Weekly Note 2022.10.24

The Flippenings

While I’m not on my regular workspace while travelling (in Hong Kong for a month or two), thought I’d my notes would make a similar change from the usual structure…

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Breif one on key thoughts at the moment:

1. EQUITIES big weekly strength but
2. VOLATILITY elevated and potential
3. FLIPPENINGS in play


Pointing strongly to continued relief this week.

MSCI Global is an epic chart, retracing and sitting below pre covid levels, and looks to be consolidating overall with a broadly sideways and slightly up bias.


Note the red box being June>July where all three lines trended lower while equities saw a big relief rally. Now in Sep>Oct, everything is higher and the recent softening up in the VIX should be observed with suspicion.

Orange in the above chart shows the wk/wk pressure on the long and front end and as UST’s continue to sell-off, rates volatility (MOVE) stays elevated.

FX (USD1month) vols into pandemic highs and went out of whack in early 2022 when the MOVE started to explode (yellow), and sure DXY as a crude USD strength proxy moved higher.

And of course that isn’t good for stock market returns (MSCI World 21day rolling change).

Elevated volatility not supportive of a rally.


occurs when market pricing of the FED gets overly hawkish or dovish

In Macro we have bonds in the pits of hell — US10yr 4% highest since 2008! King USD is most certainly back — USDJPY highest in 32 years, EURUSD lowest in 20 years, USDCNH highest in 14 years. UK Europe and China still unable to drive a recovery in declining trends and we are now all in the business of ‘how bad’ it gets.

The more things have unfloded over recent months, the more the most optimistic in me lacks courage to make so much as a sound. The interesting part of this however is perhaps the FED is already doing too much if the anticipated slowdown is just another calendar month or two anyway, and we have therefore got:

  1. market moves further along the policy end-cycle as implied weakness in data and earnings becomes realized, and
  2. terminal rate pricing now at the higher end which would broad bond voaltility going up.

So despite the broader picture being very poor, we are at a stage where market has priced in a very aggressive Fed, and big YTD drop-off in fwd-p/e’s. Since a deep recession isn’t a done deal at this stage, market at its current levels could now find some time before the next big adjustment, and vols will come off as a result — I think we’ve reached another flippening point where the market pricing is probably now on the aggressive side.

I first like riding the momentum of the bounce and would consider buying on intraday dips directly to be good risk to reward as the rally needs further to go on current momentum to the 3800/900 range, while 3900/4000 would be well challenged and putting incredibly accurate flippening level around 3900 in SPX.

A true flippening trade! As I’ve tweeted on $AUDNZD with the big fall in yield spreads short 1.13s targeting 1.1, as well as the reason for why the policy impact on the pair will be limited and focus reverts to relative fundamentals (CAB and ToT). Almost hit the 1.1 handle but the big band of chop could produce a pivot anywhere here and I’ve decided to do the flippening — squared shorts and now accumulating longs around the 1.10-1.11 flippening range.

I also like GBPUSD longs here from 1.13–1.12 looking for a move to 1.15 and where 1.15–1.16 could be the flippening range for shorts depending on how shit the newsflow is from the UK.

True to “flippening”, USDJPY shorts would start to perform if data starts to dlow and BOJ taking a concerned eye at current levels. Probably better expressions of this trade e.g. long Equities or a combination with Gold etc.

Have a great week trading!

Look out for the momentum,volatility, and the flippening levels!



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