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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

Monetary Policy Catch-22

29 days ago

Mid-week market update: As I expected, the Fed unveiled a dovish hold at its June FOMC meeting, as predicted by Tim Duy:

The Fed is likely to turn more dovish this week and open up the possibility of a rate cut. I think they still need more data to justify a rate cut. Another jobs report alone the lines of the May report would go a long way toward supporting that cut in July.
Out with “patience”, and in with “act as appropriate to sustain the expansion”* as the new mantra of monetary policy. The greenback feel, and the bond market reacted with a bull steepening. Interest rates fell across the board, but the yield curve steepened. 

However, this sets up a difficult Catch-22 for Fed monetary policy makers.
* Colloquial translation: “An ounce of prevention is worth a pound of

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Fun with quant: MS Business Conditions edition

June 17, 2019

Marketwatch recently reported that Morgan Stanley’s Business Conditions Index had deteriorated to levels last seen during the 2007-08 financial crisis. Wow! Is this an alarming signal, or contrarian? 

In reality, it was a lesson for data analysts in quantitative analysis. 

Looking for confirmation
When I see a surprising result, I look for confirmation. To be sure, CEO confidence has fallen off a cliff. 

On the other hand, NFIB small business optimism has been on fire. 

What’s the real story here? Is there a severe bifurcation between big business (CEO) and small business (NFIB) confidence? Wouldn’t the Morgan Stanley index be more reflective of the big business rather than the small business outlook?
I was able to obtain some of the details behind the Morgan Stanley

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What happens if the Fed cuts rates?

June 16, 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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A dead cat bounce, or something more?

June 12, 2019

Mid-week market update: I wrote last week that the market gods were favoring the equity bulls, The relief rally would likely last about another week (see How far can this rally run?), but the market is likely to remain range-bound until the trade tensions are resolved.

In conclusion, until these trade tensions are resolved, expect the market to remain range-bound and move in reaction to the latest headlines. This suggests that traders should adopt a position of “buy the dips” and “sell the rips”. If history is any guide, I expect the current rally to peter out some time next week, with the most probable peak occurring about mid-week.
The market has rallied substantially since last Wednesday. It is now mid-week, and the market appears to be stalling at resistance. Is this simply a test

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How to buy “smart” Value

June 10, 2019

Value investing has taken it on the chin in the last decade, as the style has badly lagged the market. Callum Thomas documented how value discount has grown over the last decade. The discount has fallen to levels last seen at the height of the NASDAQ Bubble, when internet related stocks came crashing to earth, and value stocks outperformed.

Is this the time to buy Value? Here are a couple of suggestions of how to participate in the value style in a way that performed well despite the style headwinds of the last 10 years.

Give it to Warren
One way is to just give your money to Warren Buffett. While Buffett’s investing style is not value investing in the classic sense, the shares of Berkshire Hathaway has performed roughly in line with the market over the last 10 years. That’s quite

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Trump vs. the Fed

June 9, 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 far can this rally run?

June 5, 2019

Mid-week market update: I had been making the point for the past week that this market is oversold and ripe for a relief rally, and the rally finally occurred. From a technical perspective, the market rallied through a downtrend line, which is a sign that the bulls have seized control of the tape. However, the bulls shouldn’t overstay their welcome. Until the trade tension overhang is lifted, this market is likely to remain volatile and range-bound. One characteristic of this uncertainty are the numerous gaps that can be found on the hourly chart. 

Nevertheless, how long can this rally last, and how far can it run? I considered a number of historical studies to arrive at some estimates, and here is what I found. 

The CBI buy signal
I highlighted analysis from Rob Hanna at

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A May Jobs Report preview

June 4, 2019

Tim Duy thinks that Trump is trying to weaken the economic outlook sufficiently so that the Fed has no choice but to cut rates. The markets adopted a risk-off posture as a consequence of Trump`s announcement that he plans to impose tariffs on Mexico. The entire Treasury yield curve, with the exception of the very long end at 30-years, is at or below the Fed Funds target rate. The market is now anticipating between two and three quarter point rate cuts by the end of 2019.
The story here is that market participants anticipate the Fed will need to cut rates to maintain the expansion. The Fed has so far resisted this story, but the odds favor them moving in this direction. The simple fact is that the Fed reacts systematically to a changing forecast. Financial markets are signaling the the

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Panic is in the air

June 3, 2019

I just want to publish a quick note. Panic is in the air.
Investors are piling into the safe haven of USTs. The 5-day plunge in 2-year Treasury yield has not been exceeded since the stock market bottom of 2008. 

Callum Thomas` weekly (unscientific) Twitter poll is in record net bear territory. Not only that, the 4-week moving average is also at a record low. Past short-term stock market bottoms have coincided with either the weekly low, or the 4-week average low. Take your pick. 

Lastly, Rob Hanna at Quantifiable Edges observed that his Capitulative Bottom Index (CBI) spiked 10 points on Friday. Absolute readings of 10 or more have been buy signals, so a 10 point CBI spike is nothing short of astounding.

The Quantifiable Edges CBI has spiked over the last few days. After

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China’s new Long March

June 2, 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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Some all-weather industries to consider

May 29, 2019

Mid-week market update: The headlines look dire, and so does the market action. Relative performance analysis shows that defensive sectors have become the leadership, but as the October to December selloff shows, they are coincidental indicators and offer no predictive power as to future market direction. 

What should you do? Today, I look through the market turmoil and offer some suggestions of industry groups that appear to stand up well independent of their beta characteristics. These group have the potential to be the leaders in the next upturn. 

Potential new leadership
Here are some potential leadership candidates to consider. We all know that Healthcare stocks were spooked by the prospect of Medicate-for-all in April. The market forgot all about that scare when prices

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From a trade war to a Cold War?

May 27, 2019

This is the second part of a two part series on the unusual market pattern that we have been undergoing (see part one, Peak fear or Cold War 2.0). While the market may have discounted a substantial amount of the first-order effects of a trade war, the tail-risk of the loss of business confidence in a full-blown trade war is difficult to measure. In addition, the US and China may be on the verge of Cold War 2.0, which would disrupt and bifurcate technology platforms and supply chains.

Cold War 2.0?
The Economist recently devoted a special report to how a trade war is becoming a Cold War 2.0:
Fighting over trade is not the half of it. The United States and China are contesting every domain, from semiconductors to submarines and from blockbuster films to lunar exploration. The two

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Peak fear, or Cold War 2.0?

May 26, 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 »

Range-bound, with a bullish lean

May 22, 2019

Mid-week market update: It appears that the stock market is may be range-bound until Trump and Xi meet in Japan in late June. A high level of uncertainty is the order of the day, with short-term direction will be determined by the latest news or tweet.
As the chart below shows, the range is defined by a level of 2800 on the downside, and 2895-2900 on the upside. From a technical perspective, direction cannot be determined until either an upside or downside breakout is achieved.

There is some hope for the bulls. The market is forming a nascent inverse head and shoulders formation, with a measured target of 2980 on an upside breakout. As good technicians know, head and shoulders formations are not complete until the neckline breaks. The current pattern can only be interpreted as a

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Imminent war with Iran?

May 20, 2019

The headlines look ominous. The US has dispatched a carrier task force to the Persian Gulf, and a second one is due to arrive soon. The State Department ordered the evacuation of all non-essential personnel from Iraq:

The U.S. State Department has ordered the departure of non-essential U.S. Government employees from Iraq, both at the U.S. Embassy in Baghdad and the U.S. Consulate in Erbil. Normal visa services at both posts will be temporarily suspended. The U.S. government has limited ability to provide emergency services to U.S. citizens in Iraq.
We had a threatening Presidential tweet over the weekend. 

Reuters reported that Exxon Mobil is evacuating foreign staff from an Iraqi oilfield near Basra:

Exxon Mobil has evacuated all of its foreign staff, around 60 people, from

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Tariff Man vs. Dow Man

May 19, 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 »

Bottoming

May 15, 2019

Mid-week market update: There are numerous signs that the US equity market is making a short-term tradable bottom. Firstly, the market is washed out and oversold. While oversold markets can become more oversold, we saw some bullish triggers in the form of positive divergences on the hourly SPX chart.
Even as the index fell, both the 5 and 14 hour RSI made higher lows and higher highs. In addition, the VIX Index failed to make a higher high even as prices declined. Possible upside targets are the three gaps left open in the last few days. 

Bullish setups everywhere
There were many bullish setups in the last few trading days. Rob Hanna at Quantifiable Edges pointed out last Friday that his Capitulative Breadth Index (CBI) hit 10 last Thursday. Historical studies show a definite

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Exploring the trade stalemate scenario

May 13, 2019

I wrote yesterday (see Why investors should look through trade tensions):

Calculated in economic terms, China would “lose” a trade war, but when calculated in political cost, America would lose as Trump does not have the same pain threshold as Xi.
Based on that analysis, I concluded that it was in the interests of both sides to conclude a trade deal, or at least a truce, before the pain became too great. In addition, the shallow nature of last week’s downdraft led me to believe that the market consensus was the latest trade impasse is temporary, and an agreement would be forthcoming in the near future.
I then conducted an informal and unscientific Twitter poll on the weekend, and the results astonished me. The poll was done on Saturday and Sunday, and a clear majority believes that it

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Why investors should look through trade tensions

May 12, 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 »

Some lessons on trading market surprises

May 8, 2019

Mid-week market update: When the news of the Trump tweets broke, I wrote:

When it comes to unexpected news, my tactical inclination is to stand aside and let the market tell the story, and then reassess once the dust is settled.
In a very short time, the market has gone to a full-blown panic. 

The breadth of the decline has been astounding, and it is unusual to see this level of correlation in a sell-off, especially when the SPX is only -2.1% off its all-time highs as of Tuesday’s highs. This kind of behavior is evidence of a panicked stampede. 

That said, the dust is starting to settle on this trade related downdraft. It is time to assess the situation. 

The latest news
Reuters dropped a bombshell early this morning with a story of how the Chinese had backtracked on their

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How to navigate Trump’s trade gambit

May 6, 2019

President Trump surprised the market on Sunday with a tweeted threat: 

Notwithstanding his misunderstanding that tariffs are not paid by the Chinese, but American importers, this tweet sounds like an effort to put pressure on China, just as Vice Premier Liu He is scheduled to arrive in Washington on Wednesday with a large (100+) trade delegation for detailed discussions. News reports indicate that both sides have given significant ground, and a deal may have been possible by Friday.
In response to Trump’s tweeted threat, the WSJ reported that the Chinese may reconsider making their trip to Washington because “China shouldn’t negotiate with a gun pointed at its head”. CNBC subsequently report indicated that the Chinese are preparing to visit Washington, but with the delegation size

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Green shoots, rotten roots?

May 5, 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 stampede you could front run

April 29, 2019

You may think that institutional money managers run in herds, but that is not necessarily true. Different managers have different mandates that color their views. As well, their geographical base can also create differences in opinions in how their view their world and markets. I analyze institutional sentiment by segmenting them into four distinct groups, each with their own data sources:
US institutions, whose sentiment can be measured by Barron’s semi-annual Big Money Poll
Foreign and global institutions, as measured by the BAML Fund Manager Survey (FMS), which is conducted on a monthly basis;
RIAs, as measured by the NAAIM survey, conducted weekly; and
Hedge funds, as measured by option data and the CFTC futures Commitment of Traders data, though hedge funds are partly represented

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Sell in May? The bull and bear debate

April 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 »

Buy, or fade the breakout?

April 24, 2019

Mid-week market update: The market strength this week was no surprise to me based on my seasonal analysis I published on the weekend (see Will a volatility collapse lead to a market collapse?). Last week was option expiry (OpEx) week, and OpEx weeks have historically been bullish for stocks. In particular, Rob Hanna at Quantifiable Edges found that April OpEx week was one of the most bullish ones of the year. 

However, last week saw the SPX edge down -0.1%, and my own analysis found that April post-OpEx weeks that saw market declines tended to experience strong rallies (red bars). By contrast, the market had a bearish tilt after strong April OpEx weeks (green bars). 

This historical study was conducted from 1990, and the sample size of losing April OpEx weeks was relatively

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A Healthcare rebirth? And broader market implications

April 22, 2019

It is Easter Monday, a day when Christians focus on the theme of rebirth and resurrection, Healthcare stocks just underwent a near-death experience when the market panicked over the prospect of a Democrat victory in 2020, and the potential negative effects of the implementation of a Medicare-For-All policy.
To be sure, there are costs to be taken out of the system. The US spends more than any other industrialized country on health care, with a lower life expectancy. 

Indeed, the political winds are starting to shift. Axios reported that Republicans are becoming more open to the idea of passing a bill that will lower drug prices:

The White House and top lawmakers from both parties think a bill to lower drug prices has a better chance of becoming law before the 2020 election than

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Will a volatility collapse lead to a market collapse?

April 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 »

Debunking VIXmageddon and other bear myths

April 17, 2019

Mid-week market update:  I would like to address a number of bearish themes floating around the internet in the past few weeks, they consist of:
A low volume stock market rally
Extreme low volatility (remember the VIXmageddon of early 2018)
The closing stock buyback window during Earnings Season, which removes buyback support for stocks

None of these factors are likely to sink stock prices. Here are some reasons why. 

VIXmageddon ahead?
Traders remember the VIXmageddon event of early 2018. Everybody and his brother had shorted the VIX index, and it was easy money until the music stopped. It’s happening again. Zero Hedge, which is our favorite supermarket tabloid for the perma-bear set, pointed out that the Commitment of Futures report shows an extremely crowded short position in

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Can the market advance continue? Watch China!

April 15, 2019

The US equity market has risen more or less in a straight line since the Zweig Breadth Thrust buy signal of January 7, 2019 (see A rare “what’s my credit card limit” buy signal). Technically, breadth thrusts are extremely rarely long-term bullish signals. How far can stock price rise from here? 

Chris Ciovacco made a recent video which studied the market behavior of breadth thrusts that came to a bullish conclusion. He defined a breadth thrust as % of stocks above their 200 dma rising from 10% to over 70% in a short period. This has happened only twice in the last 15 years. The first time was the rally off the Lehman Crisis bottom of 2009, and the next time was the eurozone Greek Crisis of 2011. 

Ciovacco pointed out that the current breadth thrust occurred more rapidly than

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How “patient” can the Fed be?

April 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 »