Weekly Note 2022.11.07
Long, Wrong, but Strong
Focusing on the tactical bull case, still…
Not been on twitter much and skipped the weekly notes lately as I’ve not kept a close eye on the market while I’ve been in Hong Kong. WIll be under the radar a while longer as I’m in Vietnam for a short trip…
Just come across this from Michael Gayed that has been around for almost a month. If you’ve had a rough idea of my views, you may recall I share a similar stance — always better hearing it from (an)other brilliant mind:
As I’ve alluded to for a while now too, its no longer time to continue being “end of the world” bearish at current levels and point in time. Bond market collapse (or its current rout at least) is near its end and things have probably got as bad as it gets in China while Europe should chug along.
Why It's Not the End of the World as We Know It
Stocks surged into the weekend, with all three major U.S. equity indexes up more than 2% two hours ahead of Friday's…
I share Michael’s pragmatism on the near-term outlook. Unless a war or another supply shock kicks off, rates volatilty could very well be peaking, if not at least til year end.
MOVE rolled over
The all important chart. Markets have been falling when the MOVE index has been rising above current levels, and vice versa (i.e. peaks in the MOVE marked troughs in SPX). It has made a bigger leg down so far this month than the down-legs seen in October and, rolled over quite meaningfully after staying elevated over the October month. If bond vol continues to ease off, that would justify the basing action in Equities the past month.
Equities on the bounce, SPX north of 3750
Global equities (MSCI World ex-US) validated earlier structural breaks off the lows with strong momentum for continuation this week.
Also the SPX is looking more neutral trading around the pivot’y 3750 handle last week. The long fall and recovery from below the 3750 level is moderately suggestive of a confirmed base.
AUDUSD key battle ground
AUDUSD key battle ground 0.6400/50 — watching for the range break. Has sold-off a long way from prior cycle high in August but still almost a staggering 10% away from those highs. AUD has been hit by the RBA pivot and China sentiment which, if it is as bad as it gets til year-end, AUDUSD could be a great sentiment indicator to watch.
This trade expects ‘gradual’ softening to begin in economic data and therefore in market uncertainty/volatility, and thus improving forecasting and improving appetite. Have been building a very light long position and looking for a 10% plus rally.
A China sentiment / relative value trade on fundamental divergences in current account balances and terms of trade, and short squeeze risk a bonus.
Have a safe week trading.