this point in time are fighting this from a better vantage point due to vaccine efficacy and better response policies. This is a development to monitor closely and any changes will affect Cyclicals and Energy to a reasonable degree.” — 19th July 2021

“Measures taken by countries on a Macro level will impact already sensitive social sentiment and we suspect that as Delta variant spreads, this will be the worst time for central banks and governments to talk about talking about tightening credit conditions. In fact, we have been banging the table that the entire credit tightening situation is a farce and merely showboating. The time to unveil the actual show is here and we suspect that assets will resume its trajectory in time.” — 19th July 2021

China is usually the canary in the coal mine and this proves that the Delta variant is highly infectious. On a more heartening note, it seems that the hospitalization rate with regard to the Delta Variant is approximately 80% lower and death rates much less. We believe that societies around the world will overcome this mutated strain much faster and the growth and cyclical scare will reverse in time. Stay long the fundamentals of the Energy deficit.” — 21st July 2021

China says it will continue to open up financial sector

Notable Snippet: China will continue to open up its financial sector and improve rules for foreign banks and insurance firms entering the market, state media quoted the cabinet as saying on Wednesday.

China has stepped up efforts to open its financial sector to help lure in more foreign investment and shore up the economy, amid rifts with the United States. China will improve market access requirements for foreign banks and insurance companies, state media quoted the cabinet as saying.

THEMATIC CONTEXT: “The retracement towards the 6.4000 level is a good level to sell USD/CNH. We continue to believe that the PBOC has the wherewithal to allow CNH to run stronger because of China’s shift to Xi’s “dual-circulation” mandate, where Chinese consumers are called to support the domestic economy as China gets more affluent and slowly transitions from a previously predominantly exports market to a more balanced consumer economy. As such, we believe that China will start to focus on how CNH strength will impact import markets as well, whereas in the past, it was all about exports. This is a crucial shift in mandate FX traders must understand and the effects will be far reaching.” — 8th June 2021

Republicans nix U.S. infrastructure debate, which could resume next week

Notable Snippet: Biden has deemed the bipartisan infrastructure bill essential. He also wants Congress to pass a separate $3.5 trillion budget initiative that allows legislation to be developed on climate change and social spending provisions that are anathema to most Republicans. Democrats want to push the larger measure through Congress along party lines as soon as the bipartisan bill is finished. Republicans argued that the two-step approach undercuts the bipartisanship of the infrastructure bill.

Schumer had hoped to get both through the Senate before the August recess. Both parties are acutely aware of the congressional elections in November 2022, which will determine who controls Congress for the second half of Biden’s term.

THEMATIC CONTEXT: “The idea conceals the tsunami of cash that the Biden administration will unleash. We suspect he has to do his best work before the midterm elections because if Republicans win more seats (very fine balance between Democrats and Republicans in the Senate now), everything may unravel as they are more fiscally conservative. In this regard, we believe that the Assets will be the strongest running up to the midterm elections (Nov 8 2022) and the time to get involved for the most torque is now till then.” — 7th Jun 2021

When push comes to shove, we believe that the US government will do the right thing and they are on the edge of unleashing unprecedented fiscal money. We have been saying that Biden’s best work has to be accomplished from now to midterm elections and each day later just coils the springs of explosive growth as he will have to go faster and more aggressively within a shorter period of time. Don’t miss the forest for the trees at this point in the cycle.” — 21st July 2021




Phan Vee Leung
CIO & Founder, TrackRecord

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