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At the moment, I want the same thing I’m guessing you want: Clarity. Thursday’s rally was annoying. After sleeping on it, I would best characterize yesterday’s action as Wall Street feeding on itself. Nothing fundamental that I’m aware of changed in financial markets yesterday, and thus my overall view of markets did not change either. Let’s take a look at where we’re at, and where we’re heading. The market is moving fast, so I am writing this on Friday at 9:30am CST.
Let’s start by looking at the /CL to /ES analog, and the /GC to /CL analog. The /CL analog looks back at what /CL was doing 10 years ago to give us a useful echo for what we can expect directionally in /ES. I have circled on the below chart where we are currently, as well as where the expected bottom is (the election). This analog gives clues about direction, not magnitude, and it continues to point aggressively lower into the mid-term elections in November. After the election, the analog points to an uptrending /ES market into the summer of 2023.
Here’s the USO/TLT ratio layered with the SPY/QQQ ratio and, on the second chart, the inverted SPY, both synched.. This looks like late May to me.
Bright side: this rally won’t have much further to go if USO/TLT continues rising.
Dark side: this isn’t fast enough to be actionable right away. My gut says above ES 3820 there is more pain for bears.
Looking out beyond the immediate days ahead, the outlook for NASDAQ darkened. The outlook for the U.S. dollar strengthened. Rising oil (Japan, EU, China all import and have to spend reserves or print local currency) and rising interest rates have been bullish for USD this year. As long as stocks aren’t frontrunning positive developments yet to come in bonds and energy, the rally is on borrowed time.
Let me share a personal experience and hope you and I can both learn something from it.
I’m not sure precisely when it began, but this premium post from March 7th is a good place to start. In the post, I make it abundantly clear that the real estate fund IYR is one of my favorite analogs of all time (using such words as “crazy about this analog” and “just ga-ga”). I’m certain this wasn’t my first post about it, but it is at least one where I put a stake very firmly in the ground that I am bonkers about the IYR short.
Ya know, if I was making a list of my favorite trading weeks of all time, this week wouldn’t even make the top 500. It’s been kind of a drag, so I’m distracting myself with SlopeCharts. In doing so, I present to you an interesting 1973/2022 analog by way of our Layered Charts feature.