2025.06.02 Weekly
The no reason to sell trade
As I take some pride of having done this weekly journal every week (with just a few exceptions) since 2021, I’m somewhat wistful skipping last week. Looking back however, there didn’t appear much to note, at least not anything that would have made me reevaluate my view. It did change slightly last Friday however as I’m slowly finding some reason to start taking gains (accumulated off the April lows) from riding the “no reason to sell” wave, as my friend Tim calls it.
Did I think SPX would be back within a few percent of all-time highs over that time? Absolutely not. But what it was, was a process of continually assessing reasons to be in or out of trade as objectively as possible. And since one of the hardest thing for us discretionary traders is to know when to hold a trade, thought I’d write a little about this experience and how I’ve maintained conviction through an extremely volatile period.
From the many debates about the direction of SPX I’ve had over the past few months, I’d often argue about the reasons (or a lack thereof) to take profit or to get behind the idea of selling rallies. I would frequently say “I see no reason to take profit” which is in fact what my friend said to me once many many years ago as we were discussing markets. That statement made such an impression on my thought process that I’d give my buddy a tonne of credit for how I handled this last trade; that statement echoing in my thoughts enabled me to fight the extreme emotions that comes with carrying a substantially large running profit, avoid the urge to be utterly content with the gains by applying an objective thought process to trade evaluation/decisions on a daily basis. (I had in fact asked him about it recently, if he remembered saying what has been very impactful to me, all those years ago — he said he didn’t... 😳)
If you followed my initial thoughts to my weeklies you may be familiar with my thought process over the past couple of months; that, I considered this not a fundamentals or earnings driven market, but one of narratives. As a result, I focused on the reflexive loop between narratives and price and when that positive feedback loop would ultimately wane. I think we’ve reached that point now.
Data review
Continuing claims rose to the highest level since November 2021. The print was above expected for a 2nd consecutive week and likely to put some upward pressure on the UE rate in the coming jobs reports.
Consumer confidence made a remarkable turnaround. Current labour market differential was a touch lower to extend the declining trend since the end of last year, while perceptions on current business conditions is interestingly at the highest level in almost 2 years. Income expectations are net positive again while 6-month business and labour market expectations have turned less pessimistic than it was in March.
Consumers still worried about a cost of living crisis. Almost 50% are worried about affordability over losing their jobs (22.9%).
UoM survey showed far less improvement than the conference board survey, though I do think the latter draws on a stronger sample.
The surge in inflation expectations has begun to stall out.
To make a note of the PMI’s from the week before (Due to skipping last weekend’s journal while on travels, it’s interesting to note that the US composite PMI to print accelerated expansion in May. Summarising the S&P economists comments:
- US : sentiment and output growth remain relatively subdued, some of the upturn in May can be linked to companies and their customers seeking to front-run further possible tariff-related issues after the 90-day pause lapses in July. Concerns over tariff-related supply shortages and price rises led to the largest accumulation of input inventories recorded since survey data were first available 18 years ago.
- Eurozone : eurozone economy just cannot seem to find its footing, overall PMI showed only the slightest hint of growth while the private sector actually slipped into contraction. Do not blame US tariffs for this one. In fact, efforts to get ahead of those tariffs might partly explain why manufacturing has held up a bit better lately. Manufacturers increased production for a third straight month, and for the first time since April 2022, new orders did not decline. Service providers are seeing business activity shrink for the first time since November 2024. While foreign demand for services is softening, it is the sluggish domestic demand that seems to be dragging the sector down.
- UK : business confidence rebounded from April’s recent low which had seen confidence collapse to a degree not seen since the Truss Budget of 2022, and price pressures have moderated after spiking higher. Sunny weather also provided a welcome boost to business activity in some parts of the economy. However, output still fell slightly when measured across all goods and services for a second consecutive month, hinting at the possibility of the economy contracting in the second quarter.
- Japan : private sector fell back into contraction territory for the second time in the past three months. While only slight, the reduction in overall output reflected a steeper fall in manufacturing output alongside a weaker expansion of service sector activity. Demand conditions more fragile with new business measured across both manufacturing and service sectors falling for the first time in nearly a year, and foreign demand declining for the second straight month. Cost pressures remained elevated. However, there were some tentative signs that input price inflation is cooling with the latest data showing the slowest rise in operating expenses in over a year. Business confidence across Japan’s private sector was the second-lowest recorded since the initial wave of the COVID-19 pandemic, with uncertainty around the future trade environment and foreign demand clouding the outlook and dampening output projections for the year ahead.
Regional indices of economic surprises have put in a positive acceleration over the last month across the board except for the fixed-weight and export-centric emerging markets, while the central European decline is stabilising.
Overall, we head into the new month with some positive momentum, but I would think the bar is higher for further upside surprises as well as its impact on broad risk while the uncertainty-meter is dialing up again.
WEEK AHEAD
Looking ahead this week we have ISM’s and US labour market data. After the huge repricing in the front-end over the last 2 months — pricing in a full 5 cuts to shaving down odds of 2 cuts by year-end, risk asymmetry is likely to tilt to the dovish side of reactions to the incoming data.
We also have BOC and ECB meetings this week both of which are expected to cut 25bps this week given Canadian inflation surprising to the downside in May and Eurozone inflation with two back-to-back 2.2% prints.
EQUITIES
Global equities put in a mildly positive week driven by gains in US tech stocks while Asia was mixed. The bounce back in risk is losing momentum however with some unconvincing closes and weekly bars.
Some of the strongest performing US stocks are showing reversal bars, like NVDA and TSLA in particular closing below the prior two weekly highs, while sector/factor profiles display hints of indecision.
I took down a good majority of longs in NDX built out from the April lows on Friday and have turned tactically bearish due to the newsflow falling behind the apparent optimism in risk assets. In fact, in a half-serious tone, I think the proliferation of the TACO-meme is a top-signal.
A lack of delivery from the Trump admin on trade deals, as well as the idea that tariff revenues will help to fund the tax cuts is looking increasingly nonsensical the more deals Trump intends to make, and the more news we hear about ‘the one big beautiful bill’ that is estimated to cost 4 trillion compared to about 3.5 a few weeks ago.
Technically, I think the market was already eyeing a pullback to the big 5700 target (Green band) that would eye closing down the China-deal gap, had instead, taken a detour higher driven by Musk refocusing on TSLA, and NVDA earnings and other company reports pointing to extremely strong AI-computing demand. Now that it was revealed late-Friday that US-China negotiations have stalled due to some non-compliance on the initial Geneva-agreement from both sides, that makes the China-deal gap on May-12th an even bigger target.
COMMODITIES
Commodities looking very weak overall, but I think Gold (and possibly) Silver is coiling up for a decent upside move. For instance contrast the Bloomberg commodities sub-indices; Energy, Industrial metals, and Agricultures on the wrong side of the moving averages, while Precious metals has been finding support at the averages for several weeks.
FX
Momentum scores based on the above measures puts:
- USD as the most bullish, followed by CAD and EUR.
- AUD as the most bearish, followed by NOK GBP and SEK.
Out of those, I’m liking USD and CAD upside, and AUD GBP to the downside, while I have some preference to JPY upside given my tactically bearish risk view. Taking the below charts into consideration however, my preference would be leaning towards CAD EUR JPY upside, AUD GBP NOK downside for the week ahead:
On the upside — USD retracing the prior week sell-off is yet to convince that it can mount a rally; CAD perhaps the most appealing given the morning star formation and breakout of a 4-touch trendline; EUR a little similar to CAD; JPY low last week marking a potential right shoulder off the 20wma.
On the downside — AUD looks the cleanest with a series of lower highs and lows after the hammer reversal bar; NOK eyes a breakdown after a strong recovery rally; GBP acute reversal print off a major resistance zone signals lower; SEK looks a little too resilient (perhaps due to stronger industrial production) given the low scores in economic surprise and positioning changes.
I’ve left USD out of those initial preferences as I’d like to see how USD trades alongside the moves in rates as it can tell us a lot about the prevailing theme (which has mostly been ‘sell-USA’ in FX). We’ve also seen a pattern of USD selling for most of the year so far, and after a reset of that flow over April (which coincided with the massive repricing in US front end rates), we saw some USD selling return, up until the last week of May. I’m awfully conflicted on my USD view at the moment and am more inclined to trade in the crosses this week.
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Good luck trading.
