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Commodities Show Cracks, Got Guns? - Morning Market Squeeze

Key Tactical Takeaways:

>  Gold is finally breaking down from its recent corrective range. However, we're not ready to suggest that a move to ... is inevitable until DXY closes > ....


> Wednesday's sell-off was quite damaging for tech. Pending a close > QQQ ..., we now see near-term risk to ....


> Crude futures are breaking to multi-month lows this morning. If the active contract closes below $..., risk will shift to $... against $....


> Although the DAX has finally reached the start of the target zone associated with Monday's confirmation of a multi- month top, we're letting our EWG short run against .... Though profit taking is warranted, we're also letting our UVXY long run against .... We'll be going long ... at the open, and we're looking for a chance to short ...


Some Quick Thoughts:

After the worst sell-off in 4 months and entry into our Tactical Target Zone of 3319 to 3209, the recent swoon is poised to slow. Although Wednesday's SPX sell-off fell just shy of reaching a 2-sigma 1-day decline, the drop to a > 20-day low close and > 1.5 x the Average True Range subtracted from the 5-day average was so anomalous that it has happened only  twice since1962. The statistically-insignificant backtest results of this rare 1-day extension are posted on page 2, and suggest that, at a minimum, the selling of ... during Thursday's session. Although a reflexive bounce to a higher SPX close is possible today, we suggest that ...


While Wednesday's selling was broad, the Treasury market simply did not show signs of a panic rush into save havens. Yes, credit spreads have widened in recent days. However, the current position below September's widest levels suggests the lid is still very much on this key gauge of corporate distress. Although the 10-Yr yield's adherence to our near-term stop at ... on Thursday leaves the inflationary market rotation narrative in check, oil is cratering to multi-month lows this morning, after gold exited a bearish corrective range to the downside yesterday. This all comes as the dollar is .... We think there are good odds the dollar is ..., which will ...across the entire commodity complex.


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