Well look at that. We went from a nice comfortable 2-month “melt up” in stocks, to now back to managing a market with a volatility index north of 40 yesterday! That’s the non-linearity of this game – there’s no predetermined path for markets, no matter how much the Fed can make the printing press go Brrrrrr. Until the fundamentals of the cornerstone of this market, that being Corporate Profits and Earnings improves, expect these pitfalls and random episodes of volatility to continue. Volatility clusters and can be completely random, and fractal.

Russell 2000- we essentially called the top in U.S. Small Caps. We caught it for 30-40 pts and took the money, what are you gonna do?  Yeah I know it could’ve been “juicier” but I’m not here to tell you that I know exactly what’s going to happen in markets from on minute to the next. What I do is map the cycle and play the probabilities within the context of our trading process and model. 

Commodities- We were net sellers/bears of commodities in Q1 and Q2. We’re buyers of the commodity space headed into Q3 2020. We’re agnostic about markets, and we always position alongside our Growth/Inflation model. Stagflation is the call in Q3.  A broader reacceleration in inflation, and continued slow growth y/y. That’s our call headed into the back half of the year. Stay tuned for more here. I will say we may be looking at the Bloomberg Commodity Index again, a market that worked well for us at the backend of 2019.

Yields- smashed from the top end of the range on yesterday’s stock market crash. This may be the #1 “don’t fight the Fed” market.  Yield curve control is now being discussed by the Fed as a policy tool – we’ll likely continue to signal for bonds at the low end of the range in price/top end of the range in yields. 

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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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