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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

The most wonderful time of the year…

29 days ago

Mid-week market update: In my last post (see Trading the pre-Christmas panic), I pointed out that the VIX Index had spiked above its upper Bollinger Band, which is an indication of an oversold market. In the past year, stock prices have usually stabilized and rallied after such signals (blue vertical line). The only major exception was the February and March skid that saw the market become more and more oversold (red line). The market today appears to be following a more typical pattern of stabilization, which should be followed by recovery during the seasonally strong Christmas period. 

Even more constructive for the bull case was how stock prices reacted to bad news. Last night after the market close, President Trump called the latest stimulus package a “disgrace” and threatened

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Trading the pre-Christmas panic

December 21, 2020

What should traders make of the pre-Christmas panic today? S&P 500 futures were down as much as -2.5% overnight. The market opened up down about -1.5%, but recovered most of its losses to a -0.4% retreat today. More importantly, the bulls were able to hold support at 3650. 

The VIX Index surged above its upper Bollinger Band, which is a sign of an oversold market. In the past year, most of the similar instances saw the market either rise or stabilize after VIX upper BB readings (blue vertical lines). The only exception occurred in February, when the market cratered as the news of the pandemic spooked risk appetite (red line). On the other hand, the 5-day RSI (top panel) is nowhere near an oversold condition.

The start of a major correction?

There is no doubt that sentiment

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Santa rally, Version 2020

December 20, 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

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Will Biden reset the Sino-American relationship?

December 19, 2020

As the clock ticks down on Trump’s days in the White House, and Biden election has been confirmed by the Electoral College, it’s time to ask if a Biden Administration will reset the Sino-American relationship. The key questions to ask are:

What does each side want, and what are the sources of friction?
What constraints is China operating under?
What’s the likely path forward?

While my main focus is on trade, that’s not the only dimension of friction between the two countries. China’s newly assertive foreign policy and brinksmanship in the South China Sea is also a source of concern for geopolitical stability.

What does each side want?

The first-order interpretation of the Sino-American trade relationship is Trump failed to make much of a dent in China’s trade surplus with

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Waiting for the breakout

December 16, 2020

Mid-week market update: It’s difficult to make a coherent technical analysis comment on the day of an FOMC meeting, but the stock market remains in a holding pattern. While the S&P 500 remains in an uptrend (blue line), it has been consolidating sideways since late November and early December. 

Until we see either an upside breakout or downside breakdown out of the trading range (grey area), it’s difficult to make a definitive directional call either way. The bull can point to a brief spike of the VIX above its upper Bollinger Band on Monday, which is a sign of an oversold market. TRIN also rose to 2 on Monday, which can be an indication of panic selling. As well, the VIX Index is normalizing relative to EM VIX since the election. The US market has stopped acting like an emerging

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How far can stocks pull back?

December 13, 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

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Time for another year-end FOMO stampede?

December 12, 2020

In late 2017, the stock market melted up in a FOMO (Fear Of Missing Out) stampede as enthusiasm about the Trump tax cuts gripped investor psychology. The market corrected in early 2018 and rose steadily into October, though the advance could not be characterized as a melt-up. In late 2019, the market staged a similar FOMO stampede and the rally was halted by the news of the pandemic spreading around the world.

In each of the above cases, the Fear & Greed Index followed a pattern of an initial high, a retreat, followed by a higher high either coincident or ahead of the ultimate stock market peak.

Could we see a similar year-end melt-up in 2020?

A new cyclical bull
It’s starting to look that way. Evidence is emerging that the stock market is at the start of a new cyclical bull.

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The bearish window is closing quickly

December 9, 2020

Mid-week market update: I highlighted this chart as a possible warning on the weekend (see Melt-up, or meltdown?). In the past, high levels of correlation between the S&P 500 and VVIX, the volatility of the VIX, has generally led to market stalls. In addition, high correlations between the S&P 500 and the VIX Index has […]

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Why you should and shouldn’t invest in Bitcoin

December 8, 2020

In response to my recent publication (see A focus on gold and oil), a number of readers asked, “What about Bitcoin (BTC)?” Indeed, BTC has diverged and beaten gold recently. Even as gold prices corrected, BTC has been rising steadily since early October. 

Here are the reasons why you should and shouldn’t invest in Bitcoin. 

The long-term bear case
Bitcoin and cryptocurrency adherents and enthusiasts have promoted BTC as an alternative currency outside the control of national governments. In doing so, they either missed or forgot the lessons learned in Money and Banking 101, which is usually an upper-level course offered to undergraduate economics students. Let’s compare the characteristics of BTC (and other cryptocurrencies) to gold, which is widely acknowledged to be an

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Melt-up, or meltdown?

December 6, 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

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A focus on gold and oil

December 5, 2020

I received considerable feedback from last week’s publication (see How to outperform by 50-250% over 2-3 years), mostly related to gold and energy stocks. 

In last week’s analysis, I had lumped these groups in with other cyclicals. Examining them further, I conclude that both gold and energy stocks have bright futures over the next 2–3 years. I estimate that gold prices could beat US large-cap growth stocks by about 100% over this period, and I would favor bullion over gold stocks. The upside target for energy stocks is a little bit tricky owing to their declining fundamentals and falling demand from ESG investing. The upside relative performance target is wider at 25–300% for this sector. 

A New Commodity Supercycle
Both gold and oil are major commodities, and we may be seeing

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The bears’ chance to make a stand

December 2, 2020

Mid-week market update: As the S&P 500 pushed to another fresh high, more cracks were appearing in the market internals, indicating that it may be time for the rally to take a pause. Negative divergences, such as the 5-day RSI and a trend of falling NYSE new 52-week highs, are warning signs for the near-term outlook. 

While the intermediate-term trend is still up, the bears have a chance to make a stand here, at least in the short run.

Frothy sentiment

Sentiment indicators continue to exhibit signs of froth. The Investors Intelligence survey shows that both %bulls and the bull-bear spread haven’t seen these levels since the melt-up top of early 2018.

Option sentiment is equally exuberant. The 10 day moving average of the equity put/call ratio has fallen to levels where

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Will Powell twist?

November 30, 2020

Jens Nordvig recently conducted an unscientific Twitter poll on the FOMC’s action at the December meeting/ While there was a small plurality leaning towards a “steady as she goes” course, there was a significant minority calling for another Operation Twist, in which the Fed shifts buying from the short end to the medium and long ends of the yield curve. 

The November FOMC minutes reveal no clear consensus on the prospect of a twist, otherwise known as yield curve control (YCC).
A few participants indicated that asset purchases could also help guard against undesirable upward pressure on longer-term rates that could arise, for example, from higher-than-expected Treasury debt issuance. Several participants noted the possibility that there may be limits to the amount of additional

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A Wall of Worry, or Slope of Hope?

November 29, 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

Read More »

How to outperform by 50-250% over 2-3 years

November 28, 2020

Investors are increasingly convinced that the cyclical and Great Rotation trade is very real and long-lasting (see Everything you need to know about the Great Rotation but were afraid to ask). That should be bullish for the S&P 500, right? 

Well, sort of. 

Despite the cyclical and reflationary tailwinds for stocks, the S&P 500 has a weighting problem. About 44% of its weight is concentrated in Big Tech (technology, communication services, and Amazon). The top five sectors comprise nearly 70% of index weight, and it would be difficult for the index to meaningfully advance without the participation of a majority of these sectors. However, an analysis of the relative performance of the top five sectors does not exactly inspire confidence as to the sustainability of an advance. Technology

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Do the bulls have a sentiment problem?

November 24, 2020

Mid-week market update: (I am publishing my mid-week market update a day early owing to the US Thanksgiving holiday shortened week) 

Should the bulls be worried? The Greed and Fear Index has surged to 88, which represents a warning of excessive bullishness. 

As well, Willie Delwiche pointed out that his survey of sentiment indicators are all tilted either contrarian bearish or neutral. Delwiche concluded that “everyone knows about (& is positioned for) historical tendency for stocks to rally from here into year-end”. 

Asymmetric sentiment signals
Before you turn all bearish, I would warn that sentiment models work much better as buy signals than sell signals. The adage that “bottoms are events, but tops are processes” is especially true in this case. Panic bottoms are easy to

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Too far, too fast?

November 22, 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

Read More »

Will Mnuchin and COVID derail the cyclical rebound?

November 21, 2020

I hope that I haven’t offended the market gods. Just after my bullish call for a cyclical recovery (see Everything you need to know about the Great Rotation but were afraid to ask), a number of contrary data points have appeared to cast doubt on the reflation thesis. 

The markets were jolted by the news on Thursday that Secretary Treasury Mnuchin has declined to extend CARES Act emergency lending facilities established with the Federal Reserve. In addition, Treasury has asked the Fed to return any unused funds. This is a potentially contractionary fiscal development and a possible preview of the spending tug-of-war between a Biden White House and a Republican-controlled Senate. 

As well, the ongoing risk posed by a second wave of COVID-19 in Europe, and a third wave in the US derail

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A crowded long, or a “good overbought” advance?

November 18, 2020

Mid-week market update: In case you missed it, the Dow Theory flashed a definitive buy signal. Both the Dow Jones Industrial and Transportation Averages made all-time highs on Monday. This is the granddaddy of all technical analysis systems, and investors should sit up and pay attention. Moreover, the Dow may be tracing out a series of “good overbought” conditions that are indicative of a sustained rally. 

On the other hand, sentiment models are flashing crowded long and overbought signals. Is the market ripe for a pullback, or is this the start of a “good overbought” advance? 

The bull case
The bull case is simple. There is nothing more bullish than higher prices. In addition to the Dow, the broadly based Wilshire 5000 is also overbought, and possibly rising on a series of “good

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Value picks and pans

November 16, 2020

I recently made a presentation at a virtual conference, and an audience member asked me to name some of my favorite value sectors. I had a few answers, but let me start with what I would avoid, namely financial stocks. 

Financial stocks are statistically cheap and comprise a significant weight in most value indices. However, they have a number of challenges not encountered by other value stocks. Bloomberg reported that the Biden transition team is made up of people with a bias towards greater financial oversight and regulation, such as Gary Gensler:
Gensler is the biggest name with Wall Street ties who’s part of the agency-review process. He is a former Goldman Sachs Group Inc.partner who joined President Bill Clinton’s Treasury Department. Gensler was later appointed CFTC chairman

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Still testing triple-top resistance

November 15, 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

Read More »

Everything you need to know about the Great Rotation, but were afraid to ask

November 14, 2020

The market lurched upwards on Vaccine Monday on the Pfizer-BioNTech news that it had found promising results in its vaccine trial. In a “Great Rotation”, investors piled into value stocks and abandoned former growth darlings. The Daily Shot published this chart from Goldman Sachs estimating how a successful vaccine rollout could impact sectors. But that’s not the entire story. 

Here is everything you need to know about the Great Rotation but were afraid to ask, and why it’s the signal for a new bull market.

A duration trade unwind
For the uninitiated, duration measures the price sensitivity of an investment to changes in interest rates. The higher the duration, the higher the price sensitivity. Low coupon instruments such as zero-coupon bonds and growth stocks that pay little

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ZBT missed – again!

November 11, 2020

Mid-week market update: It is ironic that four weeks ago today, I pointed out that the market missed flashing a rare Zweig Breadth Thrust buy signal by one day (see Trading the breadth thrust). Market breadth, as measured by the ZBT Indicator, has to rise from an oversold level of 0.40 to an overbought reading of 0.615 or more within a 10-day window. Four weeks ago, it achieved that in 11 days, and the rally fizzled sooner afterward. 

The ZBT buy signal is extremely rare, and it has occurred only six times since 2004. In all instances, the market has been higher in 12-months, though it “failed” on two occasions inasmuch as it pulled back before roaring ahead to new highs. 

I observed on the weekend that we are on the verge of another possible ZBT buy signal (see Zweig Breadth

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Zweig Breadth Thrust and triple-top watch

November 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

Read More »

Growth, interrupted?

November 7, 2020

Two weeks ago, I rhetorically asked if investors should be buying into the cyclical recovery theme (see Buy the cyclical and reflation trade?). Global green shoots of recovery were appearing, but I identified the “uncertainty of additional fiscal stimulus” as a key risk to the cyclical rebound thesis. Now that Biden appears to be winning the White House, but constrained by a Republican-controlled Senate, it’s time to revisit the recovery question. 

Regular readers know that I consider the global economy as three trade blocs, NAFTA, Europe, and Asia dominated by China. It is within that framework that I examine the global reflation question.  

Is the global economy emerging from a global recession? 

Europe: A new lockdown
Let’s start with the bad news. Europe is experiencing a

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Interpreting the market’s election reaction

November 4, 2020

[unable to retrieve full-text content]Mid-week market update: It’s always instructive to see how the market reacts to the news. If I had told you that the dual market nightmare scenarios of a contested election and a deadlocked election consisting of a Biden Presidency and a Republican-controlled Senate were to come true, would you expect the market to take a […]

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Oh yeah, it’s also FOMC week

November 2, 2020

[unable to retrieve full-text content]What’s on the calendar this week? Did you forget?   Oh yeah, there’s an FOMC meeting this week, and there’s the November Jobs Report on Friday. While not much policy change is expected from the Fed this week, Barron’s has already anointed Jerome Powell as “the winner”. (Has anyone started to call him the Maestro […]

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Scenario planning ahead of the Big Event

November 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

Read More »

Emerging tail-risk: An invasion of Taiwan

October 31, 2020

I am not in the habit of peddling conspiracy theories, but this is inadvertently becoming a Halloween tradition. Last Halloween, I wrote about how China could control Taiwan without firing a shot (see Scary Halloween story: How a weak USD could hand China a major victory). This year, a new geopolitical tail-risk is materializing for investors and for global stability. China’s People’s Daily recently published a “Letter to Taiwan’s Intelligence Organs” warning Taiwanese intelligence agencies against supporting President Tsai Ing-wen’s resistance to China’s unification efforts (article in Chinese here, Facebook summary in English here).
People’s Daily on Thursday urged intelligence agencies in Taiwan to stay away from the “fatal track” of seeking Taiwan’s independence, which only leads to

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We’re expecting riots…

October 28, 2020

Mid-week market update: There is an adage that when dentists start to buy, you should be selling. I came upon a tweet by a resident in Los Angeles with a dentist in the Santa Monica area. The dental office is expecting riots next week, regardless of who wins the election. 

FBI firearm background checks are surging. Anecdotally, both sides are arming themselves in preparation for civil unrest. 

Is this peak fear? It is time to buy the panic? 

Peak fear?
Notwithstanding this week’s market weakness, this chart of asset class implied volatility (IV) shows that fear levels spike the week of the election, and retreat afterward. 

Other indications of market panic are evident. The VIX Index has spiked above its upper Bollinger Band (BB), which is a sign that a temporary bottom is

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