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Novum Alpha - Daily Analysis 4 January 2022 (10-Minute Read)

A terrific Tuesday to you and welcome back to our First Newsletter of 2022!

 

In brief (TL:DR)

 
  • U.S. stocks closed Monday with the Dow Jones Industrial Average (+0.68%), the S&P 500 (+0.64%) and the Nasdaq Composite (+1.20%) all higher on bets that the U.S. Federal Reserve is limited in its ability to hike rates. 
  • Asian stocks rose Tuesday in a choppy session as investors assessed the impact of omicron on the outlook for 2022.
  • Benchmark U.S. 10-year Treasury yields held at 1.62%.
  • The dollar held gains. 
  • Oil fluctuated ahead of an OPEC+ meeting on Tuesday to discuss production with February 2022 contracts for WTI Crude Oil (Nymex) (-0.28%) at US$75.87.
  • Gold rose with February 2022 contracts for Gold (Comex) (+0.41%) at US$1,807.50. 
  • Bitcoin (-1.44%) fell to US$46,322, starting off the new year on a down note but key technical levels of US$46,000 continuing to hold and suggesting that a breakout on the upside is entirely possible in the coming weeks. 
 

In today's issue...

 
  1. In 2022 There Are No Crystal Balls
  2. Tesla Tears Up Naysayers through Record Deliveries
  3. Bitcoin Investors in For a bout of Déjà vu
 

Market Overview

 
Markets are anticipating an uptick in volatility. Investors are navigating headwinds from the omicron variant, supply-chain disruptions and more central banks winding back pandemic stimulus that propelled a third year of double-digit returns for equities.
 
U.S. December payroll data and minutes from the Fed’s meeting last month later this week may build a case for tightening to begin sooner.
 
In China, renewable energy and health-care firms paced declines. Also souring the mood, the People Bank of China cut its net injection of short-term cash to the markets, prompting concerns over support for the financial system.
 
In Asia, markets were mostly higher Tuesday with Tokyo's Nikkei 225 (+1.77%), Sydney’s ASX 200 (+1.95%) and Seoul's Kospi Index (+0.02%) all up while Hong Kong's Hang Seng (-0.10%) was slightly down. 
 
 

1. In 2022 There Are No Crystal Balls

 
  • Money managers who had planned for a blockbuster finish to a stellar year came away disappointed whilst even that most stellar of speculative assets cryptocurrencies have drifted downwards.
  • It’s important for investors in this context to note that the Fed merely wants to “reserve the right” to raise rates and it can’t do that while still soaking up assets.
     
Barely two trading days into the new year and it may come as a surprise that even the latest and shiniest market prediction tools are fast becoming antiquated.
 
Money managers who had planned for a blockbuster finish to a stellar year came away disappointed whilst even that most stellar of speculative assets cryptocurrencies have drifted downwards.
 
The threat of the Omicron variant looms and some are touting cross-asset strategies even as the possibility of a more hawkish Fed casts a shadow on profligate risk-taking.
 
Among the doomsday crowd, HSBC and Barings Investment Institute are recommending tried-and-tested portfolio hedges including bonds and long-dollar holdings, while shunning high yield junk bonds and risky stocks.
 
But markets are increasingly punishing investors who keep their heads in their shells, with dip buyers over the past week ensuring that any pullback is short-lived.
 
And if nothing else, the Omicron variant, especially its apparent vaccine resistance, could dampen the Fed’s appetite to hike rates just yet.
 
It’s important for investors in this context to note that the Fed merely wants to “reserve the right” to raise rates and it can’t do that while still soaking up assets.
 
With Beijing looking to pour more cash into its flagging economy and the uncertainties surrounding our path out of the pandemic, even the best central banker with the most up-to-date crystal ball may hesitate to hike rates and that plays out well for risk takers.
 
 

2. Tesla Tears Up Naysayers through Record Deliveries

 
  • Shares of Tesla (+13.53%) soared 13.5% after smashing its own production and delivery records at the end of last year.
  • Tesla production facilities in China were rapidly ramped up and the company is on track to deliver 1 million vehicles annually.
     
Blink and you’ll miss it but shares of Tesla, the world’s most valuable automotive company soared 13.5% after smashing its own production and delivery records at the end of last year.
 
Key to Tesla’s incredible rally has been its ability to shrug off supply chain disruptions to hand the keys of 308,000 of its much-coveted electric vehicles to customers while other automakers struggled to fulfill orders.
 
Perhaps prescience or providence, either way, Tesla’s early moves to secure supply chain facilities, from key battery production to chip manufacture, has ensured it remained ahead of the competition.
 
Tesla production facilities in China were rapidly ramped up and the company is on track to deliver 1 million vehicles annually.
 
Monday’s rally saw Tesla’s market cap soar to US$1.2 trillion with the company’s fourth quarter deliveries coming in a staggering 40,000 over Wall Street’s best estimates, according to data provider FactSet.
 
And with two new plants due to start increasing production this year, Wall Street is forecasting another strong leap in sales for Tesla, showing that CEO Elon Musk’s determination to deliver on his mobility promises far outweighs naysayers ability to doubt.
 
Whether or not Tesla is overvalued at US$1.2 trillion however is harder to determine.
 
For starters, Tesla is more often than not valued like a technology company, instead of an automaker, which is why its price to earnings multiples is far in excess of that of other manufacturers.
 
However, Tesla’s ability to deliver, despite a product that is steeped in technological requirements and susceptible to supply chain vulnerabilities, on time, suggests that the electric vehicle maker may understand the complexities of manufacturing far more than its counterparts.
 
And although Tesla’s valuation may appear rich, like so many other tech companies that came before it (e.g. Facebook) it may ultimately prove believers richly justified.
 

Find out more about Novum Alpha as leading luxury portal Luxuo.com interviews our CEO & General Counsel, Patrick Tan...

 

 

 

3. Bitcoin Investors in For a bout of Déjà vu

 
  • On Monday’s trading session in the U.S., bitcoin fell by 3% to as low as US$45,715 at one point before recovering.
  • And while some would suggest that cryptocurrencies finished 2021 on a sour note, with the benchmark bitcoin losing 20% in December alone, the digital asset class has had a stellar year by far.
 
For many traders, January has all the hallmarks of the 2018 cryptocurrency winter, when institutional adoption in the form of CME Group and CBoE’s bitcoin futures were intended to usher in a fresh cadre of investors into the nascent asset class and chase it to new highs.
 
These highs did eventually come, albeit not on the timeline that most cryptocurrency traders in 2018 would have hoped for.
 
On Monday’s trading session in the U.S., bitcoin fell by 3% to as low as US$45,715 at one point before recovering, below its 200-day moving average of around US$47,900 and the seventh consecutive close below that threshold, a key level for chart watchers.
 
To be sure, bitcoin has been here before and depending on which timeline you are following, this could either be the start of another enduring cryptocurrency winter, or just typical volatility before another strong rally.
 
Clues however lie in indicators such as bitcoin’s Relative Strength Index or RSI, which is in oversold territory.
 
Using the 200-day moving average the same way as it is used for stocks, bitcoin’s ability to keep its head above US$46,000 sets it in good stead to see a breakout to over US$65,000.
 
And while some would suggest that cryptocurrencies finished 2021 on a sour note, with the benchmark bitcoin losing 20% in December alone, the digital asset class has had a stellar year by far.
 
The Bloomberg Galaxy Crypto Index, which tracks some of the largest cryptocurrencies lost 22.5% in December as well, but some are attributing the losses to portfolio window dressing as the year draws to a close.
 
And just as quickly as prices can drop, they can also bounce back even harder, with the volatility and gyrations par for the course and if nothing else, the dip is an opportunity to double down on positions.
 
 

What can Digital Assets do for you?

 
The flagship Novum Alpha Global Opportunity Digital Asset Fund ("the Fund"), a capital growth fund that offers a regulated and familiar investment vehicle for accredited and institutional investors to participate in the digital asset universe is pleased to announce its third month of trading has seen consistent performance, with a return of +4.19% in November, adding to the +13.22% for October 2021 and marking three straight months of gains with +2.19% recorded in September. 
 
With almost a decade trading both digital assets and financial instruments, the Fund represents a blend of our best quantitative strategies melded with a discretionary overlay that provides investors with the most comprehensive and holistic approach to digital assets on the market today. 
 
If this is something of interest to you, or if you'd like to know how digital assets can fundamentally improve your portfolio, please feel free to reach out to me by clicking here.  

Jan 04, 2022

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