Stimulus off, Stimulus on, and yet another bout with political theater…

So yesterday’s mini black-swan event came around the 2pm CST hour as Trump went scorched earth on twitter saying that the stimulus talks were ending and wouldn’t be reengaged until post-election. This was all following Fed Chair Powell’s strongest plea for MORE Government spending to date, warning of “economic tragedy”, whoa – as he delivered a speech earlier in the session. I’ll spare you the details, because most of you are aware of the markets reaction. But it all appears to be back to semi “neat” this morning, as Trump later tweeted about a stripped down stim bill that would send direct payment to qualified Americans. So it appears as if the ball is back in the Dems court this morning. So the saga continues, and the proverbial carrot continues to dangle in front of investors.  It goes without saying, the irony of this whole “direct payments to Americans” and attempt to spend our way out of this crisis, is the longer-term effects it has on inflation that it creates.  Higher taxes, higher inflation aka a higher cost of living awaits all of us somewhere embedded in our future. We’re not going there just yet, but the groundwork has already been laid which, began in June of Q3 2020. That’s the longer view that we hold, which I’m sure most of you would accept as probable. 

Chasing alpha in Q4 2020- The near-term view and as always, sticking to the data and math….The US dollar spiked off of the lows yesterday, once again signaling a series of “higher-lows”, while the euro, gold, and stocks have been signaling a series of “lower-highs”.  Volatility index’ remain in the wrong “camp” for a nice smooth trending bull-market, and our volume signals continue to deteriorate on “up days” and decelerate on “down days”. So we’re kind of threading the needle between a near-term “risk-off” event, and our 2021 inflation accelerated inflation outlook (the first half anyway).  If the regime of volatility changes, I promise we’ll let you know. 

Global Equities:
SPY +0.83%, NQ 0.97%, RTY +1.30%

GER -0.38%, UK +0.07%, FRA -0.20%

Shanghai -0.20%, KOSPI +0.89%

VIX – while stocks have been pumping higher, so has the VIX and the NQ VIX (VXN) – the last time we saw this signal, was amidst the parabolic move in stocks in early to mid-sept.  This is a notable development, and shouldn’t be ignored. 

Oil- following a 2-day ramp off the lows and signaling immediate overbought, Oil is trading back -1.50% this morning. 

Gold- a similar set, signaling lower highs, got whacked yesterday back 1880 – trading back up on “stim hopes” again, but well below yesterday’s highs.  -0.8% on the week thus far.

HG- loves the stimulus back-on talk, trading back over 3.00 this morning +1.96%

EUR/USD – we added this yesterday on the “sell side”, we’ll  stay with it for the near-term.  Lagarde’s threat of additional stimulus and negative rates should not be taken lightly by Euro bulls, and USD bears in the very near-term. 

Japanese Yen- interesting set-up here, and could be one we take for a ride on the long side in the near-term.  A classic safe-haven currency, we’ll continue to watch it’s reaction following last nights slide to the low end of the range.  Remains bullish trend. 

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John Caruso

Senior Market Strategist

Follow John on Twitter @JCarusoRJO. John began his career at Wilshire Quinn Capital, a Wealth Management Firm based out of Los Angeles, California. John made his move to the commodity industry at the end of 2005, and began his path at Lind Waldock, at the time the largest retail brokerage division worldwide. John did his undergraduate work at Robert Morris University in Pennsylvania from 1999-2003, where he was a 4 year varsity basketball letterman.  A self-professed “Macro Trader”, John uses a multi-factor fundamental and “quantamental” trading model in distinguishing market cycles based upon the accelerations or decelerations of growth and inflation metrics. His technical and quantitative approach is heavily reliant upon trend and market range analysis via a custom built standard deviation system in helping him make probability-based market decisions. John is an avid reader of all things pertaining to finance, and behavioral economics. Click here to sign-up for John Caruso's Trading Coach Insights. Daily information and insight on all futures marketsin ranging from metals to equities.

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