2022.01.31 Weekly note

6 min readJan 30, 2022

Pro-risk with a pinch of salt…

In my last note I was pushing the BTD idea and it has served me well last week, especially as I adapted to taking profits quicker and therefore able to capitalize more on the chop. Despite the strong close in US equities, sentiment is still on the bearish side and we shall have to see how the action unfolds to gain conviction on the bounce.

Though we have tentative signs risk will continue to firm up, particularly via US equities, I will avoid being overly committal on the idea however and err on the side of caution. If all goes as thought, there should be plenty of Morning Star prints on the charts which is a very strong bullish reversal signal. It’s also the Lunar New Year in Asia and many are likely to be taking the week off which could take the edge off the recent negative sentiment around Asia.


FX mostly traded through the lows of the prior two weeks as USD flight reigned last week; Commodities mostly positive due to another strong week for Energy and Agricultural commodities (e.g. Soybeans and Cotton) while Copper and Precious metals are back to 3 week lows; Equities mostly negative but held the lows from the sell-off all week to finish strongly; Fixed income assets sold off but followed equities in the late-week recovery.


American session driving broad sentiment as usual…

MSCI World ex-US (ACWX) closed below the Open while MSCI World (ACWI) closed above…

Developed markets (EFA) printed a long indecisive weekly doji signalling a potential reversal. Asia markets dragging down Developed market performance from comparing Europe (VGK) with APAC (VPL). Charts broadly in support of a bullish reversal however and VPL has interestingly closed the gap and hinting a potential overshoot of the 61.8 area…

Looking deeper into Asia, HSI holding support but upside still rather unconvincing while NIKKEI and ASX have broken below their respective (nearly 1year) support area; the latter 2 are showing signs of pivoting from the 50 retracement level of the rally beginning from Q4'2020 lows…

China the culprit for the weak sentiment in Asia-Pacific while other Emerging markets are holding up moderately well. Also with most of Asia off for the Lunar New Year, it could lift the drag on broad risk this week…

Finally strongest performers yr/yr performers SPX and NIFTY showing resilience where you would often expect to see it from a technical perspective. Though price action is pointing to further continuation, I am focused on where the rally is likely to stall and would it to slow at the major pivot level roughly 3% higher from here.

A glance at US sector performance shows the relief rally to be far less convincing than index charts suggests, but since large-caps have finished positive and above prior week lows after being -5%, the big reversal should offer some confidence to the rest of the market that the bulk of the sell-off is done for the near-term…

SPX still vulnerable to large swings while dealer gamma remains negative…

Volatility and protection demand is softening also...

I do therefore think the risk is now skewed to upside as dealer gamma and sentiment has started to neutralized, raising the possibility of a further short squeeze as a result of dealer gamma and hedges unwinding.


Fixed income asset classes looks to be basing out…

Rise in bond yields slowing and curve continues to flatten…

US yield curve 2 weeks ago (Purple) and now (Orange)

Economic data has been on the soft side last week and the lack of fiscal developments and FED going increasingly hawkish will likely cap forward inflation expectations, and therefore real yields also.


CRB commodities index — continued to push 7 year highs mostly owing to Energy which has a dominant weighting on the index; the ex-Energy index (Purple) however is flatter with other commodities reacting to the risk off and stronger USD. Upward price pressures on commodities is likely to continue given the persistence of supply chain issues as well as the Geopolitical risk around Europe and Ukraine. Further, as I see the bearish sentiment easing off slightly, recent USD strength should ease off as well as risk assets stabilize for the time being.

Gold — Bonds have reversed sharply along with Equities which should continue to exert bull flattening pressure on the yield curve, and therefore topside pressure on real yields, as noted in the rates section above.

US 10yr Real yields vs Gold

I’ve entered into Gold in the low 1780s as I it will follow real-yields (which looks like it should be trading back in the mid-1800s. along with few other bullish factors I see in support of more upside:


  • USD’s non-stop rally last week is looking stretched especially with equities making a decent case for bottoming out in the near-term. It’s also rallying to a strong pivot area (2019/20 support). I lean towards Dollar softening up this week along with JPY and CHF.
  • GBP made a strong bounce last week and I expect it to continue ahead of the BOE meeting. EUR looking a little sad and will probably stay under pressure due to the Russia-Ukraine story and would prefer to fade rallies. Also the Bund was unable to stay above 0% since a very brief peek above not long ago.
  • Antipodes AUD and NZD looking oversold on the daily and should risk firm up as I think it could, I see good potential for a squeeze right back to levels seen a couple of weeks ago.
  • CAD has been the most resilient against the sell off in risk due to Oil and USD strength cross currents, also in spite of a dovish BOC last week. Still on the sidelines and wonder whether CAD will provide a decent enough dip to re-initiate longs.


  • I remain long NDX after buying the dip on multiple occasions last week as I had planned in last week’s note, looking for another ~3% of upside;
  • Continuing to trade around GBPUSD longs up until BOE;
  • Staying long Gold from last weeks dip and expect them to continue to perform, as noted above;
  • Buying dips in AUD to started the week
  • Bulling on commodities for reasons noted above. Looking to get some exposure to Oil by selling rallies in EURNOK and buying dips in CAD should the opportunity present itself.

Have good week trading!