It’s been a wild ride the past few sessions especially in the equities space. The biggest difference between yesterday and Wednesday’s move in stocks, was that money was “moving” yesterday. We saw a large bid under the gold and bonds and bond proxy markets yesterday as traders sought out perceived safe haven assets. These are the days when retail can find themselves chopped up and spit out, A) make sure you’re respecting your stop losses, B) you’ve got a good risk manager and CNBC doesn’t count and C) DO NOT CHASE VOLATILITY. 3 simple rules for when the market tape “breaks” and markets get sloppy. Stick to your process and adhere to your rules – remain disciplined.
Quick Market Rundown-
US Equities: You can’t say that we haven’t warned of a “growth slowing and inflation slowing” environment. We began making this call in Aug. The market trend is now overwhelmingly bearish with Wednesday’s break down, however we like to see at least 3 consecutive day’s of a close below our trend line.
Price- Bearish
Volume- Bearish (+41% vs the 1 month AVG!!!)
Volatility- Bullish
This is the quintessential formula for “bear” market activity. When Price, volume, and volatility factors line up in the manner they are above – we’re sellers of bounces in US equities FROM THE TOP OF OUR RANGE! Once again, DO NOT CHASE MARKETS.
PPI and CPI inflation misses this week on a y/y basis. This is inline with our inflation slowing call moving fwd. As always we remain vigil to the data and will change our thesis if the data changes.
Markets are bouncing this morning from very oversold levels (which comes as no surprise) – Even China is bouncing +1.0% overnight and still -26% since January’s peak. We’ll remain patient for the time being and signal to our traders “Sell” at the top end of our respective ranges in SP500 – NASDAQ – RUSSELL Index’
Crude Oil: another big leg lower in energy yesterday following it’s second consecutive massive build in inventories (+8m bbl last week and +6m bbl yesterday). Oil broke and immediate-term bull/bear line and is now tipping bearish trend, however oversold. Long term classic supply and demand fundamentals are lining up bearish. Any expected Oil production losses from Iran sanctions will likely be picked up by OPEC and NOPEC countries. Longer term outlook on demand for Oil is softening with the economic pictures of the US China and EM.
Gold: Its safe to say that we’re coming around on Gold. Our call on the USD into year end is that of which we believe the best days of the bull market in the USD are likely behind us. This plays directly into the inverse correlation (90% correlation strength) to that it carries with Gold. A lot of inflows yesterday to Gold, and has immediate term upside to 1240-1250 oz.
Keep your head on a swivel out there. As always BEST OF LUCK!
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