See, men’s magazine,1944
Our history can teach us more than anyone could learn in a lifetime. Let’s not cancel it.
Stuff discussed:
Getting ready for some risk-off moves
Great to see the underlying strength
Medium-term bullish
Long time no see. I’m trying to get a startup…started up…. (main excuse) and also nothing had changed since my mid-December (too early) bullish call. I don’t see the point in throwing words up here if there’s nothing new to talk about.
However, there’s a chance the tide is turning and we’re setting up for a retracement in equities, so I thought it was worth a post. My long S&P is closed out and I’ve taken a first nibble at a risk-off trade, though I think there’s still a chance the current excessive bullish moves post-Fed have 3-7 days left in them.
Overall, the market has continued to strengthen and looks on very firm ground to test new highs at some point later this year. A multitude of spreads started behaving far better than they should have been in a roaring bear market after summer last year and have continued to strengthen.
So, I view this pullback as a retracement that will trap the bears rather than start another leg lower. That could come later this year - the outlook constantly changes; adapting is the name of the game - but for now, we’re in a stealth bull market.
Short term bearish
I didn’t come into this week bearish, primarily because of this chart:
S&P 500 - stocks above key MAs
The 20 and 50 MAs were just not stretched enough, and the 200MA one at the bottom is looking lovely, confirming the bullish moves in the market. I’ll be interested to pull this again at the end of the week (this will be available in the - now free unless you want to pay - Risk Index on Sunday).
However, there’s often a turn in weeks where the Fed and ECB line up one after the other.
Here we are getting to close of play the day after the Fed and with ECB and BoE earlier on. NDQ is reading as almost 4% up….after a now 20% rally off the December lows.
All fine and well.
But….why is copper now down on the month and over 3% from its January highs?
Why has Gold stopped going up?
Gold daily showing a potential channel it may be forming
Is this not a nice place for USD to make a comeback, just when the Fed met everyone’s expectations and took their foot off the raising gas while the ECB ploughed on?
DXY certainly thinks so - little gap down today and rallying throughout the afternoon. On the day the ECB met the Fed’s 25 bips with 50….
DXY - the target was drawn around last October. It would be nice to see a slump under 100 and to the 100WMA (final blow-off bit of risk-on early next week?), but for now USD is already making its stand.
Getting in on the risk-off move
As noted above, the underlying market has switched to being strong. Therefore I’m wary of getting in heavy on the short side, even though risk-off seems to be lining up.
So, to start things off, I’m in a short NZDCAD (realising this is the opposite of my view on CAD on Sunday…). Main idea is that NZD has a higher beta than CAD so if we hit some risk-off in the coming weeks, CAD should move less than NZD.
NZDCAD has also stopped moving up and formed two little pockets of liquidity - a decent chance it sits around here so I can wait a week in case the risk-off move takes a little longer to come.
NZDCAD daily with the short.
As NZD likes to jump about the place, I’ve got a ‘disaster’ stop higher up (light red) so I don’t get taken out on a random move/ overnight spreads widening. If price gets below the low of this week, I’ll bring the stop in.
If there’s a convincing close above today’s high, it’s not acting the way it should - I’ll get out.
It’s just a dip in the water. I thought about copper instead but it’s been having some wicked rallies and could bounce hard higher in a final bit of market euphoria.
Next up is, of course, the big boy - the S&P.
S&P weekly with some key levels noted that price is just hitting into
A silly move like the one we’re looking at today would get me in on the short side if price was that bit higher. The lack of confirmation from commodities, commodity currencies, the weakening in gold, USD strength - it all feels like one large red flag for risk today. But it’s not the perfect place to get in - so I’ll need to wait a few more days.
About 3.5% or so higher - above that red circle - is the place I’ll be on the trigger. A day similar to today - potentially after a few days of consolidation and then what looks like the start of another break higher - is what I’m waiting for.
And if it heads down from tomorrow, at least I’ve got that smaller NZDCAD short on.
Conclusions
It’s been a funny old start to the year. Underlying signals have continued to improve but the stock market hasn’t gone anywhere - either up or down.
It’s still interesting to see the UK stock market tickling around new all-time highs - reckon some European markets will be next, possibly after the coming correction.
Dax looking very nice:
DAX weekly and its 200MA
And the likes of Spanish equities. Some of these things have been correcting since 2007. What a consolidation this will be springing from when it does go higher.
EWP (Spanish equities ETF) weekly
All this makes me lean more bullish than most for 2023, but that doesn’t mean a short trade can get a look in once in a while when things get extended, as they are about to be.
Be patient and trade well.