Market is as much about positioning as it is about fundamentals...so where to next in September?
August is known to be a quiet tricky summer month where illogical and non fundamentals moves can be seen. The S&P 500 has rallied 15% from the July lows and the Nasdaq about 20%, have we made a bottom or is this the start of a new downward trend?
Following the Fed FOMC July commentary, which seemed on the dovish side, caused short sellers to close their shorts. This in combination with Hedge Funds having de-geared and derisked extensively in the summer followed by a slight buyback bid caused the market to grind higher. FOMO retail activity chased this pain trade higher, making the rally self-fulfilling.
We have the Jackson Hole event on the 30th, where the market’s only justification to chase this rally is on hopes of a Fed pivot. With inflation averaging closer to 8% y/y, even taking into account the moderation in some inflation indicators, the Fed is no where close to being done. Global economy growth is collapsing at a time when prices remain sticky. Given recent power/electricity shortages following their Zero-Covid policy, China’s GDP risk is more skewed to the downside.
Sentiment indicators have reversed and are not as bearish, traders have become complacent. Even bear markets can have nasty squeezes. Liquidity the one key element that has driven markets over the past decade, is still being withdrawn. Going into September, the derivative set up is such that as the market breaks < 4200, the selling will pick up as market makers chase the negative gamma profile.
What is the trade here into September in Equities and Bonds? What to do here in Oil price and Oil Equities? What are Physical Commodity market fundamentals pointing to? All this and more in today’s daily active newsletter with a live open portfolio of recommendations, sign up at info@mbcommoditycorner.com to find out!
MBCC - we look at our proprietary forward looking cross asset demand models to tell you what is being mis-priced in Equities and Commodities. We make a call on what WILL happen, not regurgitate what HAS.
(Note: Oil price downgrades now incoming post 40%+ price collapse from the same houses that were pushing it back in May!)