American casualties in Kabul — a forceful and necessary response coming
ISIS-K claims responsibility for the attack at Kabul airport, killing 11 Americans and more than 50 Afghanistan nationals. This is a needless and unjust tragedy, particularly since Americans were evacuating the nation. This story dominated media headlines Thursday. Our hearts and prayers are for all those wounded and perished, and we also pray for our policymakers. The White House and military leaders are formulating a proper response. In remarks made at a press conference Thursday evening, President Biden said:
– “We will not forgive, we will not forget, we will hunt you down and make you pay”
A strong and forceful military response is not surprising (and appropriate), and likely Americans will support this move. And we think this could also improve public opinion and support for the White House actions. This is obviously a fluid situation.
Tom Block, FSInsight’s Policy Strategist, expects forceful response post-evacuation…Tom Block, Policy Strategist for FSInsight, believes the White House will wait until the “airlift mission is over. But the USA has total command of the skies and with a little luck in the intelligence area we can find” many useful targets. Additionally, Mr. Block makes an important clarifying comment. “A little off consensus the Taliban might even give us some info” as Taliban is not interested in a stronger ISIS either. Mr Block states “remember ISIS stands for Iraq and Syria not Afghanistan.“
…Daily COVID-19 cases flat Thursday vs week ago…Daily COVID-19 cases were flat Thursday at 159,893, showing broadening of the flattening of cases we first saw in FL. This is a good sign.
– even the 7D delta is showing a pronounced slowing (second chart)
– the 7D moving average of 7D delta is now +10,000 and was nearly +20,000 a few weeks ago
– so it is definitely plateauing, at a minimum
…Positivity rate peaking at 9%, well below Wave 3
While Delta has been far more transmissible, leading to surging cases and even breakthrough cases, COVID-19 positivity rate is peaking at around 9%. This is below the level seen in Wave 3 (15%) and a sign that Delta, while severe, is potentially peaking at a lower level.
– taking a step back, this is strong argument in favor of vaccinations
– as vaccines seem to have mitigated the current severity of this wave
USA daily vaccinations +73% in past month — positive impact from Delta-variant surge
Demand for USA vaccinations has surged+73% in the past month, as shown below:
– 870,181 vaccinations (7D avg)
– 503,869 in mid-July
– pace of vaccinations is rising, so this figure could continue rising
This is a positive implication. No doubt fear of COVID-19 itself is driving this surge. And with the FDA formally approving the Pfizer vaccine (others expected to soon follow), private and public institutions are mandating vaccinations. And this along with the government approval, seems to be motivating more Americans to be vaccinated. These are durable benefits.
…Anti-vaxxers are a global thing
When thinking about those against vaccination or even vaccination rules, it is tempting to attribute this to a political dimension (Southern Republicans) or to the ethnic vector (Black Americans and Hispanic Americans lowest US vax rates). But this is not only vectors.
– in France, there remain vast numbers protesting vaccinations
– and vaccine requirements for businesses
This is a reason vaccinations and mandating vaccinations is not as straightforward as we would all like.
…Moderna filing paperwork for formal FDA approval
Moderna is also filing the paperwork needed to get formal FDA approval. Moderna vaccine is marketed as Spikevax outside the US. I am not sure if Moderna will use the same name in the US. I am not a brand manager, but Spikevax is a great name.
…Why is Pfizer vaccine called Comirnaty?
Pfizer’s vaccine is now marketed as Comirnaty. At first glance, this name does not evoke any association to COVID-19, at least in my general sense. But Forbes.com shed some light on this. Comirnaty is apparently three words combined into one:
– Co –> Community
– Mirna –> mRNA
– ty –> both community + immunity
Sort of like “bennifer” (Ben Afleck + Jennifer Lopez).
STRATEGY: In our view, Energy stocks are still best risk/reward into YE
As we look into the final 4 months of 2021, we believe an “everything rally” is underway, one that will see both Epicenter (XLE -0.17% , XLF -0.42% , XLI -0.34% , RCD) and Growth rally (FNGS -0.59% , QQQ -0.89% , XLK -1.08% ). But among these, we believe Energy stocks are likely to lead.
Energy stocks are up +26% YTD, outperforming the S&P 500 by 700bp which is up 19% YTD. Energy stocks have endured a very rough two months, shedding more than 10%, as the delta-variant surge and the related second order effects hurt cyclical stocks. But the risk/reward for Energy is favorable, in our view:
– Oil just saw a “golden cross” on a weekly basis (CNBC flagged this) –> fuel for rally
– Energy stocks short interest highest level since the start of pandemic –> fuel for rally
– Oilfield services ETF OIH has risen 13% even as ETF has seen redemptions –> fuel for further rally
In short, if the Delta-variant is receding (our central case), economic resilience will resume and this is a positive set up for Epicenter stocks. This is the reason we have seen Cyclicals rallying so strongly in the past week.
…WTI sees weekly “golden cross”
This CNBC tweet caught our eye Thursday. Oil has been resilient in the past week or so, but is off from a recent high of nearly $80. And the CNBC article notes that oil had a “golden cross” based upon weekly prices. A “golden cross” is when the 50-period moving average moves above the 200-week. The Miller Tabak Strategist, Matt Maley, quoted in the article views this is a positive development. Per the article, WTI has rallied in each instance.
The “weekly golden cross” took place sometime 3 weeks ago as shown below. And after initially continuing to weakness, Oil has reversed sharply higher this week.
… 6 weekly “golden cross” since 1987, Oil rallied 98%, median 31%, 6 of 6 times –> implies $88-$90 WTISince 1987, WTI has seen 6 such weekly “golden cross” events as indicated below. Tireless Ken and the team calculated the further rally in WTI post the golden cross.
– 6 of 6 times WTI rallied further
– average gain +98%
– median gain +31%
U sing the median gain (because 2002-2008 distorts results), this implies WTI could rise to $88-$90 in the next 12-18 months. This is powerful upside and implies significant gains ahead for Energy stocks.
…OIH short interest surged to highest since start of pandemicOilfield services stocks, OIH ETF as a proxy, have been particularly hard hit. And this is reflected by the parabolic surge in short interest:
– 1.479 million shares of OIH are sold short
– this is the highest figure since the earliest days of the pandemic
– 1.050 million shares sold 8 weeks ago, a big jump
…OIH current short interest essentially highest in 10 years
In fact, look at the 10-year history of OIH short interest. Outside of the months around March 2020, the current OIH short interest is the highest ever in the history of the ETF. And it is even worse than the period from 2012 to 2019, when OIH was essentially in a freefall.
– as famed market technician, Richard Russell, liked to say
– “all rallies start with short covering”
And with such elevated levels of short interest, this is a lot of firepower. Moreover, fundamentals and capital discipline for Energy companies is far higher than anytime in the past 10 years. Thus, investors are not necessarily “fundamentally” shorting Energy stocks.
– rather, more likely Energy is the most convenient group to short given their strong 1H performance
– and the associated vulnerability of Energy to an economic slowdown
Since we believe Delta-variant driven COVID-19 surge is peaking, we see less risk of a global slowdown.
…Lastly, OIH has rallied +13% in the past week, yet, OIH ETF seeing redemptions = impressive underlying strengthOIH is an ETF and ETF inflows and outflows also show up as changes in shares outstanding (S/O). We have plotted both the shares outstanding and also 10D change in shares below. A few thing really jumped out at us:
– since June, S/O fell -22% from 15.2 million to 11.9mm, or -3.3 million
– that is a tremendous decline
– OIH has rallied +13% in the past week
– S/O fell -300,000 in that period of time
– OIH has seen consistent redemptions for the past two weeks
We view this as particularly constructive, as OIH and oilfield services stocks have rallied even with investor outflows. Imagine how these stocks would perform if there are actual investor inflows.
Figure: Way forward ➜ What changes after COVID-19
Per FSInsight
Figure: FSInsight Portfolio Strategy Summary – Relative to S&P 500
** Performance is calculated since strategy introduction, 1/10/2019
