2022.05.23 Weekly Note

Shortest bear-market ever?

7 min readMay 23, 2022


S&P500 was in a bear-market for no more than 3h23m on Friday and avoided being labelled as one on closing basis:

As far as magazine covers go for being great contrarian signals:

Latest Barrons Cover: “Don’t Get Mauled — It’s almost a bear market”

Barrons track record speaks for itself in this chart from @jasongoepfert:

Recap on the other contrarian indicators examined last week:

CNN Fear & Greed Indicator: printed the lowest weekly reading at 11, dropping from 12 the week prior (May13), 16 (May6) and 19 (Apr29) in the weeks before that.
BofA Bull & Bear Indicator: tumbles to 1.5 from 2.0 in unambiguous contrarian buy territory on redemptions in developed market stocks & HY/EM debt, deteriorating equity breadth, bearish May FMS; note BofA Global Breadth Rule also @ contrarian “buy” signal level (i.e. >88% of equity indices trading <50d & 200dma).
Currentmarketvaluation.com model drops to 0.39sd above trend, from 0.46sd last week.

Sets up nicely for the usual post-OPEX script (i.e. rally)…


Markets… S&P 500 sees worst losing streak since 2001 as it closes down for the 7th straight week (NBC). Stock Market Bottom Remains Elusive Despite Deepening Decline — ‘Things are going to keep getting worse before they get better,’ one portfolio manager says (WSJ). It May Be a Bear Market, But It’s Not a Panic. That’s Worrisome — There’s more to this drop before stocks pick up again: Gokhman, Probably more downside right now than there’s upside: Mullaney (Bloomberg). Conditions Are Ripe for a Deep Bear Market — The risk is a series of bear-market rallies that don’t last, hurting dip buyers and further damaging investor confidence (WSJ). Investors Dare to Dip Back Into Bonds — Some investors say bond prices have fallen to levels that are too good to pass up, offering an alternative to stocks (WSJ). US companies boost capital spending to tackle supply bottlenecks — Investment by S&P 500 members increases 20% as ‘deglobalisation’ thesis wins adherents (FT).

Russia-Ukraine Saga…. Ukraine Russia Says It Has Taken Complete Control of Mariupol After Surrender of Last Defenders –Zelensky described the soldiers and marines who had defended Mariupol through a months long siege as national heroes (WSJ). Ukraine rules out territorial concessions, as Russia steps up attacks (Reuters)

Russia sanctions, Oil… Oil supply shortage fears add to price volatility — Shortfall from Russia is being weighed against potential easing of restrictions on Iran and Venezuela (FT). Yellen Says Secondary Sanctions on Russia Oil Discussed at G-7 — US Treasury chief says objective is to minimize Russia revenue, US has banned Russian oil and EU is moving toward a ban (Bloomberg). Germany wants Russian oil embargo with or without Hungary — economy minister (Reuters). Saudi Arabia signals support for Russia’s role in Opec+ as sanctions pressure mounts — Oil group’s production quotas set to expire in three months and Russian output is falling (FT). China quietly increases purchases of low-priced Russian oil (Reuters).

China lockdowns despite uptick in economic activity… Beijing Sees Most Cases of Outbreak, Fueling Lockdown Angst (Bloomberg). Beijing urges millions to keep working from home amid COVID outbreak menace (Reuters). Shanghai district to require all shops to shut, residents to stay home (Reuters).

Europe healing ahead of Summer… Paris Tourism Rebounds as Europeans and Americans Return (Bloomberg). Spain eases Covid entry rules for UK travellers (BBC). EU countries easing entry rules with some allowing restriction-free entry to non-EU travellers (Schengenvisa).


  • Risk off in Equities but downside stalling with the bearish sentiment looking to firm up, especially in view of Small-caps, German DAX and UK FTSE reversing and closing near prior week highs. Bond market volatility is easing with longer duration Bond futures starting to catch bid.
  • Commodities appear to show a more risk positive picture — Energy prices appear to be calming down, Metals more constructive trading towards prior week highs while softs are reversing off last prior week’s highs.
  • USD bearish engulfing, CHF on the bounce, petro-currencies struggling, EMFX showing resilience.


SPX narrowly avoided the bear-market label after the Friday recovery, but other indices are already suggesting they may already be in one.

Global sentiment doesn’t appear as gloomy as US markets suggests however with MSCI World ex-US giving technical confirmation to the prior week’s reversal signal off the 50fib. Developed markets (EFA) and Emerging markets (EMM and EMXC) also showing similar signals.

Recent performance of various Country/Regional ETF’s also pointing to a more resilient risk undertone.

European markets deserve a close look for cues on how the market could trade going forward. While inflation has clearly gotten out of control and sentiment taking a big hit, chatter of fiscal support and Europe opening up to the summer months could be a source of support.

Looking deeper into US markets, XLE and defensive XLV and XLU holding up amid the sell-off. US stocks does have much more room to correct looking at the bigger picture valuation charts (in last week’s note) due to the extremely over-extended valuations in large-caps. For now, prior week lows are holding up and could be a start of a relief rally which should offer tactical opportunities both ways…

We are now further below 4k SPX, 400 SPY, 300 QQQ from being above those levels this time last week. There is a huge amount of gamma around this wide area of price and therefore huge 2 way risks of accelerated moves from hedging flows increasing as we go further down or flows unwinding as we recover higher.

I’m fairly underwater with my tactical long positions looking for a recovery to 13k in NDX and above (roughly speaking). Important sessions lie ahead this week.


Longer duration bonds have started to catch some bid last week with yields above the 1yr tenor all coming down.

Forward inflation expectations are also coming down which is likely to support the flattening of longer duration yields.

Bond volatility index continues to rollover as the selling stalled in recent weeks. Below histograms are the 21day rate of change for the MOVE index (Orange) and NDX (Blue). Upside in yields stalling could lend some relief for the NDX which is noteably oversold seeing 7 straight weeks of selling.

Interest rate markets are suggesting peak pricing of Fed tightening and I suspect this may calm things down for the US market in the near-term and will be helped if the preliminary GDP and PCE data points supports the peak inflation narrative without making a severe dent in demand and activity.


Agricultural and Energy still maintain high prices and supporting the overall Bloomberg Commodity index (Grey) while Metals remain under pressure. No strong views, but based on how I see the wider market playing out, I would expect some mean reversion in Metals, while Food and Energy prices remain high but level off as well.


USD traded lower last week against nearly all currencies, CHF stronger on SNB pivot, EMFX looking more constructive while RUB continues to outperform trading back to 2017/18 levels …

Quite a ridiculous chart considering everything that’s going on and one I’ll be attempting to understand…

Currencies are exhibiting a potentially risk-on profile, and momentum is building behind the reversals and could easily extend currently trading around prior week highs.

I am constructive on the anti-USD pro-risk trades for currencies, especially NOK which has underperformed despite the continuously high energy prices. CAD is also attractive in G10 over the Antipodes due to lingering USD strength and China near-term outlook likely to be a drag for Asia.

USD positioning is still very stretched which should give the reversal some legs. I particularly like Cable as a the tactical choice where positioning looks amply crowded for a wild squeeze.

Have a great week trading!