eToro PI Porfolio Updates
Opened 2 positions this morning $USDCHF & $CHINA50
I spent quite a long time researching into the Chinese market. And it is hard for me to believe the current narrative that interest rates are affecting the stock market this adversely since:
- it does not explain the January Rally,
- for the Chinese market most of its debt is locally denominated so the central bank is able to reduce RRR or interest rates to support the economy.
- I am sympathetic to Kyle Bass's thesis, but recent podcast on real vision give me reason to go against it.
So the effect of higher USD interest rates should not be as severe.
However, i understand that the previous “taper tantrum” in 2013 & 2015 have provided similar results. And given the market has dropped by so much in the past week, wiping out previous gains in January and even taking out previous support levels easily, it is easy to see why we would believe in the narrative.
However, even if Chinese growth slows to around 5%, it is still higher than the 2% experienced by the US and still higher than the 10-year Treasury rate. And right now, i am still a believer than Chinese CAPE (Cyclically Adjusted Price Earnings) ratios will even out with the US eventually.
From a relative valuation point of view, i will be looking at that for clues as to when my position is wrong.
If prices go beyond 13,500 I will move stop loss to 12,840 levels as strong “support”.
For the $USDCHF position, i wanted to visit the long $USDOLLAR thesis again.
Reason being, it has not moved as much as one would think since the stock market has taken such a large hit.
The arguments on both the bull case (US dollar strengthening) and the bear case are compelling.
Bull case, it has found the bottom. As the risk-off environment is encouraged by the market. It will move higher.
Bear case, the stock market will resume its direction to its highs. The volatility is gone and the dollar will resume its downward trend.
I chose the USDCHF because it is already in extremely oversold territory and I do not see any economic forecast that will affect them that much. Most of the position will hinge on the dollar strength or weakness.
Entry: 0.9382
Stop Loss: 0.9284, I may add more at this level as well. Due to how oversold the indicators are.
Take Profit: 0.9684 (Fibbo 61.8% retracement Level) or 0.9500 (38.2 retracement Level)
Risk:Reward = 1:3 or 1:1.45
I would have preferred to have added positions to the USDCAD thesis, but at the moment, I am questioning if I am correct given the economic data. Stop loss was moved to Breakeven for this position to protect against possible losses.