• Christopher Hall

Getting set for another Pull Back

As the market's rally extends from the lows we're reminded of which key levels have historically been critical points to turn the market back down again. Gary Glover from Novus Capital looks at the the points where he's building the short positions again.

[00:00:17] Market rally is beyond the thirty eight point two percent retracement of the drop that it has seen this year. And we're looking at selling into that as it reaches 50 percent of that range. Because there's another strong chance, the pullback around the corner. Gary Glover from Davis Capital is guiding us through the trades. Good morning, Gary. How are you? [00:00:36][18.4]

[00:00:36] Hey, Chris, I hear that bang on actually just X-Day. I just got such a such a Starkel habitable and expanding and pulling back to the 50 percent levels just just to, you know, just to be global for our market particular. But yeah, so bit messy here. I think it takes a bit longer to get this whole thing off. Everyone's looking for it to happen tomorrow. So it's know just think about bear markets and stuff. I take time to play out. So, you know, so I think we've said a few times I think not that 1929, the first bounce was 150 days. It's five months. Basically the that the rally took before it turned down again, I think in 2000, the first rally was like 90 days to three months. So, you know, we're we're only a month off and we're not even a month in off the low yet. So we're just gonna be careful not to be too much of a hurry to get too bearish here too quickly. I think so. But yeah, it's gonna be messy. [00:01:32][55.6]

[00:01:33] You know, just what you mentioned in the housing market, we're short of that. And we'll come back to the US market, the S&P 500, and need a 50 percent retracement. But just looking at the Australian one way. A fair way short of that. What are you seeing that we're really not even a month into it? You think we can probably climb off that over the next four to six weeks? So what sort of timeframe you work towards? [00:01:55][21.8]

[00:01:56] Yeah. So some of the some of this is a different actually. The US has bounced pretty firm here. Housing market not as firm there, but we're probably definitely ahead of love the European markets and prevent struggling more so. But yeah. But I think, yeah, we've sort of gone past that 38 percent of the thirty eight point two FIB episode. I just think we'll go back to the 50 percent. They were just just take a little while. He had sort of. It looks like a little sort of tight rising wage there, but not particularly what I consider a grateful nation offer low there, two to one. So the key there that are economic. Most interesting thing about that next shot there is the volume. So if you look at the volume, particularly the last time, that's a textually daily chart they are actually made. But let's look at the volume. So the last, you know, eight to 10 days, that's that's a pretty strong buy. Maybe that that red line. There's probably like the average volume for the for the next week. So if you look at it. So obviously it's a bigger volume spike in the week before the low end at the low. That was pretty but very heavy. Now we're talking about volumes being double that. I would almost triple. Yes. Yes. So it was massive. And that sort of that week to about the 30 percent down to the 40 percent loss that was get massive volumes going for the market there. But since then, the volume hasn't dried up. So the volume is actually pretty, pretty firm here. So that's the sort of one thing is sort of it's not, you know, not that negative. So normally, if we will pre run up here, we see volume start to dry up here all sudden, no participation. Then we know we're probably gonna be in trouble, you know? So. So they might look at that chart, go, yeah, the volume is less than the other period. But hey, there are other periods still three times but normal at the moment we're probably still double that. So it's still so reasonable support and volume there. So it's just that's why it's so it can't get too bearish here even though hitting a bit of a market. There was a bit of a market there hit there in the last day or two that if you go back and look at a weekly or monthly chart that I have in chairman chart here, but the last two decades. The index was sort of caught in a range and we sort of broke down through the bottom of that range. And this rally has come back up and tag that kind of range. We broke through. So that's that's the only negative that I have seen on our index. But but I just think these things take time to play out here. Scientist. Now we might come back. Maybe that's the little iwa I labeled a little bay leg and then we'll get to see a leg higher. So but just now, it's going to be pretty messy. I'll try to lighten up a little bit more, but I haven't quite got there. I think I'm. What that 79% invested here so probably would have liked to have been maybe, you know, maybe 60 or 70 percent invested here, so it's getting getting up towards them. That's right. We saw a little bit take a bit of profit. So. Yes. [00:04:58][182.2]

[00:04:59] Just quickly, before we go to the US charts, they had a very positive way. You are back in the green solely at 5 percent versus the index going down 17 percent. So this brings me back in blackand strong trades and just saying cieling down from the high 70s, hopefully to the 70s or maybe 60 raging. The reason that's more critical feeling down into this strength is if we look at the S&P chart, you've got months here, a very critical point where 50 percent of that drop the retracement and we really sort of climbed back up from pretty close to it. And what's the critical point with that 50 percent level? There were previous fire that that looks out on the US. [00:05:41][41.7]

[00:05:42] Yes, it's a big little set to. Sixty one point five, which is up, which is a big, big level on market. [00:05:46][4.6]

[00:05:47] So for our market, the 50 percent is really important. This is sort of historically one of the you know, for the US market, the sixty one point eight is particularly the S&P. It just that's that's that you know, that's that's a magic number for them. So. Yeah, so does that work all the time here. [00:06:04][17.3]

[00:06:04] Just sort see if you're basically looking at a log there and you know, putting a tick the side which which one works the most. This is the one that works most for the U.S. market. [00:06:14][9.9]

[00:06:16] So just the big level. [00:06:17][1.0]

[00:06:17] And also we look back at that 2018 high as well. That was the that kind of expanded top there. And then we had a pretty sharp fall there, which was at the time seemed like a pretty decent drop, but compared the one we've had, it was pretty mild. [00:06:31][13.7]

[00:06:31] So terrible quarter at the time running into Christmas and we were worried about it. Yes. In their context, it was nothing. No, that's right. But it does it is global. [00:06:42][10.6]

[00:06:43] So I just basically got a couple couple of cape markers there. So the market's sort of stalled a little bit here, but us still think it will. I think that's the bigger level to watch for there to make. So but it does worry me a little bit, too. Like one of the things that I saw on the weekend was that it was a biggest position in the U.S. short futures since January 2016. So remember, remember January 16, Jan. 16? So the market had just done a big sort of three wave correction. [00:07:13][30.1]

[00:07:14] And around January 16, February 16, like a retest, that was the low before a rally. So when you see at the moment here, we've got massive short positions out there. So the majority are short. So that's you know, that's that is not a bearish sign for me. [00:07:33][18.9]

[00:07:33] That's actually the opposite. So when I see, you know, the market so short here, it's like everyone's already positioned for it. So not no one's ever thought of shorting. [00:07:44][10.6]

[00:07:44] I guess that's if it shorts unless you going to double down hits. It's really pretty big. [00:07:51][6.7]

[00:07:51] So just that mean if you look back at there was what was actually a pretty big rally from that composition and that was one of the biggest short positions starkly marked. So we've just the same level here. That's why they just you know, normally the big moves like come when people don't sort of see them coming or not ready for them more or pretty light on because they met then it was here at 1:00. So it's not adding to it. [00:08:13][21.9]

[00:08:13] So if you think about the opposite. Remember when BHP was at 50 bucks and Rio was at dollars? That was like the commodity sector was just swimming. It was just, you know, it was humming. So commodity prices were right. Miners were just in their element. They're making lots of money. Conditions were just perfect. But and every broker in town had a buy on them. And you had to have them in your portfolio because they were they were the stocks to own. [00:08:38][25.3]

[00:08:39] But at that point, BHP was twelve and a half percent of the Australian index. [00:08:43][4.2]

[00:08:44] Yeah, but at that point, there they are already in everyone's portfolio. One's really long them. So there's no knowns left. But if you've already got them in the portfolio, that need to buy them quickly from high multiples, high numbers. You got an hour. Murray. Murray. Murray. Oberweis, wife. Some everyone does any longer vandiver white. So there's not that thing is there's no one left to buy them here. So that's the worry with the S&P futures. Wasn't so pretty short. Those left the shorter hitless with Assad. [00:09:11][27.2]

[00:09:11] And I sort of that's that's anything. It doesn't it doesn't sort of FEMA doesn't matÉ. That's the same. [00:09:18][6.7]

[00:09:18] So maybe what what it means is maybe we'll get a pullback, but it won't be won't be big. So maybe squeeze the shorts a bit further, tip a few. Well then we'll get a bit of a pullback every time we get short again, bit heavy and then they won't follow through and then you get squeezed mad again. [00:09:35][16.5]

[00:09:35] And you know that basically you're sort of you almost have to force them out. And then once everyone's tired of being short, not getting like. [00:09:43][7.3]

[00:09:43] Money, then they'll start to unwind them, and then when when a majority of unwound them, then the market be ready for it. So there's a process. It's like a ton. This takes time heavily things to occur here. So you go back and look historically, all of the major tops copying process takes a lot of time. A lot longer. One thinks. [00:10:00][17.4]

[00:10:02] And that's what we're working through. He had a very fast a market rally. Less than a month from the lows. And you're saying it's a process we would through it. They can be some quite ferocious rallies creating an amount of short positions. We'll probably have some some more wild swings. Heteros. 100 percent now. The ASX when be when we look at that. [00:10:25][22.3]

[00:10:25] You mentioned BHP in its prawn with the banks in their prime. Before this trough, arguably the problem is 20 states that still make up a large portion of these Australian index. So if we're going to see these join market rally somewhere towards that 50 percent retracement, we may need the banks to get involved. Even looked at the chart. He wants the chart on the financials, telling us it kind of kind of one of the weaker sectors and not so. [00:10:51][25.3]

[00:10:53] So really basically got got buried pretty pretty aggressive. So the sell off here and so far the bounce has been pretty timid. So I think banks globaly have been pretty timid as well, actually. So they weren't expecting them to sort of bear the brunt of bear the brunt of sort of some listless move initially here. So, yes, at the moment, they're probably just looking pretty weak. [00:11:14][21.7]

[00:11:15] So I think they could go a little bit higher there, but they maybe that's not the sector to be overweight here because it's probably going to underperform. So that's probably that's what it's also telling me. They just to be careful. [00:11:27][12.0]

[00:11:27] So I'd be any good thing I did see yesterday was that NAB had some news regarding write down and BFE businesses. Some you know, they look pretty ordinary. The you know, what the fuck's going to get you going to get hit a game after, you know, it's more negative news. But it held up pretty well yesterday. So which goes to tell me that the banks held up pretty well yesterday as well across the board here, even though some pretty bad news for accounting sector there. So that the only positive that tells me there is the props have already priced in a lot of doom and gloom already. So when the reality actually came out there, stopped and moved too much. [00:12:08][40.5]

[00:12:08] So we're already pricing in a lot of damage here. So, you know, what's an ANZ Bank look yesterday? Seven point nine P yield of nine point six will come if we price him 30 percent haircut pretty substantially, Stroope pretty cheap. [00:12:25][17.1]

[00:12:26] Still not an expensive home. That's the you know, I just think maybe they're stuck here. They're gonna be might be stuck here. Chris Stratis Yes. Pro-Reagan a good value here, but some headwinds are gonna gonna keep a lid on the stock here. [00:12:40][14.3]

[00:12:41] So, you know, if I buy the stock, then I'll be just writing code. Every time I had a decent pop decent rally, I'll be running cause I think I'd be stuck. [00:12:50][8.9]

[00:12:52] That's definitely looking like a falling behind. [00:12:55][2.8]

[00:12:56] The marketing evaluator saying the last few weeks, yeah, the one that's been leading different kind of market is the oil index is getting completely obliterated. Oil futures we saw last night expanded system. [00:13:10][14.2]

[00:13:11] So. That's disaster territory. You've got a possible trade here on an ATF, current state oil. So today it's a company. What's the basis behind that trade? [00:13:23][12.4]

[00:13:24] Yes, I'll put a little bit of Woodside and all such things. I sort of think, you know, longer term there'll be, I think some place main roads. So I thought talk had a pretty good recovery there. But I just. Yeah, just look at these. A star killer to start. Prices and all this. So are we. [00:13:41][17.5]

[00:13:42] Fifteen, sixteen dollars a barrel, so last night we saw negative futures contract shredded. Honestly, it's only like one day to expirience. I got it. And that's sort of sounds crazy there. It is crazy that they actually have negative prices here, but it's the one day sort of short contract there. [00:13:59][17.7]

[00:14:00] So but still, you know, 16 or fifteen dollars a barrel. Here's buddy. It's pretty crazy. Pretty crazy. So prices here. So I just I just think this is strategically key if you look at longer term. I know that there's a glut of oil there. So it's going to take a while here. But the the vast numbers are already starting to drop away quite substantially here. So already talk of restrictions getting relaxed there. So look, a lot a lot of countries, a lot of political pressure sort of turn the economy's back on at some point. So that's that's only that's that's going to turn here soon. So. And then but then you'll get them you'll get basically, in essence, some more supply and sort of more demand or come on board. And then, you know, this this whole movie. So it's just more of a longer term play here, I think. [00:14:50][49.9]

[00:14:50] But I do love the fact, like last night, everyone's talking about oil, like it was such literally on its knees like it was in the workplace today. Oh, yeah. Like it's that's know kind of reminded me. Remember when Tesla hit like nine hundred dollars and that sort of had that triple hundred dollar spike and then that was like everyone's just like talking about it all the Tesla shorts getting extreme. Just it was just that was like the number one topic for the day was. And that's pretty much how it was done. So we were talking about crude at the moment. Negative prices just, you know, all sorts of crazy stuff happening to me. So strategically, this looks like an awesome time. [00:15:27][37.0]

[00:15:27] You know, I just noticed that the dealership put a crude, all good synthetic sort of hedge there. So it's what looks like this one for once. Not term. Not lot. Not leveraged up there such. From what I've seen, it actually sort of follows. So if you think the oil price can go from 15, maybe back to 30 now, it's not a big move then. [00:15:48][21.0]

[00:15:49] Then this ETF can can go the same sort of moving. So we are talking about a hundred percent there. Moving on to her range, it's hard. [00:15:57][7.6]

[00:15:57] No, no. So look, I get. Look, it can sound needs a bit. But yeah, I think most analysts probably think that the oil price will get back to $4.50 here in 12 months time. Somewhat. OK. So once once we get the come through this, maybe twelve months from now, we'll get back to $40 a barrel. So yeah. So I think together the patients say that the face a pretty low and I just think that looks bad, looks outstanding. And I think today the the news the the doom and gloom, just the negative, all that stuff, that's that's that's just like a beacon. That's like a warning light flashing. You know, get me get me, you know. [00:16:35][38.2]

[00:16:36] Yes. It's I think that looks. Yeah. That was kind of outstanding to me. [00:16:41][5.2]

[00:16:43] Just go full circle on the index again if we would if you would trade either the US or the Aussie. You've got to to listen to trade. One thing that you retrace that line for the time looking for. So starting off with the US, that matter shows again that you'd be looking at trade. [00:17:01][18.3]

[00:17:02] Yes. I just had a few of my clients ask me. I can go when we get to the bottom. Must be Bassan. Maybe I'll say again, you know. So I just sort of think they're getting close here from this one. So. So I just to get to some levels to watch this. So I game it might be a little early. I think we have the will here yet. But it's gonna be pretty messy here. But yeah, I think, um, you know, you can see that the moves I have a pretty, pretty monster sort of moves here. So I think we'll get another down leg, which I do think we'll get on the down low key, but I just don't think it's going to be as big as my day. So I guess probably looking at these opportunities is a bit of a hedge on the foot on the portfolio and but I'll probably be looking more shorter term rather than longer term. Moving against was probably worth looking at. But I think that's a good way to play the pullback here once we get once we look like the key levels. [00:17:55][52.8]

[00:17:55] But for me on what one of those key levels, could we hit that sixty one point eight? If the 50 percent level we enter around there, then we can keep our top house and our sort of stock nice and tight as well. So if they break above those levels sort of cleanly, they may not win out wrong. [00:18:10][14.6]

[00:18:10] And then if we if we if we know it wrong and we only lose a little bit of money, that's that's fine. That's that's that's good trading. If we're if we're wrong, then we will let it run against us. Or if we don't have a tight stop them, then they're going to be in trouble here. So, yeah, I think that's if we get back to those levels, really, really important levels and then we get entered around there, we can keep our stock nice and tight. And then the risk reward will be nice and high because these things will move us. If we get a pullback. [00:18:36][25.6]

[00:18:37] And then the. Trigger. [00:18:39][2.6]

[00:18:40] Well, that's that's the way to trade. If that pullback happens and get so upset and obviously the why look for those points is following the shots and keeping up with what you're looking at there. Gary, thank you very much. We look forward to another update next week. Thank you. Gary Glover from NOBIS Capital. [00:18:54][14.1]

[00:18:55] Thanks, Chris. [00:18:55][0.2]


Arrow Securities Group
Copyright © Arrow Securities Group Pty Ltd 2018
ABN  30 165 731 144   AFSL 448218