Bottom Fishing, F. Woolner (1984)
The panic in crypto + potential for credit spreads to blow out from these levels means that there is an above 50% chance of an interim bottom in the equity markets this week, particularly if this is preceded by a medium-sized crash. I.e. time to look for buying opportunities for medium term (1-3 months) trades.
Longer term, there is a high likelihood that equities head lower after a bounce, however if any stocks are showing relative strength in this market and they can be bought and not looked at for a few years, the market is at a suitable level to make some tentative entries.
As the quote from value investor Shelby Davis goes:
‘You make most of your money in a bear market; you just don’t realise it at the time.’
Sunday Twitter Poll
Fintwit keeping up its losing streak last week; two months of bullishness now.
Thankfully I pulled this data after forming a plan for the week ahead so it won’t influence things (too little data to be of use for now) - however it is interesting to note that for the first time since early April, Fintwit is bearish. This poll could start to become a good contrarian signal. There have already been papers written on this - but good to see it in action.
(Of the last 18,000 tweets containing SPX, $SPY or $ES, those including bull/bulls/bullish/bear/bears/bearish extracted, then % totals of each. Started April 2022; plan to track % of times Twitter is correct compared to the following weekly close. Tracking data will be added after the first 20 weeks.)
Roadmap
Monday - US markets closed (gap down & then turnaround Tuesday?)
Wednesday & Thursday - Powell tries to look confident at the Senate
Thursday - Euro area PMI’s attempt to stay above contraction
Equities:
Still waiting for that flushing out at the lows. The crypto carnage over the weekend hints that this could be the week for it.
OpEx pinned the S&P around 3700 and the 2021 low last week. A dip below that this week and then a rally is a decent expectation.
3500, then 3300 the next key levels on SPX:
FX:
The BoJ gave the Yen no reprieve last week. Japan’s inflation is still low (you’ve got to wonder if there is a Russia-to-China-to-Japan oil route on the go) so there is little reason for the BoJ to follow the rest of the CB’s - for now.
This meant that USDJPY bounced back near the highs and many currencies now look on the precipice of falling v’s USD.
In an equity flush, these things will move far faster and further than expected - and then rally right back in your face.
USDCAD - best weekly close of the year:
AUDUSD - similar position but more open space for a run below:
Doc Copper was weak again and it either holds here or there’s a 10%+ drop to 3.5 coming. That = commodity currencies crumble.
Copper monthly:
All the commodity bull chatter over the last few months while commodities themselves struggled to get any higher was a clear sign the move had lost steam. I want to buy oil and copper - when no-one else does. That comes when price is a chunk lower.
Precious Metals:
The bounce a few weeks ago was ripped away last Monday.
Broken record:
If you expect capitulation at some point in the equity bear market, all correlations will go to one - that will be go time for long metals again.
Gold weekly - 1650 and that weekly 200 MA would be a nice place to make a stand later this year:
Trades Update
This has moved to a free Thursday trades record, also available (most weeks) on Substack:
Risk Index
Under 50 = bullish, over 70 = bearish, over 90 = potential correction within 6 months
The Risk Index is a combined read of the trends of 68 intermarket spreads and indicators, from credit spreads to car sales in Spain.
Note that the current bear market was signalled 10 months ago (see reference down the bottom of this post at start of this year here) so the expectation is that the Risk Index will become increasingly bullish the longer this move down lasts.
1-year lookback:
There is a slight turn in the Index - waiting to see if it develops into something more. Currently, the turn is due to several equity markets hitting extreme deviations. I.e. extreme weakness. The next stage is increasing underlying strength, which has just started.
Themes to Watch
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