Happy Thursday Coachmen! So far this week our picks have yielded large returns, most notably our short of Helen of Troy inc, which is currently down over 9% in pre-market trading. After a multi-day rally in the major indices that shows no signs of slowing down into today’s trading session, we have an issue chocked full of information on reactions to the FED minutes, as well as an update on our NA Housing Report so keep on reading!
"If you want to be the best, you have to do things that other people aren't willing to do."
- Michael Phelps
Market Talk
Well folks, the FED minutes have been released, and in a reversal from previous reactions, the market seemed to find relief as officials announced a 50-75 bps rate hike at their July meeting later this month. Our hypothesis, a heavy-handed FED provides stability, for better or worse, and after an extended period of uncertainty, this is what the market craves the most. During Wednesday’s trading session the S&P rose by 36bps, the NASDAQ was up by 35bps, and the DJI climbed 23bps. These measured gains are accompanied by large gains on a weekly basis from companies that have been driven ever downward over the course of the last 6 months. This multicoloured mosaic of a heatmap, pictured below, is a refreshing change from the monochromatic read that we’ve been accustomed to seeing over the past months. Although, it is tough to think that this rally will last considering the troubling macroeconomic factors that we’re currently facing.
Short: Volatility Index (VIX-NYSE) | Timeline: 1 day
We believe that due to strength in international markets, as well as increases in the futures of the S&P, NASDAQ, and Dow Jones, alongside a measured increase in oil prices, the VIX will retreat during Thursday’s trading session. We wouldn’t recommend holding onto this trade for very long as the market has entered an extremely volatile phase, and one headline could trigger a reversal. On a technical level this trade also makes sense, as after clearing downwards through the 20-day SMA on July 1, the index has to fall roughly 9.7% before hitting the 200-day.
Special Report Update: North American Housing
As an update to our housing market report, linked here, new data has emerged from the two hottest housing markets in Canada, Vancouver and Toronto, that point toward a drop in prices being on the horizon. In Toronto, the regional real estate board is reporting a 41% decline in sales during June compared to last year. This decline in sales is accompanied by an increase in new listings of 1%, and by a decline in the average sale price of 5.5%. This drop-in average selling price also marks the fourth consecutive month of these declines. Vancouver is not faring much better, as their real estate board is reporting a 35% decline in sales compared to the year prior, while also being down 16.2% compared to May. While the composite benchmark price of homes in the area has increased by 12.4% compared to a year prior, it has dropped 2% since May of this year.
Chart of the Day
Divergence of Gold and the 20+ year US Treasury ETF
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