1st Quarter-QE Boosts Commodities and Stocks

April 2, 2023

Mish's Daily

By Mish Schneider

Partial Look at the Models and Positions

Friday I was part of the Festival of Learning sponsored by Real Vision to help new and experienced traders.

The topics that came up were in line with what everyone who trades wants more insights on:

FOMO

Position Sizing

Risk Management

Entries Stops and Exits

Portfolio Management

Managing Emotions

One question was on AI and Robo Trading-something we know a lot about.

First off, having decades of discretionary trading experience, evolving into algos was a process.

All of our rule-based, structured disciplined approaches as discretionary traders, are an integral part of the quant models and blends.

Our goal is to create an “edge” using equity trends from various markets and asset classes.

The reason I bring this up today, is because many of the positions are in line with our personal view of the macro.

And many of the positions are following our trend-strength indicators that have placed us in sectors we could have potentially overlooked on our own.

What fascinates me right now, is the injection of liquidity by the Fed, which of course is not being called by its rightful name-Quantitative Easing.

That leads me to think-what else can we buy now, that hasn’t been crowded by the FOMO crowd?

As you can see in the Bloomberg chart, cause/effect for tech, but also for many different sectors begging for the Fed fix.

The Economic Modern Family though, has many other issues.

As the 1^st quarter ended, only Semiconductors closed above the 2-year or 23-month business cycle to show expansion.

The rest of the Family did not, and Retail and Regional Banks still way underperform.

Which could mean more QE on the way and the rest of the indices and key sectors follow SMH, or it could mean a wakeup call for the 2^nd quarter.

Either way, we still believe that most are #lookingforinflationinallthewrongplaces.

Sure, the market loves the liquidity in the name of saving any future bank issues.

Everything though the Fed does as we well know, has a cost.

Last week, I wrote about agricultural commodities and DBA the Ag ETF.

Since that Daily, DBA has risen over 4%.

So, what should we look for next?

I wrote about long bonds (TLT).

TLTs rallied with the market. The good news is that long bonds are underperforming SPY, which is risk on.

If yields fall further however, will that be good for the market when all of a sudden, the Fed has to become more aggressive again to control rising inflation?

Haven’t we learned yet that the more “QE”, the more spending, the more inflation and so on?

So, watch the bonds. Consider the grains.

And since the PCE released Friday excludes food and energy, keep track of precious metals, sugar and crude oil.

Our quants have not gotten into oil yet-so from a macro perspective, over $82 we are interested.

Look for momentum to clear the 50-DMA along with price. Then, the risk will be minimal, and the reward substantially great.

But also, the cost to the economy.

For more detailed trading information about our blended models, tools, and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.
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