TRACKRECORD DAILY
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TRACKRECORD DAILY

Stay Calm & Stay the Course

We wrote this yesterday, and the front referred to was the news of a new mutated strain of the virus. Indeed, the mini panic came during the European session and subsided as the US trading session progressed.

“The market could see some risk aversion should more dramatic headlines come from this front. However, the end game is still the same — more social distancing measures to control the spread and more money printing to alleviate the economic damage.”

We wrote this yesterday, and the front referred to was the news of a new mutated strain of the virus. Indeed, the mini panic came during the European session and subsided as the US trading session progressed.

The virus is just going about the business of viruses. They mutate over time and the dominant ones take over, and the less efficient lose out to those that proliferate more easily. In fact, a mutation to a more infectious but less harmful version would even be good.

So, don’t just read mutation and run for the hills. Stay calm and stay the course.

TRADING PLAN

  1. Gold & Silver — Major support for Silver remains at 21.80–90. Gold support is at 1750–60. Silver leading the charge higher again this morning as word that a stimulus package has been agreed reinforced expectations that the money printing party will continue strongly in the year ahead. Stay on the path.

Key risks — Key risks are higher US interest rates and a stronger USD. Virus resurgence could possibly lead to some short-term risk aversion that may cause some temporary USD strength.

WHAT HAPPENED YESTERDAY

Market Movements as of New York Close 21 Dec 2020
  • GBP fell as much as 1.57% to $1.3190 as countries from Europe to Asia sealed off travel links with Britain to try and contain the highly-infectious mutated virus. British Prime Minister Boris Johnson has warned that there are still “problems” in securing a trade deal with Europe, but financial markets remain hopeful that something can be struck before Britain’s exemption from tariffs expires on Dec. 31. Helped by a Bloomberg report which said the European Union was considering a compromise on fishing rights — a stumbling block to a trade deal — GBP recovered to close at 1.3447, 0.34% higher, though it remains on edge as talks progress.
  • A new outbreak in Sydney, and general risk aversion especially during the European trading session sent AUD more than 2% lower on the day to hit a low of 0.7462 before slowly recovering to just -0.63% at the close. Despite strong retail sales figures this morning (actual 7.0% vs expected 2.1%), AUD remains heavy.
  • The heavy selling in stocks started during London hours when European traders woke up to headlines of more lockdowns and a new mutant virus strain that is more infectious. However, as the session progressed, as the panic subsided, dip buyers turned up to pick up some bargains as many start to realise that mutation is what happens to viruses over time and there’s really nothing to panic about.
  • The S&P 500 declined as much as 2.0% on Monday, as concerns surrounding a new strain of coronavirus primarily in the UK overshadowed a $900 billion stimulus agreement. Investors, however, steadily bought the intraday dip to leave the benchmark index down by 0.4% for the session. The Nasdaq Composite (-0.1%) almost completed the comeback after being down 1.8%, while the Dow Jones Industrial Average (+0.1%) and Russell 2000 (+0.02%) eked out gains.
  • The market, and Dow, received further support from Apple (AAPL 128.23, +1.58, +1.2% during market hours and +3.1% on the day including the continued rise after hours, on the news of its foray into electric vehicles), Microsoft (MSFT 222.59, +4.00, +1.8%), and Nike (NKE 144.02, +6.72, +4.9%). Tesla (TSLA 649.86, 45.14, -6.6%), meanwhile, was a drag on its first day as an S&P 500 component.

HEADLINES:

$900 BILLION COVID-19 BILL CLEARS HURDLE IN U.S. CONGRESS AS DEADLINE LOOMS

Notable Snippet: By a margin of 227 to 180, the House approved a measure allowing debate on the bill to proceed, a necessary step before the actual votes on the substance of the package. President-elect Joe Biden, a Democrat, has urged Congress to consider further stimulus for him to sign into law when he takes office on Jan. 20. “My message to everyone out there struggling right now, help is on the way,” he said in a statement.

THEMATIC CONTEXT: “Print the money or trigger the revolution”. The bill is great news, but not surprising news to our community as we know the wall of money will come eventually, as Biden says, these are mere downpayments. Markets will take this in its stride as we enter the holidays and we believe it will be sufficient to keep risk assets buoyant into the New Year. This should continue weakening the USD against hard assets and other major currencies.”- 21st Dec 2020

BioNTech CONFIDENT COVID-19 VACCINE EFFECTIVE AGAINST NEW UK MUTATION

Notable Snippet: BioNTech Chief Executive Ugur Sahin said on Monday he was confident a COVID-19 vaccine co-developed by his company would be effective against a variant of the coronavirus that has emerged in Britain. The note of calm from the CEO about the UK mutation echoed the World Health Organization, which cautioned against major alarm, saying this was a normal part of a pandemic’s evolution.

THEMATIC CONTEXT: “As mentioned before, sentiment will shift from vaccine to efficacy and efficiency to logistics of distributions. As the saying goes, “amateurs study strategy, professionals study logistics”. In this Covid-19 battle, logistics is as important as vaccine success. This will be a crucial topic in the months ahead and we believe that it will drive risk appetite. — 10th Dec 2020

“We have warned before that logistics issues will be a key driver of risk sentiment if there is weakness in the supply chain. Supply Chain issues compound non-linearly and will impact the herd immunization plan and mainstreet economic recovery trajectory which will be translated back to government policy. It is crucial to be cognizant of these developments.” — 17th Dec 2020

More vaccine doses mean faster herd immunity if the supply chain issues run smoothly. This will be very bullish for risk assets and commodities like Oil, Copper, AUD & the CAD dollar. Keep an eye on the effectiveness of distribution and efficacy of vaccines.” — 18th Dec 2020

APPLE TARGETS CAR PRODUCTION BY 2024 AND EYES “NEXT LEVEL” BATTERY TECH

Notable Snippet: Central to Apple’s strategy is a new battery design that could “radically” reduce the cost of batteries and increase the vehicle’s range, according to a third person who has seen Apple’s battery design.

THEMATIC CONTEXT: “This is a crucial development we have been communicating to our community about. The rise of Heterogeneous Compute is going to revolutionize the semiconductor industry and reprice the value of “Big Tech” companies who are now innovating vertically (more powerful chips unlock value of product) instead of horizontally (acquisition of competitors). Vertical innovation by “Big Tech” is a strong moat in itself as the R&D cost to even make a successful chip is out of the pricing range of smaller competitors. Apple (M1 Chip) has led the charge in this field and we expect the others to join, effectively turning these companies into semiconductor powerhouses in time. The ability to control the supply chain from a chip level is extremely good for profitability as Big Tech can now keep costs lower. This is an important paradigm shift to be cognizant of, but little talked about.” — 21st Dec 2020

(Click here to subscribe to see which stocks will benefit asymmetrically from these themes).

DAY AHEAD

There are no notable events in the day ahead. Risk will be driven by Covid-19 news and the lockdown situation in various parts of Europe..

SENTIMENT

FX

STOCK INDICES

Trading Tip

This was the trading advice that one of my mentors gave me early on in my trading career. Sounds simple but it’s not so easy to do when you’re staring at the prices ticking rapidly on the screen.

When you find yourself being overwhelmed by the rush of emotion and uncertainty during periods of wild market moves, it will help to take a step back from staring at the changing prices.

Instead, take a deep breath, ask yourself what the catalyst for the move is and how likely it is for the situation to persist. Look at the charts for levels that will be good for the exits and entries of the trades that you are thinking of, instead of instinctively rushing in to join the crowd.

Being unemotional is not easy to do but it is critical to your trading success!

Want more analysis and trade ideas? Subscribe to the mailing list.

Best,
Phan Vee Leung
CIO & Founder, TrackRecord

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