Markets have seen a rugged stretch lately with the Fed disappointing and tariff wars escalating. Thursday offered some hope as markets rallied on news that the Chinese had acceptably pegged the Yuan, but late morning Friday morning as I pen this note, the trade war continues to escalate and equities markets continue to slide.

Today, we’re pausing to pulse-check the trades we’ve suggested in past issues of Critical Signals Report so you can see how you are doing.

We’re writing to you now at 11:30 a.m. on August 9, 2019 – as the Dow Jones Index falls 261 points.

Let’s dive in…

Long Bond Trade

Here’s what’s been hot lately: long bonds, short stocks (especially the FANGs) and long precious metals. That’s been the risk-off trade these last few weeks as that bear approaches and brushes up against us.

In our June 24 What’s Happening Now, we suggested a long bond trade as investors were notably buying treasuries and other solid bonds as a safety net to the developing equity storm as interest rates fell.

Specifically, we suggested the four bond ETFs that appear in the chart and table below, normalized for sake of comparison. They are plotted together with the performance of the S&P 500 Index (the dashed, red line).

All our bond trades were up, but TLT was the star. Why? Because that’s the 20+ Year U.S. Treasury, with the longest term and highest yield, delivering more price action. It’s also where the money goes to hide when it’s nervous about tumbling stock prices. TLT sports a $15 billion market cap and a low 0.15% expense ratio – liquid and cheap.

Long Silver Trade

In our July 8 What’s Happening Now, we suggested a long silver trade because precious metals tend to be well bid when stocks are at risk. Silver had been lagging compared to gold; the timing was right.

(On a side note, we highly recommend at least a 10% allocation to precious metals as a long-term insurance against declining fiat currencies. For more on this thinking, please look here and here.)

Specifically, we suggested the two silver ETFs and one silver ETN that appear below, again normalized through yesterday.

This time, USLV was the star. Why? First, because silver has been on fire. Second, because this vehicle trades at 3x (three times) the underlying performance of silver, which is, in this case, the S&P GSCI Silver Index. Because it leverages silver by 3x, this type of trade is not for everyone as leveraged trades can go against you as fast as they can go with you.

Here’s another difference. USLV is an ETN (Exchange-Traded Note), not an ETF (Exchange-Traded Fund). ETFs hold the assets they track, while ETNs are “structured products” issued as unsecured, senior debt notes (more like bonds) and sometimes leveraged.

Plus, the asset size of ETNs can be much smaller than ETF assets that trade the same underlying instruments. USLV has a $302 million market cap, considerably less than SLV at $6 billion. Take note… That impacts liquidity.

Short FANG Trade

In our Rigged to Fail Report, we suggested shorting the FANG stocks as the spread between the FANGs and the S&P 500 Index widened while both were tumbling (a touch of extra precaution).

Specifically, we suggested the three FANG ETFs that appear below, normalized vs. the S&P 500 Index.

These ETNs trade 1x, 2x, and 3x the inverse of the MicroSectors FANG+ Index, thus enabling a short position in the FANGs – composed of highly traded growth stocks in the technology and consumer discretionary sectors. Liquidity is a factor here, too, with the 1x and 2x ETNs at a $50 million market cap and the 3x flavor (our rock star trade) at half that size.

Short Stock Trade

And finally, in our July 29 What’s Happening Now, we suggested shorting stocks if stocks fell on news of a rate cut, which they promptly did – the premise being that if stocks fall on good news, that’s bad news for stocks. This trade was tag-teamed by escalating tariff tensions.

Specifically, we suggested the three Short Stock ETFs that appear below, again normalized and compared.

These ETFs trade the inverse of the S&P 500 Index. As with the inverse FANGs, they produce returns that correspond to the inverse (opposite) of the underlying Index. But here liquidity is much better, $2 billion for SH, almost $1 billion for SDS, and $548 million for SPXU. If you’re concerned about markets going down, these are go-to solutions for your portfolio.

Summing up all 13 trades and presuming you took them all over the 45 days that have transpired since our Long Bond Trade suggestion on June 24, your total percentage return through yesterday adds to +161% (+12.338% per trade), or +100% per trade annualized.

Why We Do What We Do

Here at Critical Signals Report, we combine our best thinking (and occasional trades) to inform, not boast. As Wall Street market veterans, we’re here to help Main Street, to inform, and to educate without conflict when it comes to investing, both on the macroeconomic trends and on the trading side.

We don’t have all the answers, but we do know this: The thoughts and trades we periodically share with you are something we have been doing for a lifetime. We study markets. We study the macros. We study whether the markets and macros are converging or diverging, and how quickly they are doing so (as in the FANG trade). Our trades are thus, we believe, well informed.

The years teach things that the days don’t always notice. And when you’re in a market study hall for these many years, it helps us to help you.

Sincerely,

 

 

Matt Piepenburg


Comments

3 responses to “Here’s How Your Trade Suggestions Have Been Faring”

  1. A lot of us reading these reports do not know exactly how to short or long what you are referring to. We simply delete the Elsie because we are lost in the jargon… FYI…

  2. Hi Matt,
    great content.

    Why don’t you continue to provide trading signals as you are used to Signals Matters?

    As you wrote, even if the stock market is tanking, it is possible to invest in gold and TBond and getting positive returns.

    Thanks

  3. TLT looks good today, but subject to Chinese further retaliation; i.e. sale of US treasuries. What do you think?
    Larry Russell

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