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Cam Hui

Cam Hui

Cam Hui has been professionally involved in the financial markets since 1985 in a variety of roles, both as an equity portfolio manager and as a sell-side analyst. He graduated with a degree in Computer Science from the University of British Columbia in 1980 and obtained his CFA Charter in 1989. He is left & right brained modeler of quantitative investment systems. Blogs at Humble Student of the Markets.

Articles by Cam Hui

3 supply shocks that could derail the economy

September 16, 2019

As the market reacts the weekend attack on Saudi oil facilities, the level of anxiety is mounting. Forbes published an article on Sunday entitled “Attacks on Saudi Arabia are a recipe for $100 oil”.
Bloomberg that this represents the biggest disruption to global oil supply since the Iraqi 1990 invasion of Kuwait.

As visions of the 1974 Arab Oil Embargo and the ensuing recession dance in traders’ heads, this is a timely reminder that the FOMC is meeting this week. Should the supply curtailment become prolonged, how should policy makers react to supply shocks? As well, there is a case to be made that the world is facing more than just one supply shock. 

Supply shocks explained
What is a supply shock? Nouriel Robini explained it this way in a Project Syndicate essay:

Over time,

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Is this the long awaited value investing revival?

September 15, 2019

Preface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model

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Market breakout = FOMO surge?

September 11, 2019

Mid-week market update: Last week’s upside breakout through resistance was impressive. Since then, the market has consolidated above the breakout level, but a FOMO (Fear Of Missing Out) rally has yet to materialize. In the past, such surges have been accompanied by a series of “good overbought”  5-day RSI readings, signs of buying stampedes from TRIN, only to see the rally stall when the 14-day RSI becomes oversold.

Will the upside breakout lead to a FOMO surge? Let us consider the possibilities.

A short-covering rally
So far, the internals suggest that the market strength has mainly been attributable to a short-covering rally, and a FOMO surge has yet to materialize.
The market had gotten into a crowded trade of becoming overly defensively positioned, and overly short the high beta

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Fun with quant: Pure and naïve factors

September 9, 2019

A reader alerted me to a CNBC report of a bullish analysis by Bespoke’s Paul Hickey:

Bespoke Investment’s Paul Hickey believes a market hot streak is unfolding.
The independent market researcher is building his bullish case by zeroing in on the Citi Economic Surprise Index, which is built to measure optimism in the economy.
In the week ending Friday, the index flipped into positive after spending more than 100 days in negative territory. Hickey contends the move suggests investors are feeling more confident about the economy’s direction, so there’s a good chance stocks will rip higher.
“There are five prior periods that we’re talking about. One, three and six months later, the S&P was higher four out of five times,” Hickey told CNBC’s “Trading Nation” on Friday. “When we looked at when

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Should you buy the breakout?

September 8, 2019

Preface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model

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How to trade foreign cross-currents

September 4, 2019

Mid-week market update: Global markets have taken a decided risk-on tone today on the news that Hong Kong leader Carrie Lam has withdrawn the controversial extradition bill. As well, the revolt in the British parliament has lessened the chances of a chaotic no-deal Brexit on October 31. On the other hand, the market was hit by some somber news earlier in the week, when the PMI reports revealed a slowing global economy.
In the meantime, US equity prices remain range-bound. 

Should we interpret these developments as net bullish or bearish? The answer is, “Yes” 

The bear case
The bear case is easy to make. You would have to be from Mars to know that Chinese economic statistics are unreliable, but investors can glean some hints on China by observing the economies of her major Asian

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The rise of the Fear Bubble

September 1, 2019

Preface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model

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Home in the range

August 28, 2019

Mid-week market update: The stock market is continuing its pattern of sideways choppiness within a range, bounded by 2825 to 2930, with a possible extended range of 2790 to 2950. 

My inner trader continues to advocate for a strategy of buying the dips, and selling the rips. On the other hand, my inner investor is inclined to remain cautious until we can see greater clarity on the technical, macro, and fundamental outlook. 

Buy the dips
In the short run, breadth is sufficiently oversold that current levels represent decent long side entry point for traders (indicators are as of Tuesday night`s close). 

Longer term (1-2 week horizon) indicators are displaying a constructive pattern of higher lows and higher highs. 

In addition, Callum Thomas` (unscientific) poll of equity

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How not to push back against Trump

August 27, 2019

Former New York Fed president Bill Dudley penned an explosive and shocking Bloomberg op-ed today:

U.S. President Donald Trump’s trade war with China keeps undermining the confidence of businesses and consumers, worsening the economic outlook. This manufactured disaster-in-the-making presents the Federal Reserve with a dilemma: Should it mitigate the damage by providing offsetting stimulus, or refuse to play along?
If the ultimate goal is a healthy economy, the Fed should seriously consider the latter approach.
Dudley ended the op-ed by abandoning the normal apolitical stance of a (former) Fed official and picking sides [emphasis added]:

I understand and support Fed officials’ desire to remain apolitical. But Trump’s ongoing attacks on Powell and on the institution have made that

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Hong Kong: The next financial domino?

August 26, 2019

Bloomberg reported that Carmen Reinhart had a chilling warning about Hong Kong:
Hong Kong’s rolling political turmoil could prove a tipping point for the world economy, Harvard University economist Carmen Reinhart said.
Noting an incidence of shocks that have rattled global growth, including the intensifying U.S.-China trade war, Reinhart cited Hong Kong as among her main concerns. Having previously warned that Hong Kong faces a housing bubble, she said the world economy could be hit by “shocks with a bang or with a whisper.”
“One shock that is concerning me a great deal at the moment is the turmoil in Hong Kong,” which could impact growth in China and Asia generally, Reinhart said in an interview with Bloomberg Television’s Kathleen Hays.
“These are not segmented regional effects,

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How worried should you be about a recession?

August 25, 2019

Preface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model

Read More »

Buy the dips, sell the rips

August 21, 2019

Mid-week market update: The SPX has been mired in a trading range for several weeks. Even as the market is once again testing resistance, it is displaying a mild positive RSI divergences, which argues that there may be further minor upside to resistance at about 2950.

Nevertheless, this pattern argues for a trading strategy of buying the dips, and selling the rips.

Retest of lows ahead?
In addition to the apparent range-bound behavior, analysis from Urban Carmel argues for a near-term retest of the lows. The index had been down for three consecutive weeks last week before staging a relief rally. Such episodes are usually followed by a decline to retest the previous lows.

There are plenty of possible bearish catalysts in the next few days. First up is Jerome Powell’s speech at

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Peak Brexit panic?

August 19, 2019

The Brexit headlines look dire and Apocalyptic. The Sunday Times published the leak of Operation Yellowhammer, which was the UK government’s base case plan for a no-deal Brexit. 

Britain faces shortages of fuel, food and medicine, a three-month meltdown at its ports, a hard border with Ireland and rising costs in social care in the event of a no-deal Brexit, according to an unprecedented leak of government documents that lay bare the gaps in contingency planning.
The documents, which set out the most likely aftershocks of a no-deal Brexit rather than worst-case scenarios, have emerged as the UK looks increasingly likely to crash out of the EU without a deal.
The newspaper went on to reported that up to 85% of truck “may not be ready” for French customs, and disruption may last up

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Peering into 2020: New decade, new paradigm

August 18, 2019

Preface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model

Read More »

Audit your trading the way pros do it

August 13, 2019

Traders are always interested in improving their techniques. Today, I would like to offer a framework for thinking about your trading, using the way fund sponsors evaluate investment managers, called the 5 Ps.
People: Who are you, and what’s your experience and training?
Performance: How have the returns been, and what kind of risk did you take to achieve those results?
Philosophy: What makes you think you have an edge?
Process: How do you implement the edge you have on the market?
Portfolio: Does your portfolio reflect what you are saying about philosophy and process?
With the preface that there are never any single right answer in investing and trading, I will focus on “philosophy” and “process”. 

Philosophy
Many neophytes have difficulty distinguishing between the idea of an

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A White Swan market

August 13, 2019

Mid-week market update: I am writing my mid-week update a day early because of the extraordinary volatility in the stock market.
My wife and I took a few days to go on a Danube river cruise. As we arrived in Vienna, we spied a white swan swimming beside our ship. The white swan seems to be an  apt metaphor for today’s market, which is a market of known risks. 

A short-term bottom ahead
The stock market has certainly been volatile. Last Wednesday, I suggested that the market was ready to bounce (see Ripe for a counter-trend rally). The market has duly rallied, and stalled out late last week, when I issued a trading sell signal. That sell signal just got negated by a looming buy signal  today as the trading model just flipped bullish.
Urban Carmel pointed out that the 20 day moving

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A correction, or a trade war meltdown?

August 11, 2019

Preface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model

Read More »

Ripe for a counter-trend rally

August 7, 2019

Mid-week market update: My trading model has turned bullish, and there are plenty of signs that the market is ripe for a relief rally. There was the CNBC Markets in Turmoil program Monday, which as SentimenTrader pointed out, tends to mark short-term bottoms. 

As well, the McClellan Oscillator (NYMO) fell to levels on Monday that are consistent with past tradable bottoms. 

The Zweig Breadth Thrust indicator also provided signs of a short-term bottom. The ZBT buy signal consists of two components. First the market has to become oversold, and then it has to rally into an overbought condition into a short period of time.  In the past, an oversold condition (vertical lines) have been a reasonably good signals that a rally is imminent. The market achieved the oversold signal on

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USDCNY at 7? It’s not you, it’s me

August 5, 2019

The market has adopted a risk-off tone today because the Chinese yuan rose above the rate of 7 to 1 to the USD. The move was positioned as retaliation for Trump`s new tariffs. In addition, China has halted all purchase of American agricultural goods. 

What did you expect? The controlled depreciation of CNY is not unexpected. The chart below of the Chinese yuan ETF shows that it had been unusually strong compared to the trade weighted dollar. Viewed in this context, the PBOC devaluation in 2015 was fully justified. Today’s fall is reflective a decision by the PBOC to stop leaning against the market winds. 

To put it differently, the broader problem isn’t CNY weakness, but USD strength.
To be sure, there is some validity to the trade retaliation thesis for CNY weakness. John

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Powell’s dilemma (and why it matters)

August 4, 2019

Preface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model

Read More »

A (deceptive) long-term buy signal

July 31, 2019

Mid-week market update: It is month-end, and the day after an FOMC meeting. Regular readers may recall that I have been monitoring the monthly MACD indicator for a long-term buy signal. Troy Bombardia recently highlighted what happens when the SPX flashes a long-term buy signal. Subsequent one-year returns have been almost all positive. 

The verdict is in, the index has flashed a long-term MACD buy signal. 

While the signal is constructive for the long-term outlook, let me temper your enthusiasm. 

Looking for confirmation
The SPX buy signal has not been confirmed by other indices. I found that the monthly MACD buy signal works slightly better when applied to the broader Wiltshire 5000 (WLSH). WLSH did not confirm the buy signal. 

As well, the buy signal was not confirmed

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A hawkish cut ahead?

July 29, 2019

As we look ahead to the July FOMC meeting this week, market expectations of additional rate cuts have moderated. The market is discounting a 100% chance of a quarter-point cut this week. It also expects an additional quarter-point cut at the September meeting, and a third rate cut by year-end. 

The better than expected Q2 GDP report just made the Fed’s job a lot more complicated. 

Signs of economic strength
Q2 GDP came in above expectations at 2.1%. What`s more, real final sales to private domestic purchasers, which is a more stable measure of GDP growth, rose 3.2%. The latest FOMC median projections of 2019 GDP growth is 2.1%. GDP growth would have to slow to 1.4% to 1.6% for the remainder of 2019 to reach 2.1%. Watch if the Fed revises 2019 growth upwards. If the economy is that

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Is this how currency wars begin?

July 28, 2019

Preface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model

Read More »

Caution: Upside potential limited

July 24, 2019

Mid-week market update: Even as the bears were all lined up to push prices down last Friday, the bulls managed to make a goal-line stand and retain control of the tape. The index is tracing out a triangle pattern and testing resistance, while exhibiting negative RSI divergences.

In addition, other cautionary signs can be found elsewhere. While I would not necessarily discount an upside breakout to further fresh highs, current conditions argue for limited upside potential.

USD strength warning
One of the warnings come from the inverse head and shoulders breakout of the USD Index, and conversely, the head and shoulders breakdown of the EURUSD exchange rate.

The upside break in the USD is significant for two reasons. John Butters at FactSet pointed out that the best earnings growth

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Will stock prices surge on a Fed rate cut?

July 21, 2019

Preface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model

Read More »

A market on a knife edge

July 17, 2019

Mid-week market update: Regular readers know that I have been tactically cautious on stocks in the last two weeks, but I don’t want to give the impression that I am wildly bearish. In fact, the SPX is on the verge of a long-term buy signal, marked by the positive monthly MACD reading. Should the index close at or close to current levels by month-end, it will have flashed a buy signal that has shown to be highly effective for intermediate and long term investors. 

Before anyone becomes wildly bullish here, some caution may be warranted. 

Waiting for confirmation
First of all, I would warn that the monthly MACD buy signal has not been confirmed by a number of other indices. The broader Wilshire 5000 has not flashed a buy signal yet, though it is very close. 

Global stocks have

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Questions for Judy Shelton and gold standard supporters

July 16, 2019

President Trump has nominated Judy Shelton as one of the candidates for the open seats on the Federal Reserve’s Board of Governors. While Shelton is a controversial nominee, she is less problematical than the previous two, Herman Cain and Stephen Moore.
While I certainly understand the reasoning behind a gold-backed currency, which is a way to control inflation, I have some difficult questions for Shelton and other supporters of a gold standard. 

A gold standard supporter
There is no denying that Shelton is a supporter of a gold standard. She wrote a WSJ op-ed in 1998 calling for the establishment of a gold standard. Bretton Woods wasn’t good enough.

The best way to do that is to adopt a global gold standard. The Bretton Woods system was a gold exchange standard, not a gold

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The path to a European Renaissance

July 14, 2019

Preface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model

Read More »

Stay cautious

July 10, 2019

Mid-week market update: I highlighted a tactical trading sell signal from the VIX Index on the weekend. The VIX had fallen below its lower Bollinger Band,, indicating an overbought market, and mean reverted above the band last Friday. 

As a reminder, the historical study of such episodes since 1990 show negative returns bottom out roughly a week after the signal, which would be this coming Friday. 

I stand by my trading call for a tactical defensive posture. 

Bearish warnings
Other measures of sentiment show a wide range of disagreement. On one hand, the latest Investors Intelligence sentiment shows that optimism is building. Bullishness as risen past past the 2019 peak, and readings are similar to levels last seen in October 2019. 

On the other hand, the TD-Ameritrade

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The limits of central bank powers

July 8, 2019

With interest rates at or close to the zero lower bound, here are a couple of examples of limits to the power of central bankers.
The Federal Reserve: Will it still cut rates after the strong jobs report?
The European Central Bank: What are the limits and price of monetary stimulus?

Will the Fed cut rates?
Let us begin with the Fed. After the blow-out Jobs Report, the bond market reacted violently and there were murmurs as to whether the Fed will still cut rates. Let me lay the first concern to rest. Historically, the Fed has telegraphed its interest rate decisions. With the market expectations of at least a quarter-point cut at the next FOMC on July 30-31, the Fed is unlikely to surprise the market.

I would also note that Fed officials had cited US and global weakness, as well as

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