20211129 Weekly note

DoejiStar
5 min readNov 29, 2021

Dead cat bounce incoming?

LAST WEEK’S ACTION

  • FX funders bid, higher-beta’s sold off;
  • Equity futures down ~3%;
  • Commodities sold off, notably Crude -20% off the highs;
  • UST futures squeezed back to recent highs.

EQUITIES

Risk-off on fresh Covid concerns — lockdowns potentially coming back in Europe this winter, and a heavily-mutated Covid variant found in South Africa that is still little-understood but causing plenty of concern on vaccine/booster efficacy (due to the variant having 30 changes to the spike protein that is the main target of the body’s immune responses).

Developed & Emerging markets — momentum in broad risk is extremely heavy but very very oversold for the near-term and could easily see produce a relief rally from these levels.

US monthly charts — displaying the type of price action that could easily nudge price over with momentum on the turn since mid-year.

SPX and NDX — Bearish engulfing (or ‘outside’) week has firmly shifted momentum to the downside with Stochastics K’ crossing below the signal line. Should be some quick BTD opportunities being fairly oversold; beyond that, I would not at all be surprised to see a further >5% correction over the next week or two.

DJI and RUT — Closed back below breakout levels and 20dma, Momentum indicators very bearish (Stochs crossing 50, MACD crossing/below 0). It is however very oversold and weekly charts show a rather interesting three black crows (bullish consolidation) pattern…

US Value/Growth ratio

US Value/Growth ratio — turning up and think it will continue as NDX reverts being some ways off it’s 20dma while DJI and RUT are already around the 20dma levels.

US Sector performance — Strongest performing sectors so far this quarter were the worst hit last week. Consumer cyclicals, Techs and Materials. I suspect elevated rate volatility will cause Techs to underperform and rotations into Energy and Financials will preferred.

US volatility — tweeted this just before last Thursday close:

and on Friday:

  • VXN (+4.63) to 28.45, the highest close in 6months;
  • SkewDex (+2.36) to 74.71 and TailDex (+11.90) to 32.93 both moving above the circled region; and
  • NDX/SPX ratio pivot lower on Monday 22nd still holding shape despite a late week bounce.

RATES

Global yields pulled back last week but inflation expectations continuing to moderate is keeping real yields off the lows.

Front-end of US yields did finish the week higher while longer-end got the squeeze.

Squeeze in Eurodollars also particularly towards the nearer end. Barring any severely negative newsflow, I don’t see us deviating too much from the current picture and expect the gradual bull flattening trend to resume.

COMMODITIES

Gold and Silver is back to a significant pivot area. Not much of a view and will need to see how it trades around these levels but Silver long in the low 20s would interest me.

Copper looking fairly uninteresting whereas Oil is deeply oversold with plenty of technical support below the 70 mark.

USD

DXY rally looks to be ending with a doji print at the 50 retracement level — location (levels) of where price action signals are important and this is a fairly strong good one. I’m not keen on shorting the USD, but if we see news that negates concerns around the new variant, I may try mix things up with USDMXN which has tagged the 50 retracement level last week.

TRADING VIEWS/UPDATES

Not feeling in sync with the market lately, and feeling even worse about getting trailed out of my NOK longs entirely with a few positions I’ve initated back in July! I thought there was a good chance I would be holding those original NOK positions into next year…

Sell-off being quite stretched and USD potentially finding a pivot at the 50% retracement level is making me constructive on risk to start the week. But I do remain doubtful that SPX for example will recover above its 20dma by Christmas.

Initiated WTI long and EURNOK short to start the week.

Oil is very oversold, 20% off its highs, and at great levels to have another go. AUDCAD continued to grind lower last week and I continue to have strong belief in it’s longer-term potential.

Have a great week trading!

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