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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

OK, I’m calling it…

March 9, 2020

While I may be jumping the gun on my model readings, I’m calling a recession.
Remember when oil prices tanked in the second half of 2014? The economy experienced a shallow industrial recession in 2015. 

While history doesn’t repeat but rhymes, the price war that erupted over the weekend between Russia and OPEC is another threat to the growth outlook. Combined with the already fragile state of the economy from the coronavirus induced supply chain slowdown, it is difficult to see how the US economy can avoid a recession. George Pearkes at Bespoke came to a similar conclusion (via Business Insider). 

Recessions are bull market killers
Remember, the historical evidence indicates that recessions are bull market killers. 

The economy was already weakened by coronavirus induced

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A stock market roller coaster

March 8, 2020

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 Asset Allocation 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

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Has the bull caught the coronavirus?

March 7, 2020

Is the bull on his last legs? It is starting to look that way. I alerted readers to an unconfirmed bullish monthly MACD buy signal in late July (see A (deceptive) long term buy signal). The buy signal was confirmed in late October by both the Wilshire 5000 and non-US markets (see Buy the breakout, recession risk limited). In the past, monthly MACD buy signals have usually been very effective and long lasting. The recent market downdraft has brought the indicator to the verge of a sell signal, indicating dying price momentum and the possible end of the bull phase. If the market were to end the month at these levels, the sell signal would be confirmed.

A similar bearish condition can be found in the MSCI World xUS Index.

Is the bull dying? Has it caught the coronavirus?

Possible

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Waiting for the re-test

March 4, 2020

Mid-week market update: The hourly SPX chart shows that the index rallied strongly on Monday. The rally filled two downside gaps and it is testing the 50% retracement level.. 

While many of the short-term models are screaming “buy”, there are contrary indicators and models that suggest caution. Even though my inner trader has largely been tactically correct in his trading calls, his head is hurting from the wild swings and market volatility. 

Buy signals everywhere
Short-term buy signals are popping up everywhere. The VIX Index recycled below its upper Bollinger Band after a four-day upper BB ride. 

Such episodes of VIX upper BB recycles have historically been bullish. The bottom rows in the table below shows that signal alpha is positive out to five days, and then starts to

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A Chinese glass half full, or half empty?

March 2, 2020

The data points closely watched this past weekend were the releases of China’s Purchasing Manager Index (PMI) readings. On Saturday, China reported that its February manufacturing PMI had missed expectations and skidded to 35.7, and services PMI also missed and printed at 29.6. Both readings were all-time lows. 

The Caixin private sector PMI also fell to an all-time low on Monday. 

Was these misses surprises? Yes and no. They were surprises inasmuch as the market partly expected the authorities to manipulate the numbers and report a less severe downturn. They were no surprise as the Chinese economy was obviously very weak in the wake of the COVID-19 coronavirus epidemic gripping the country. 

Returning to work?
On the other hand, there was emerging evidence that China is

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Panic City!

March 1, 2020

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 Asset Allocation 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

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A Lehman Crisis of a different sort

February 29, 2020

Remember the Lehman Crisis? The failure of Lehman Brothers marked the start of the Great Financial Crisis that destabilized and almost brought down the global financial system.
What we are seeing is a Lehman Crisis of a different sort. The Lehman Crisis of 2008 was characterized by financial institutions unwilling to lend to each other and banking system liquidity seized up.
Today’s version of the Lehman Crisis is characterized by countries and regions in lockdowns, and the propensity of individuals or groups to increase their social distance, either owing to quarantine, or by fear. This is leading to both supply and demand shocks. It is a supply shock because production and transportation are seizing up, which is leading to a collapse in global trade. Even before the onset of the

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In search of a market bottom

February 26, 2020

Mid-week market update: After two consecutive days where the market was down over 3%, I am seeing numerous statistical studies that suggest either an imminent oversold bounce, or a sentiment washout. One example is this analysis from Nomura, as published by Marketwatch. 

Has the sell-off bottomed? 

The short-term outlook
There are two answers to that question, depending on the time horizon. From a short term perspective, subscribers received an email alert last night that my inner trader was closing his short positions, going to 100% cash, and stepping to the sidelines. My Trifecta Bottom Spotting Model had flashed an exacta signal. The only element that is missing is a TRIN spike over 2, indicating price insensitive market clerk selling that characterizes a washout bottom.

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A panic bottom?

February 25, 2020

I should thank my lucky starts. i turned bearish last Wednesday (see Why this time is (sort of) different) and tactically shorted the market just as equities topped out, followed by today’s -3% downdraft.

As today proceeded, I fielded several inquiries from readers with versions of the same question, “Nice call last week. Is it time to buy, or are you covering your short?”

Where is the fear?
The short answer, is no. First of all, there were just too many people who seemed eager to either buy outright, or take profits in their bearish positions.
Mark Hulbert published an article this morning and by observing that his Hulbert Nasdaq Newsletter Sentiment Index had retreated from an over 90th percentile bullish reading to the 83rd percentile. That’s constructive, but hardly the sign of

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Correction ahead?

February 23, 2020

Preface: Explaining our market timing models We 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 […]

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Don’t count on a V-shaped recovery

February 22, 2020

The covid-19 coronavirus outbreak is a human tragedy, just like Ebola, MERS, and SARS. For investors, it has an economic impact. Even before the outbreak, world merchandise trade volume had been falling. New data is likely to show that the outbreak disrupted global supply chains sufficiently to further depress global trade.

The market consensus initially expected the effects of the virus to top out in mid or late February, and they consequently penciled in a V-shaped recovery. As China slowly returns to work amidst draconian measures to control the outbreak, doubts are rising on whether China’s economy could bottom out in Q1. The authorities would have to be satisfied that the worst of the infection is over before giving the all-clear for everyone to return to work. An economy as

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Why this time is (sort of) different

February 19, 2020

Mid-week market update: Some elements of the market have recently taken on a definitive risk-off tone, such as yesterday’s upside breakout in gold that was achieved in spite of a similar upside breakout in the USD Index.     That has to be equity bearish, right? Well…this time is (sort of) different.   Macro headwinds […]To access this content, you must be a subscriber.

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How to trade a frothy momentum market

February 17, 2020

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 Asset Allocation 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

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The guerrilla war against the PBOC

February 15, 2020

The enemy advances, we retreatIn the wake of the news of the coronavirus infection, the Chinese leadership went into overdrive and made it a Draghi-like “whatever it takes” moment to prevent panic and stabilize markets. When the stock markets opened after the Lunar New Year break, the authorities prohibited short sales, directed large shareholders not to sell their holdings, and the PBOC turned on their firehose of liquidity to support the stock market. Those steps largely succeeded. China’s stock markets stabilized and recovered, and so too the markets of China’s Asian trading partners. 

However, there were signs that the market is unimpressed by the steps taken by Beijing to control the outbreak and limit its economic impact. Market participants were conducting a guerrilla

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Why the market is rallying on fear – Yes, Fear!

February 12, 2020

Mid-week market update: What should investors do when faced with competing narratives and historical studies with opposite conclusions?
The major market indices made another all-time high today. Ryan Detrick pointed out that ATHs tend to be bullish. That’s because of the price momentum effect that is in force which propels stock prices to new highs. 

On the other hand, SentimenTrader observed last week that the market has flashed another series of Hindenburg Omens. Subsequent to that tweet, Tom McClellan pointed out that there was another Hindenburg Omen on Monday. Historically, clusters of Hindenburg Omens have resolved with a bearish bias. 

Should traders be bullish or bearish?
Here is some out-of-the-box thinking. I would argue that the stock market rally is actually the

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ESG challenges to energy investing

February 10, 2020

I received a ton of comments from my post three weeks ago on the energy sector (see Energy: Value opportunity, or value trap?). I engaged in multiple long email discussions with several readers on different aspects of that post. This is a follow-up to the publication address two main issues that were raised:
The impact of the solar cycle hypothesis on the Earth’s climate, and as a bullish catalyst for the energy sector
How to investing in energy stocks in the new ESG era.
To briefly recap, the solar cycle hypothesis postulates a link between the Earth’s temperatures and the degree of sunspot activity. We may be undergoing a period when sunspot activity is diminishing, which would serve to counteract some or all of the effects of anthropogenic (human made) global warming, or AGW. This

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Where’s the sentiment reset?

February 9, 2020

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 Asset Allocation 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

Read More »

Is the melt-up back?

February 8, 2020

What should investors make of the market’s recent air pocket and subsequent recovery? John Autthers, writing at Bloomberg, proposed an analytical framework where investors view the coronavirus outbreak mainly as a China problem. The MSCI World with China exposure (blue line) has been far more volatile than the MSCI World Index (white line). The companies with high China exposure have tanked in response to the virus scare and dramatically underperformed global stocks. 

While global investors fret about the economic impact of China’s slowdown in the wake of the coronavirus infection, the PBOC has responded with a tsunami of liquidity to support the market. Moreover, extraordinary measures have been put in place to forbid short selling, and to discourage major shareholders from

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An animal spirits revival?

February 5, 2020

Mid-week market update: The animal spirits are back. Just look at the price action in Tesla. 

In this environment, it is no surprise that the stock market is embarking on a test of the old highs. 

Lines in the sand
I had set out one line in the sand (see A key test: The Zero Hedge bottom?) of the market might react to news. Notwithstanding the Iowa caucus debacle, in which the results are not fully known yet two days after the event, the market is rallying in the face of news of more uncontrolled spread of the coronavirus. Trinh Ngyugen at Natixis pointed out that this virus is worse than SARS at this point in the outbreak, based on the figures coming out of China. 

To be sure, Asian market spiked upwards overnight on two separate reports that breakthroughs had been achieved

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A key test: The Zero Hedge bottom?

February 3, 2020

The website Zero Hedge has built a successful franchise on the internet highlighting bearish and market crash narratives with a series of half-truths, misinformation, and conspiracy theories. A recent screenshot of Zero Hedge headlines gives you an idea of their editorial bias. 

In other words, it occupies the supermarket tabloid niche of financial news.
A recent Buzzfeed story revealed that Zero Hedge, which had 670,000 followers, was permanently banned from Twitter for violating its platform manipulation policy. In one article, Zero Hedge accused a Chinese scientist of releasing the coronavirus from a bioweapons lab, released the scientist’s email and phone number, and invited readers to “pay the scientist a visit”.
Notwithstanding the controversy over Twitter’s actions, could

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Whistling past the graveyard (doji)

February 2, 2020

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 Asset Allocation 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

Read More »

Trading the coronavirus panic

February 1, 2020

Mark Hulbert made a terrific point last week. The coronavirus was not the real reason for the market sell-off. The real reason was excessively bullish sentiment. The coronavirus news was just the excuse.

That real culprit is market sentiment: Short-term stock market timers, on balance, have been extraordinarily bullish for a couple of months now. Even a few days of such excessive bullishness would normally lead to market weakness, much less a few months of such exuberance. So conditions were ripe for a pullback.
If it weren’t the coronavirus, in other words, something else would have been the straw breaking the camel’s back.

I had made a similar point in the past. Fast money positioning had become too extreme. Readings were at a crowded long, and portfolio leverage was highly

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Time to sound the all-clear?

January 29, 2020

Mid-week market update: I am old enough to remember that one of the burning question for the January FOMC meeting was be whether the Fed would make a technical adjustment on Interest Paid on Excess Reserves (IOER) by 5 basis points. (They did).
Those were simpler times! The stock market rose relentlessly, day after day, and all was well in the land.
Now that stock prices have turned back up again as I had suggested (see Buy for the Turnaround Tuesday bounce), is it time to sound the all-clear and jump back into equities again? 

Based on the historical experience, here are some questions that should be answered. 

Down Friday/Down Monday
For some perspective on market history, Jeff Hirsch at Almanac Trader found an important historical pattern on what he called “Down Friday/Down

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Buy for the Turnaround Tuesday bounce?

January 27, 2020

I just wanted to put out a quick note this morning. The markets are obviously very chaotic this morning and they have taken on a risk-off tone. The VIX Index has spiked above its upper BB, and its term structure has inverted. Both are indications of high fear.     Should traders step in and […]

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A market stall?

January 26, 2020

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 Asset Allocation 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

Read More »

How my Sorcerer’s Apprentice trade got out of hand

January 25, 2020

Remember the story of the Sorcerer’s Apprentice from Fantasia (click link for YouTube video)? Mickey Mouse played the role of a sorcerer’s apprentice tasked to carry buckets of water. Instead of doing it himself, he stole the sorcerer’s hat and animated a broomstick to carry the buckets for him. To speed up the work, he animated more and more broomsticks, until everything got out of hand. 

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While I don’t claim to be a prescient genius who can see the future of the market, I was fortunate to spot the beta chase early. Bloomberg reported on December 18 that Stanley Druckenmiller had turned bullish, and Druckenmiller would not have gone on television to proclaim his embrace of risk if he hadn’t fully entered into his entire position yet. As Kevin Muir at The Macro

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Cruisin’ for a bruisin’

January 22, 2020

Mid-week market update: Bloomberg reported that BAML strategist Michael Harnett wrote a report back on December 12 forecasting a melt-up. He believed the market’s gains would be front loaded in 2020. and he projected an S&P 500 target of 3,333 by March 3. The index reached that level intra-day today, and it’s still January. Are the front-loaded gains over?
Sentiment is certainly extended. II %bulls rose to 59.4% this week, and the bull-bear spread has reached the highest level since October 2018. 

SentimenTrader observed that Trump’s tweets about the stock market had reached a new record. 

As well, Macro Charts pointed out that further analysis from SentimenTrader showed that option buy-to-open volume reached a record high for a second week in a row. 

It certainly seems

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Froth everywhere!

January 19, 2020

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 Asset Allocation 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

Read More »

Energy: Value opportunity, or value trap?

January 18, 2020

Callum Thomas recently highlighted an observation from BAML that the market cap of Apple (AAPL) is now larger than the entire energy sector.

AAPL is now the largest stock in the index, but its weight at 4.5% is not especially extreme in the context of the historical experience. The fact that AAPL’s market cap has eclipsed the aggregate weight of the energy sector is telling.

Is this an inflection point for the energy sector? Do energy stocks represent a value opportunity that should be bought, or a value trap to be avoided?
I would like to propose a long-term bullish factor that has been ignored by the market. This factor has the potential to be the catalyst that digs these stocks out of their pariah status.
The Sun is about to undergo a period of low sunspot activity, which has

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The 2017/18 melt-up: Then and now

January 15, 2020

Mid-week market update: The stock market is over-extended. I warned on the weekend about the market’s nosebleed valuation (see Priced for perfection). The market’s forward P/E ratio of 18.4 matched the levels last seen at the 2017/18 market melt-up. 

But there are some crucial differences between the last melt-up episode and the one today. 

Crucial differences
One crucial difference is each rally was sparked by different fundamentals. As the chart below shows, the last melt-up coincided with surging EPS estimates from Trump’s tax cuts. The market cratered when the pace of upward estimate revision slowed. Today, estimate revisions are flat to slightly up. Today’s melt-up was mostly attributable to P/E expansion, not rising earnings estimates. 

I had identified the nascent bull

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