 | AuthorDaniel Bustamante |
Q1 2019 Market Outlook & Investment Ideas
December was brutal. The very best hedge fund managers whom I look to and who have help build my market philosophy were down as well. Now, I don't think anyone was shocked at the sell-off since we've had such a tremendous run in the markets but it did get a bit carried away. The Christmas lows were met with strong buying across the board which made for some great entries to select names across the board.
From 2009-2018 what we saw were markets that were essentially vertical, aside from a few volatility events, you could really just buy and hold. It was so bad in 2016 I recall being in Barcelona for about a month and remember the S&P E-Minis maybe move an entire 10-point range the time there. Returning state-side I assumed that we would maybe pick up in volatility but we didn't and as a trader it was depressing. Now, fast-forward to the end of 2018 and current times and we've seen an amazing run in the VIX and major names take major hits from their all-time highs. So when I look at a few market indicators, see the price-action and read investment letters from managers far better than myself I have come to my thesis for 2019; It will be better to be an active trader/investor than to buy and hold.
Now normally, this is a stance that I have had hammered into me since I began as a futures trader in 2010 and subsequently took with me to a Portfolio Manager role years later causing me to miss out on some large long-side buy and hold trades. Do I believe the market will make all-time highs again? I have never been and hope that I will never be in the business of predicting what a market can do past 3-months ahead of me. However, I will say looking at the S&P500 that I do believe we will begin to trade in a large price range for Q1. This is likely to bring the large price swings we saw in December (+800 Dow/-$500 Dow) back and make this concept of what most retail investors do of buy, hold, hope and pray diminish.
However, what it will present is an opportunity to be active again in the markets. Buying index ETF's for short term 1-3 week holds, selling then re-buying. Or, for the savvy market investors using futures to really get into it, something I prefer. I bring this up because the past few weeks I've had some emails asking what market buys are available and really, I don't believe in this buy and hold all of 2019 theme that most of you want to buy into. I don't think there will be 'one trade' that will be the winner for the year nor will I ever speculate in the markets in that manner.
Let's move on to the start of January and discuss some themes and potential ideas in-depth.
Ideas:
So far the month of January has been giving with some great moves in: NFLX, TLRY, VXX and Yen futures to name a few. Apple signaled what many we're thinking and even in this rally on the S&P as of the past week it still has yet to follow, which, is concerning. Again, I think Apple tends to have an investor 'cult following' and people want to see it higher but I'm a trader who uses price action as his primary tool to make market decisions and the lack of movement off the lows bothers me. Now that doesn't mean it's a short either, it just means its something to note for this overall market.
Then Yen is a currency to watch for me in Q1 mainly because it will dictate a lot of what the equities market will or will not do. It's been seeing some strong resistance lately and the moves off key technical levels have been reacting without much hesitation (as opposed to trading sideways) which is a good sign for volatility.
Tesla is a stock that everyone loves to bash on but usually they're just talking their own personal books. I've never had a position size big enough to where I've felt the need to do that and additionally, I just really look at price not fundamentals - which again, don't and have not seemed to matter in the last few years anyway. However, I do like this stock for the potential to break-out to all-time highs. The short interest on this has and should continue to be extremely high. It really only takes a little disruption, headline news or large buyers to come in and cause a squeeze. Again, does this mean the stock is 'worth' more, no, absolutely not but you have to understand the markets are more than what you think something is worth just because you have an opinion. So if I had to say I had 'one trade' for Q1, it would be Tesla. I have a small position through call options (not shares - I don't believe in it to hold equity) that I would like to see outperform.
Aside from that, the equity plays still don't really excite me that much. There are a few MLP's I came across that are paying a strong dividend but I'll likely forgo that to focus the capital in the futures markets as I am expecting the volatility to remain and the capital is better put to use there.
So the goal for me is likely the same as it is each year; sticking to index futures, WTI Crude and Yen futures while looking for larger out-sized trades in the equity options markets, which, if I am correct on the potential index range for Q1, could play out.
Here's to a profitable Q1.
Daniel Bustamante
December was brutal. The very best hedge fund managers whom I look to and who have help build my market philosophy were down as well. Now, I don't think anyone was shocked at the sell-off since we've had such a tremendous run in the markets but it did get a bit carried away. The Christmas lows were met with strong buying across the board which made for some great entries to select names across the board.
From 2009-2018 what we saw were markets that were essentially vertical, aside from a few volatility events, you could really just buy and hold. It was so bad in 2016 I recall being in Barcelona for about a month and remember the S&P E-Minis maybe move an entire 10-point range the time there. Returning state-side I assumed that we would maybe pick up in volatility but we didn't and as a trader it was depressing. Now, fast-forward to the end of 2018 and current times and we've seen an amazing run in the VIX and major names take major hits from their all-time highs. So when I look at a few market indicators, see the price-action and read investment letters from managers far better than myself I have come to my thesis for 2019; It will be better to be an active trader/investor than to buy and hold.
Now normally, this is a stance that I have had hammered into me since I began as a futures trader in 2010 and subsequently took with me to a Portfolio Manager role years later causing me to miss out on some large long-side buy and hold trades. Do I believe the market will make all-time highs again? I have never been and hope that I will never be in the business of predicting what a market can do past 3-months ahead of me. However, I will say looking at the S&P500 that I do believe we will begin to trade in a large price range for Q1. This is likely to bring the large price swings we saw in December (+800 Dow/-$500 Dow) back and make this concept of what most retail investors do of buy, hold, hope and pray diminish.
However, what it will present is an opportunity to be active again in the markets. Buying index ETF's for short term 1-3 week holds, selling then re-buying. Or, for the savvy market investors using futures to really get into it, something I prefer. I bring this up because the past few weeks I've had some emails asking what market buys are available and really, I don't believe in this buy and hold all of 2019 theme that most of you want to buy into. I don't think there will be 'one trade' that will be the winner for the year nor will I ever speculate in the markets in that manner.
Let's move on to the start of January and discuss some themes and potential ideas in-depth.
Ideas:
- The market will be volatile, great for traders not buy and hold
- Yen is a key currency to watch in Q1
- Tesla has the potential for a large mover to new all-time highs
- Futures are the preferred asset class for Q1
So far the month of January has been giving with some great moves in: NFLX, TLRY, VXX and Yen futures to name a few. Apple signaled what many we're thinking and even in this rally on the S&P as of the past week it still has yet to follow, which, is concerning. Again, I think Apple tends to have an investor 'cult following' and people want to see it higher but I'm a trader who uses price action as his primary tool to make market decisions and the lack of movement off the lows bothers me. Now that doesn't mean it's a short either, it just means its something to note for this overall market.
Then Yen is a currency to watch for me in Q1 mainly because it will dictate a lot of what the equities market will or will not do. It's been seeing some strong resistance lately and the moves off key technical levels have been reacting without much hesitation (as opposed to trading sideways) which is a good sign for volatility.
Tesla is a stock that everyone loves to bash on but usually they're just talking their own personal books. I've never had a position size big enough to where I've felt the need to do that and additionally, I just really look at price not fundamentals - which again, don't and have not seemed to matter in the last few years anyway. However, I do like this stock for the potential to break-out to all-time highs. The short interest on this has and should continue to be extremely high. It really only takes a little disruption, headline news or large buyers to come in and cause a squeeze. Again, does this mean the stock is 'worth' more, no, absolutely not but you have to understand the markets are more than what you think something is worth just because you have an opinion. So if I had to say I had 'one trade' for Q1, it would be Tesla. I have a small position through call options (not shares - I don't believe in it to hold equity) that I would like to see outperform.
Aside from that, the equity plays still don't really excite me that much. There are a few MLP's I came across that are paying a strong dividend but I'll likely forgo that to focus the capital in the futures markets as I am expecting the volatility to remain and the capital is better put to use there.
So the goal for me is likely the same as it is each year; sticking to index futures, WTI Crude and Yen futures while looking for larger out-sized trades in the equity options markets, which, if I am correct on the potential index range for Q1, could play out.
Here's to a profitable Q1.
Daniel Bustamante
