MBCC Trading Highlights 11th November'22 - market is as much about positioning unwinds as it is about fundamentals and liquidity, how much more could we go? What is the next trigger?
The market is about positioning set ups as much as they are about fundamental and macro cycles, especially if they are too one-sided. On the chart above we had shown how the S&P 500 had been in a range of 3700 – 3900 and we also mentioned how the market could break > 3900 head to 4000 and STILL be in long term downward trending range if you zoom out. The big ultimate resistance is around 4125 but for now the first resistance was 3900-3920. For the bulls to keep control of this market, it needs to hold this support and then move > 4000 to target a much higher move. But if we lose 3900, then back down we go to 3850 and 3750.
Given the moves we saw in $GBP $EUR and $JPY and $CNY, 200bps +, these are not normal moves and suggests massive unwinding of positions. According to a GS chart, Financial Conditions eased a 4 sigma to the topside move today, which has only happened ~11 times in the last ten years" (GS). This was the 3rd largest move after March 2020 and October 2008, do we really think THIS time is like those when the Fed actually pivoted and flooded the market with tons of liquidity?
Figuring the market now is ALL about figuring the Terminal Rate where interest rates settle as that will determine values and Equity risk premium. Most think this is like previous cycles when asset prices fall, Fed pivots, and pumps more QE. Think again.
shared an amazing thread on twitter going through previous cycles and the comparison of 2001 and today, it is a great read as it confirms that the market never bottoms when the Fed is still rising, and when Fed cuts rates (like in 2001), the market can still fall by 15%+. To see CPI moving 8.2% down to 7.9%, does not mean the Fed will start cutting rates today. Far from it.
But how much more does this rally have? What is the next catalyst? Long/short positioning has played a big role in the moves yesterday as everyone was long Oil/Energy and short Technology with these names closing up 12%+, killing the funds. These markets are not normal and first long/short blows up then everything does one by one.
We look at derivatives, options hedging and how that effects S&P 500 into December, and then look at our cross asset macro model forward looking indicators to see where the cycle is really headed.
Sign up to find out what the trade is here! We don’t chase algos or momentum, we use our macro signals together with bottoms up physical movements to time the entry and exit points. It is about capturing the 20% moves and getting in front of it.