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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 resiliency of the S&P 500

29 days ago

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 Trend Asset Allocation Model is an asset allocation model that 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. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

My inner trader uses a trading model, which is a blend of price

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How to navigate the mid-cycle expansion

July 3, 2021

It’s been over a year since the stock market bottom at the height of the Pandemic Panic. The market consensus has evolved from an early cycle recovery to a mid-cycle expansion, as evidenced by the BoA Global Fund Manager Survey. 

What that means for investors? Here are the key questions we focus on:

What’s the outlook for the S&P 500?
What will be the market leadership?
What’s the outlook for commodities, Treasury yields, and the USD?

Mapping the mid-cycle expansion

What does a mid-cycle expansion mean? We can look at it through several lenses.

From a momentum perspective, the G10 Economic Surprise Index, which measures whether economic releases are beating or missing expectations, is decelerating after a V-shaped recovery. However, ESI readings are still positive,

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Why the stock market isn’t going to crash

June 30, 2021

Mid-week market update: I’ve had a number of questions from readers about the warnings of imminent market declines from SentimenTrader. In this post, Jason Goepfert’s headline was “This Led to Declines Every Time in the Past 93 Years”. He highlighted the market’s poor breadth, as measured by the percentage of stocks above their 50 dma. 

Going back to the mid-1920’s, there have only been a handful of dates with breaks like this. It happened in 1929, 1959, 1963, 1972, 1998, and 1999, and all of them ended up preceding losses in stocks.

Relax, the market isn’t going to crash. Here’s why.

A bifurcated market

Goepfert gave the answer in a separate article, “The Correlation Between Growth and Value Has Never Been Lower`. Even though he interpreted the data in a bearish way, his

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Bitcoin’s existential threat

June 28, 2021

I have been asked to comment on Bitcoin. On a short-term basis, BTC is testing support while exhibiting a positive RSI divergence. That’s the good news. 

The bad news is BTC and other cryptocurrencies are facing an existential threat.

The quantum computing threat

I came across a Decrypt article entitled “Quantum computers could crack Bitcoin by 2022”. While the 2022 time frame is a bit of hyperbole, the point is well taken.

If you had a powerful enough computer, you could, theoretically, take control of the Bitcoin blockchain. You could credit your account with free Bitcoin or prevent others from making transactions. Since the private key to each wallet can be derived from a public key, you could access the Bitcoin wallet of whomever you wished. The keys to the $163 billion

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Measuring the effects of the Fed’s reversal

June 26, 2021

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 Trend Asset Allocation Model is an asset allocation model that 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. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

My inner trader uses a trading model, which is a blend of price

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The Fed’s next challenge: Wage pressure

June 26, 2021

Stock markets were rattled by the Fed’s hawkish tone in the wake of the FOMC meeting. Markets took a risk-off tone, but Jerome Powell walked back some of the hawkishness during his Congressional testimony the following week. The Fed Chair stuck to his familiar refrain that inflation is transitory, dismissed the idea of 1970s-style inflation as “very, very unlikely”, and unemployment is transitory but labor markets need continued support. 

In response, the markets rebounded and prices largely made in round-trip in pricing in most asset classes. But in order for the markets to continue accept the Fed’s narrative, the next challenge for the Fed is cost-push inflation in the form of wage pressure. This will become more apparent with the release of the June Employment Report in the

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Just a hiccup?

June 23, 2021

Mid-week market update: The S&P 500 has shown negative seasonality at the end of June. So far, the index has been tracking its historical pattern well in 2021. The market took fright last week from the abrupt hawkish tone of the FOMC statement and subsequent Powell press conference last week. By Friday, it had become deeply oversold (see Boo! Powell scares the children!) and recovered this week.

 

Was that it? Is the seasonal weakness over?

A broad recovery

The analysis of the top five sectors tells the story. As a reminder, the top five sectors account for about three-quarters of the S&P 500 index weight, and it would be difficult for the market to significantly move up or down without a majority of their participation. The relative performance of the top five sectors shows

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Boo! Powell scares the children!

June 20, 2021

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 Trend Asset Allocation Model is an asset allocation model that 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. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

My inner trader uses a trading model, which is a blend of price

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China rides to the rescue?

June 19, 2021

The headlines from last week sounded dire. It began when China’s May economic activity report was disappointing, with industrial production, retail sales, and fixed-asset investment missing market expectations.  

Then the Federal Reserve took an unexpected hawkish turn. The statement from the FOMC meeting acknowledged that downside risks from the pandemic were receding as vaccination rates rose. It raised the 2021 inflation forecast dramatically, shaded down next year’s unemployment rate, and projected two rate hikes in 2023 compared to the previous forecast of no rate hikes. As well, a taper of its quantitative easing program is on the horizon.

Collapsing global trade and growth. Rising interest rates. It sounds like the start of a major risk-off episode.

My own reading of

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The market’s instant FOMC report card

June 16, 2021

Mid-week market update: It’s always difficult to make any kind of coherent market comment on FOMC meeting days. The market reaction can be wild and price moves can reverse themselves in the coming days. 

Nevertheless, experienced investors understand that it’s not the announcement that matters, but the tone announcement compared to market expectations. Bloomberg Economics conducted a survey ahead of today’s FOMC meeting and found the following: 

FOMC will raise inflation, growth forecasts for 2021
Forecasts to shift rate liftoff to 2023
FOMC to signal bond taper at Jackson Hole in August
Taper announcement in December
Powell gets reappointed — Brainard is the next option

Here how the Fed decisions fared compared to Street expectations.

Market reaction

With that preface,

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What I meant to say was…

June 14, 2021

After a number of discussions with readers, there appears to have been some misunderstanding over my recent post (see The bond market tempts FAIT). I did not mean to imply that the advance in bond prices is an intermediate-term move, only a tactical counter-trend rally. The decline in Treasury yields can be attributable to:

The market’s buy-in to the Fed’s “transitory inflation” narrative, which was discussed extensively in the post;
Excessively short positioning by bond market investors, as shown by a JPMorgan Treasury client survey indicating that respondents were highly short duration, or price sensitivity to yield changes; and

A FOMO stampede by corporate defined-benefit pension plans. A recent study showed that pension plans were nearly fully funded from an actuarial

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A new S&P 500 high, but…

June 13, 2021

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 Trend Asset Allocation Model is an asset allocation model that 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. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

My inner trader uses a trading model, which is a blend of price

Read More »

The bond market tempts FAIT

June 12, 2021

Remember when I called for a bond market rally (see What a bond market rally could mean for your investments). The 10-year Treasury yield broke support last week and shrugged off a hot CPI print. Is the bond market tempting FAIT, or the Fed’s Flexible Average Inflation Targeting framework? 

Here are some of the broad market implications.

Transitory inflation

May CPI came in ahead of expectations, but more detailed analysis shows that the “hot” components were largely transitory in nature. Here are my main takeaways from that report:

Headline YoY CPI was boosted by strong energy prices, which was a low base effect increase owing to very low prices a year ago.
Standout strength in Core CPI was attributable to used car prices and airfares. The good news is that the pace of

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Pigs get slaughtered…

June 9, 2021

Mid-week market update: Traders have an adage, “Bulls make money. Bears make money. Pigs just get slaughtered.” It’s time for equity bulls to be near-term cautious on stocks, though I expect any market weakness to be relatively shallow. 

In my weekend update, I had set out a number of tripwires (see Time is running out for the bulls). So far, the S&P 500 is struggling to overcome resistance even as it exhibits a negative RSI divergence. 

On the other hand, the 10-year Treasury yield has decisively breached support.

While this development is likely to be tactically supportive of growth stocks and NASDAQ relative performance, the near-term risk for US equities is rising.

Sentiment and technical warnings

While the AAII bull-bear spread has not been very effective as a

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NFIB update: Revenge of the Proletariat?

June 8, 2021

The monthly NFIB update is always useful as a window on the economy. Small businesses tend to have little bargaining power and they are therefore sensitive barometers of economic trends. A month ago, NFIB small business optimism surged (see NFIB conservatives grudgingly turn bullish). The latest report saw optimism stall as readings edged back from 99.8 to 99.6.  

The biggest complaint was the availability of labor. While the JOLTS report comes to a similar conclusion, it is a survey of April conditions while the NFIB survey period is May. Its headline “Nearly Half of Small Businesses Unable to Fill Job Openings” tells the story.

Economic strength + labor shortages

Still, the decline in optimism has to be taken with a grain of salt. Of the 10 components that make up the Small

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Time is running out for the bulls

June 6, 2021

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 Trend Asset Allocation Model is an asset allocation model that 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. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

My inner trader uses a trading model, which is a blend of price

Read More »

Is the S&P 500 wildly overvalued?

June 5, 2021

Several readers asked me to address the valuation warning from Jason Goepfert of SentimenTrader, who found that the S&P 500 is wildly overvalued based on a combination of real earnings yield and dividend yield. 

Let’s begin by unpacking Goepfert’s chart (annotations are mine). There were five instances since 1970 when the market appeared overvalued based on this metric. The market had already begun falling in two episodes (red boxes: the Nifty Fifty top and the GFC top), and this indicator signaled tops in three (grey boxes: Volcker induced bear market, 1987 Crash, and the Dot-Com Bubble). Is a success rate of 60% (three out of five top calls) enough for an effective sell signal?

Differences in opinion

I have a difference of opinion over Goepfert’s methodology. First, he uses

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Don’t short a dull market

June 2, 2021

Mid-week market update: Even as the S&P 500 remains range-bound, market internals are constructive. I interpret these conditions to mean that the market can grind higher in the short-term, and the intermediate-term trend is still up. 

Don’t short a dull market.

A risk appetite revival

A survey of risk appetite indicators reveals a revival. Regular readers will know that I am not a long-term bull on Bitcoin or any other cryptocurrencies (see Why you should and shouldn’t invest in Bitcoin). Nevertheless, there appears to be a lead-lag relationship between the relative performance of ARK Innovation ETF (ARKK) and Bitcoin. Tactically, this argues for a tactical revival in Animal Spirits, which can propel Bitcoin and other high-beta speculative issues higher.

I recently wrote

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The wall at S&P 4200

May 30, 2021

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 Trend Asset Allocation Model is an asset allocation model that 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. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

My inner trader uses a trading model, which is a blend of price

Read More »

What a bond market rally could mean for your investments

May 29, 2021

The trader Alex Barrow recently observed that the sentiment backdrop is setting up for a bond market rally. 

While Barron’s is not as reliable as The Economist as a contrarian magazine cover indicator, the stars appear to be lining up for a counter-trend rally in bond prices. Here is what a potential bond market means for the other major asset classes.

Bond market rally ahead?

Notwithstanding Barrow’s sentiment model observation, a number of other indicators are pointing to downward pressure on bond yields and upward pressure on bond prices. The Citi Economic Surprise Index, which measures whether economic indicators are beating or missing expectations, has been falling. Growing growth disappointments should act to depress bond yields.

You can tell a lot about market

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A test of the old highs?

May 26, 2021

Mid-week market update: I wrote on the weekend that one of my bullish tripwires were violations of relative support by defensive sectors (see Is the pullback over?). The bulls have largely achieved that task. 

The S&P 500 appears to be on its way to a test of the old highs.

In addition, the VIX Index has decisively fallen below its 20 dma, which was another of my bullish tripwires. However, the S&P 500 is exhibiting a negative 14-day RSI divergence. Should the index rally to test its old highs, the signs of deteriorating momentum are likely to limit the market’s upside potential.

Due for a pause

The stock market is acting like it’s due for a pause in its bullish impulse. I have highlighted this chart before. Market breadth, as defined by the percentage of S&P 500 above

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Is the pullback over?

May 23, 2021

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 Trend Asset Allocation Model is an asset allocation model that 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. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

My inner trader uses a trading model, which is a blend of price

Read More »

In search of global opportunities

May 22, 2021

It is said that the only free lunch in investing is diversification. That’s especially true for US-based investors in light of the elevated valuations of US equities. 

With that idea in mind, let’s take a quick tour around the world to see where the opportunities are, and where they’re not. Geographically, the world is divided into three major trade blocs consisting of North America, Europe, and Asia, which is represented by Japan in the developed markets and China within emerging markets. For measurement purposes, the performance of each country or region is benchmarked to the MSCI All-Country World Index (ACWI) and returns are all measured in USD.

The analysis of relative performance shows that there are few clearly defined market leaders. The US has been a mixed bag. The

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Here comes the retest

May 19, 2021

Mid-week market update: I wrote on the weekend (see Where’s the fear?) that the relief rally that began last Thursday was unconvincing and my base case scenario called for a retest of the lows. The retest appears to be underway.  

Spikes of the VIX Index above its upper Bollinger Band (BB) were signals of an oversold market. Such episodes were resolved in two ways. Strong market rallies were characterized by price momentum and definitive violations of the VIX 20 dma (blue arrows). On the other hand, if the VIX was unable to fall below its 20 dma, the S&P 500 advance stalled and weakened again (grey bars). The current situation appears to fall into the latter category.

Nevertheless, I believe that any pullback should be shallow and the S&P 500 is likely to successfully test its 50

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Where’s the fear?

May 16, 2021

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 Trend Asset Allocation Model is an asset allocation model that 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. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

My inner trader uses a trading model, which is a blend of price

Read More »

Interpreting the gold breakout

May 15, 2021

Did anyone notice the upside breakouts in both gold and gold mining stocks? In the short-term, gold may have to contend with overhead resistance at the site of its 200-day moving average (dma). While I am no gold bug, the breakout could be a technical signal of an intermediate bullish phase for precious metals. 

This week, I explore the bull and bear case for gold and the macro implications of this upside breakout.

Why I am bullish on gold

There are a number of reasons to be bullish on gold. Macro Charts reported that net fund flows into GLD, the gold ETF, had turned sufficiently negative that was consistent with past tactical bottoms.

As gold is normally thought of as an inflation hedge, a BoA survey of credit investors shows that inflation is their biggest concern,

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The bears take control

May 12, 2021

Mid-week market update: I have been saying for several weeks that the stock market is vulnerable to a setback but it is a bifurcated market. Value stocks have held up well, but growth stocks were getting smoked. The bears finally broke through this week and they are showing signs that they are seizing control of the tape. Defensive sectors are exhibiting signs of relative breakouts against the S&P 500. 

Time for a pause

Several factors have combined to spark this setback in stock prices. First, retail investors are losing interest in stocks. 

Remember the retail frenzy as the Reddit crowd whipped up enthusiasm for meme stocks last year? Remember how flash mobs drove up selected issues with call option buying which forced market makers to hedge by buying the underlying

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NFIB conservatives grudgingly turn bullish

May 11, 2021

Investors received some data points today that is highly revealing about the economy. The most important was the NFIB small business survey. Small business sentiment is especially important as they have little bargaining power and they are therefore sensitive barometers of the economy. The other is the March JOLTS report of labor market conditions, which is a little dated but nevertheless revealing. 

Small business owners tend to be small c-conservatives, and their political leanings tilt Republican. We can see that optimism fell in the wake of the election when Biden and the Democrats took control. What is remarkable is the uptick in optimism despite the leftward drift in government policy.

This is a strong indication of economic strength.

More NFIB details

It’s no wonder

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Q1 Earnings Monitor: The jobs puzzle

May 10, 2021

This will be the final Q1 Earnings Monitor as 88% of the S&P 500 has reported and the results are mostly known. It was a solid earnings season and beat rates are well above average. Callum Thomas of Topdown Charts observed that analysts have scrambled to revise their estimates upwards in response to earnings reports and corporate guidance.

 

Before the bulls gets too excited, there was one puzzle in a sea of strong earnings reports. If the economy as shown by earnings is so strong, why did the April Employment Report miss expectations so badly? What are the implications for Q2 and Q3 earnings outlook?

A strong “A”

If I had to grade this earnings season, I would give it a strong “A”. With 88% of S&P 500 having reported, investors have most of the picture. Both the EPS and

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A stealthy growth correction

May 9, 2021

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 Trend Asset Allocation Model is an asset allocation model that 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 »