Hope in America, J. Strachey (1938)
This is a brief post as I am travelling today and away until next Sunday. As noted last week, it was:
time to look for buying opportunities for medium term (1-3 months) trades.
Confirming the likelihood of a strong up week, the Sunday poll saw Twitter was bearish for the first time in 9 weeks.
Dutifully, equities finished over 7% up from the lows and Bitcoin is currently around 20% up (though this isn’t much of a dent as the previous week saw 30%+ shaved off its value).
This is the right time for a ‘proper’ bear market rally. July is stronger seasonally than June and low liquidity means price can drift higher without much effort.
Beyond the summer, save for the continuous calling for recession and economic doom and gloom, all signs point to further equity weakness.
However, 20% down in many indices, some underlying technical strength, and the knowledge that no-matter how clear the future seems, we don’t have a clue what it holds, means it is prudent to put at least some long term cash back into equities.
I did so on Thursday, putting 1/3rd of the cash I had taken out in January back to work. Equities could lose 90% from here and this will stay in- I’ll check back on it in 10 years.
It is a risk not putting the other 2/3rds back in. If equities move to new all time highs from here and start the next 10 year bull run, I’ll need to chase it higher and will have lost any advantage of timing the market well on the exit in January.
Buy and hold is far easier - but what fun would that be?!
Sunday Twitter Poll
FinTwit continued its losing streak, turning bearish on the week equities bottomed.
This week things are pretty evenly balanced.
(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
Thursday - month end
Friday - day before long weekend in the US - NO NFP despite being first Friday of the month
There’s a few CB speakers (including Lagarde and Powell) and some semi-stale CPI and GDP data. Nothing likely to bring enough new information that shifts a sleepy summer market wanting to squeeze up.
Equities:
Buy the dips is probably the right way to play the next month or so.
Nasdaq may give a decent intraday retracement to buy once it hits the 2021 low, just above where it is now:
FX:
Copper died a death last week but managed to bounce a bit on Friday. Considering the drop, AUD has held up well. If the risk-on scenario plays out over the summer, it could drift up to the 2021 open.
Unless Copper re-takes its uptrend, selling AUD on rallies should allow getting into a good position with the expectation that the hopeful mood will fall apart as we come out the other end of summer.
AUDUSD daily:
Precious Metals:
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.
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:
The hard bounce plus a failure of NewHighs/ New Lows to create a divergence means the lower read last week didn’t hold: still rough waters over the next 6 months.
Themes to Watch
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