Key Tactical Takeaways:
> Despite the very subtle signs of upside VIX rotation that now adds to already frothy conditions (see page 8), the potential for a ... in stocks will exist pending a close < ....
> In the event of an unexpectedly strong jobs number, there is scope for a knee-jerk sell-off in the 10-Yr contract to ...%. Conversely, an unexpectedly weak number can generate a rally to ...%. An in-line number likely sees a range of ...% to ...%.
> Although EEM's Thursday rally to volatility-based extremes in EEM without confirmation from momentum warrants profit taking, the short-term trend stays bullish against ....
> The overnight break above the recent "flag" consolidation in crude futures is a beautiful thing.; however, the upside is likely to become sticky again soon. Therefore, some profit taking in USO is advised near ....
Some Quick Thoughts:
I love the fact that members of the general public, at least those with discretionary funds still left to spend, have been able to profit from appreciating equity prices. However, when porn stars begin giving stock tips and gang members (yes, you heard me right) begin advertising technical analysis services on social media, it means the bottle of small batch bourbon I just purchased doesn't stand a chance this weekend.
Although market purists were forced to play the game a long time ago, caving to the manipulative forces that be, it would be irresponsible of me to ignore traditional yellow flags as they arise. The most recent yellow flag comes from the VIX, which has begun to show some subtle divergence against higher S&P 500 highs very recently. This development, which is shown on page 8, simply adds to the already frothy signals we've been showing. By the way, this does not include the historically high levels of margin debt of late. As a reminder, though, such signals are a blunt timing instrument. Therefore, as is always the case, we wait for the ultimate arbiter (price) to tell us when it's time to position bearishly. In summary, reduce correlated risk (i.e. positions that are highly correlated to the S&P 500), but maintain a core long position against ...(short-term traders) and ... (near-term traders).
For anyone trading Bitcoin, you'll recall that last week we began arguing that extreme bullishness in that space, when coupled with slowing upside momentum, likely portends a tactical rotation out of the generation favorite that is Bitcoin and back into the old-school inflation hedge that is gold. This remains our view and we'll be looking for any retracement of this week's gold rally to start a position in GLD.
Regarding this letter’s position in USO, the overnight crude futures rally out of the recent "flag" consolidation is a beautiful thing. However, the upside is likely to become sticky again soon. Therefore, some profit taking is advised as USO nears ...ish.
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