• Markets have bounced strongly off last week’s lows, with many markets reversing breakouts below major support levels that occurred over the last 2 weeks
  • SPY, QQQ, IWM, XLI, XLP, XLY and EZU have all rallied strongly
  • Continue to pay attention to EEM. If it breaks decisively below its recent range, it could signal further weakness in risk assets
    • Remember that changes occur at the margins first, then spread to the core

• Energy stocks (XLE) are an exception to the current selloff in stocks, and while they have come down a little, could still be headed for a test of its current cycle highs. Oil prices are back in the high $80s, but this is still too high with macro conditions deteriorating all over the world

• Fixed Income ETFs are in a precarious position
  • TLT has broken below its range, and is close to testing its June lows. But if it rallies again, and manages to break out to the upside decisively, be prepared for more turbulence in markets
  • EMB’s (Emerging Market USD denominated debt) rally has started to reverse, falling sharply to indicate that the global USD shortage is getting worse, and pointing towards a further sell off
  • LQD, HYG, and EMB are not mechanically tied to UST prices. Should a financial or economic crisis arise, UST prices can rise even as other fixed income assets sell off

Trading Ideas – Performance

Trading Ideas – Commentary

• Exited straddle on XLU (strike 72, expiry Sep ‘22) for a net profit of 4.38%
  • XLU had quite a journey over the 5 months that we held a straddle on it. It collapsed from its then all time high ~77 in April, to testing its Russian war lows ~64 in June; a period of time which coincided with the height of the selloff in equity markets. Since then, it has rallied back to make new all time highs ~78

• Re-entered short in IWM at 186.95 after it gapped lower on the open
  • High beta small cap stocks are primed to suffer heavy losses given equities’ bearish trend, and deteriorating macro conditions 

• Re-entered short position in EMB after it broke below major support ~88
  • Trade aims to capitalize on EMB’s bearish trend, as well as deteriorating global macro conditions
  • EMB can still fall even if prices of USTs keep rising (yields fall), if macro conditions get bad enough
    • It has already broken below its 2020 COVID low, signaling increasing stress in the global USD funding market

Trading Ideas – Long

• TLT
  • This trade is covered in our Macro Edge reports

Trading Ideas – Short

• IWM remains vulnerable to deteriorating macro conditions, especially with how bearish 2022 has been for small cap equities
  • The trade can also be expressed via other high beta ETFs, like QQQ and XLY

• LQD, HYG, EMB
  • LQD, HYG can still make a large move lower, with a test of COVID 2020’s lows a real possibility, especially with EMB having already done so

• XLE looks like an increasingly attractive short
  • Global economic conditions are rapidly deteriorating
  • Oil prices are off their peak even with global supplies tight, and Russia’s war dragging on
  • Patience is needed here for XLE to make a decisive break lower, as it has managed to rally strongly in recent weeks

• EEM and FXI are good short candidates, as their charts are looking weak even as the summer rally progresses
  • Remember that change starts at the margins and spreads to the core (learn more about this in our Global Macro course). In market terms this means that weakness in EM (EEM, EMB, FXI) often presages weakness in DM

Charts for this week’s report can be found in the slides at the beginning of the article.

• The summer rally has begun to reverse, with large sell offs as markets react to Jackson Hole
  • SPY, QQQ, and IWM have now broken below major support levels
  • Continue to pay attention to EEM. If it breaks below its recent range, it could signal further weakness in risk assets
    • Remember that changes occur at the margins first, then spread to the core

• Energy stocks (XLE) are an exception to the current selloff in stocks, and could be headed for a test of its current cycle highs. Oil prices are back in the mid $90s, but this is still too high with macro conditions deteriorating all over the world
  • XLU has come down from its all time high in tandem with the broader market selloff

• Fixed Income ETFs are in a precarious position
  • TLT has fallen back to the bottom of its range. If it rallies again, and manages to break out to the upside decisively, be prepared for more turbulence in markets
  • EMB’s (Emerging Market USD denominated debt) rally has started to reverse, falling sharply to indicate that the global USD shortage is getting worse, and pointing towards a further sell off
  • LQD, HYG, and EMB are not mechanically tied to UST prices. Should a financial or economic crisis arise, UST prices can rise even as other fixed income assets sell off

Trading Ideas – Performance

Trading Ideas – Commentary

• Re-entered short in IWM at 186.95 after it gapped lower on the open
  • High beta small cap stocks are primed to suffer heavy losses given equities’ bearish trend, and deteriorating macro conditions 

• Re-entered short position in EMB after it broke below major support ~88
  • Trade aims to capitalize on EMB’s bearish trend, as well as deteriorating global macro conditions
  • EMB can still fall even if prices of USTs keep rising (yields fall), if macro conditions get bad enough
    • It has already broken below its 2020 COVID low, signaling increasing stress in the global USD funding market

• Entered a straddle on XLU at a strike of 72, expiry Sep ‘22
  • Position will be profitable if XLU makes a decisive move in either direction
  • XLU has rallied back to all time highs, and if it continues to push higher from here, will drive our straddle into the green

Trading Ideas – Long

• A straddle on XLU is an increasingly interesting prospect 
  • Consolidating between critical support and all time highs, which way will it break?
    • Straddles are expensive, but will allow us to profit as long as the market makes a decisive break
    • With global macro conditions deteriorating, and energy prices remaining sky high, XLU will have to move in one direction or the other
• TLT
  • This trade is covered in our Macro Edge reports

Trading Ideas – Short

• IWM remains vulnerable to deteriorating macro conditions, especially with how bearish 2022 has been for small cap equities
  • The trade can also be expressed via other high beta ETFs, like QQQ and XLY
• LQD, HYG, EMB
  • LQD, HYG can still make a large move lower, with a test of COVID 2020’s lows a real possibility, especially with EMB having already done so
• XLE looks like an increasingly attractive short
  • Global economic conditions are rapidly deteriorating
  • Oil prices are off their peak even with global supplies tight, and Russia’s war dragging on
  • Patience is needed here for XLE to make a decisive break lower, as it has managed to rally strongly in recent weeks
• EEM and FXI are good short candidates, as their charts are looking weak even as the summer rally progresses
  • Remember that change starts at the margins and spreads to the core (learn more about this in our Global Macro course). In market terms this means that weakness in EM (EEM, EMB, FXI) often presages weakness in DM 

Charts for this week’s report can be found in the slides at the beginning of the article.

• The rally in US stocks has hit a brick wall, with large sell offs across the board
  • SPY, QQQ, and IWM have tumbled back to testing major support levels in the space of a week
  • Continue to pay attention to EEM. If it breaks below its recent range, it could signal the end of equities’ summer rally
    • Remember that changes occur at the margins first, then spread to the core. EM weakness is a warning sign that DM equities are not out of the woods yet

• Energy stocks (XLE) remain way off their peak, and look like they have made their cycle highs. Oil prices are back in the low $90s, but this is still too high with macro conditions deteriorating all over the world
  • XLU has come down from its all time high in tandem with the broader market selloff, although natural gas prices remain firm amidst very strong global demand given the weather and Russia’s war

• Fixed Income ETFs are in a precarious position
  • TLT has fallen back to the bottom of its range. If it rallies again, and manages to break out to the upside decisively, be prepared for more turbulence in markets
  • EMB’s (Emerging Market USD denominated debt) rally has started to reverse, falling sharply to indicate that the global USD shortage is getting worse, and pointing towards a further sell off
  • LQD, HYG, and EMB are not mechanically tied to UST prices. Should a financial or economic crisis arise, UST prices can rise even as other fixed income assets sell off

Trading Ideas – Performance

Trading Ideas – Commentary

• Re-entered short position in EMB after it broke below major support ~88
  • Trade aims to capitalize on EMB’s bearish trend, as well as deteriorating global macro conditions
  • EMB can still fall even if prices of USTs keep rising (yields fall), if macro conditions get bad enough
    • It has already broken below its 2020 COVID low, signaling increasing stress in the global USD funding market

• Entered a straddle on XLU at a strike of 72, expiry Sep ‘22
  • Position will be profitable if XLU makes a decisive move in either direction
  • XLU has rallied back to all time highs, and if it continues to push higher from here, will drive our straddle into the green

• Stopped out of IWM at 178.5 for a profit of 1.11%. Will look to re-enter if it breaks lower again
  • High beta small cap stocks are primed to suffer heavy losses given equities’ bearish trend, and deteriorating macro conditions 

Trading Ideas – Long

• A straddle on XLU is an increasingly interesting prospect 
  • Consolidating between critical support and all time highs, which way will it break?
    • Straddles are expensive, but will allow us to profit as long as the market makes a decisive break
    • With global macro conditions deteriorating, and energy prices remaining sky high, XLU will have to move in one direction or the other
• TLT
  • This trade is covered in our Macro Edge reports

Trading Ideas – Short

• IWM remains vulnerable to deteriorating macro conditions, especially with how bearish 2022 has been for small cap equities
  • The current rally makes it inadvisable to take a short position now. We will have to wait until IWM realigns with weakness in other macro markets again (if it does)
• LQD, HYG, EMB
  • LQD, HYG can still make a large move lower, with a test of COVID 2020’s lows a real possibility, especially with EMB having already done so
  • HYG’s outperformance of LQD seems to have lasted for just a week, and EMB has fallen back into its old range again
• XLE looks like an increasingly attractive short
  • Global economic conditions are rapidly deteriorating
  • Oil prices are off their peak even with global supplies tight, and Russia’s war dragging on
• EEM and FXI are good short candidates, as their charts are looking weak even as the summer rally progresses
  • Remember that change starts at the margins and spreads to the core (learn more about this in our Global Macro course). In market terms this means that weakness in EM (EEM, EMB, FXI) often presages weakness in DM 

Charts for this week’s report can be found in the slides at the beginning of the article.

• US ETFs continue to rally, with the SPY, QQQ, and IWM all breaking above major resistance, and all major sectors bullish except for energy
  • XLI, XLF, XLRE, and XLY have also rallied strongly

• Energy stocks (XLE) remain way off their peak, and look like they have made their cycle highs. Oil prices are in the high $80s, but this is still too high with macro conditions deteriorating all over the world
  • XLU is making new all time highs, with natural gas prices firm amidst very strong global demand given the weather and Russia’s war

• EEM has only rallied slightly and is effectively still languishing, even as US and EU equities rally
  • Remember that changes occur at the margins first, then spread to the core. EM weakness is a warning sign that DM equities are not out of the woods yet

• Fixed Income ETFs are in a precarious position even with USTs rallying
  • TLT’s break above its range has failed. If it pushes higher and manages to break decisively, be prepared for more turbulence in markets
  • EMB (Emerging Market USD denominated debt) has rallied strongly, but should it turn down again, it will indicate that the global USD shortage is getting worse, pointing towards further sell offs (its medium term trend is very bearish)
  • LQD, HYG, and EMB are not mechanically tied to UST prices. Should a financial or economic crisis arise, UST prices can rise even as other fixed income assets sell off
  • However, HYG has begun to outperform LQD, which could hint at a shift towards more risk taking in the market

Trading Ideas – Performance

Trading Ideas – Commentary

• Entered a straddle on XLU at a strike of 72, expiry Sep ‘22
  • Position will be profitable if XLU makes a decisive move in either direction
  • XLU has rallied back to all time highs, and if it continues to push higher from here, will drive our straddle into the green

• Stopped out of IWM at 178.5 for a profit of 1.11%. Will look to re-enter if it breaks lower again
  • High beta small cap stocks are primed to suffer heavy losses given equities’ bearish trend, and deteriorating macro conditions 

• Stopped out of EMB at 87 for a profit of 3.33%. The fundamental and technical basis of the trade still holds, we are looking to re-enter the position if it breaks lower
  • Trade aims to capitalize on EMB’s bearish trend, as well as deteriorating global macro conditions
  • EMB can still fall even if prices of USTs keep rising (yields fall), if macro conditions get bad enough
    • It has already broken below its 2020 COVID low, signaling increasing stress in the global USD funding market

Trading Ideas – Long

• A straddle on XLU is an increasingly interesting prospect 
  • Consolidating between critical support and all time highs, which way will it break?
    • Straddles are expensive, but will allow us to profit as long as the market makes a decisive break
    • With global macro conditions deteriorating, and energy prices remaining sky high, XLU will have to move in one direction or the other
• TLT
  • This trade is covered in our Macro Edge reports

Trading Ideas – Short

• IWM remains vulnerable to deteriorating macro conditions, especially with how bearish 2022 has been for small cap equities
  • The current rally makes it inadvisable to take a short position now. We will have to wait until IWM realigns with weakness in other macro markets again (if it does)
• LQD, HYG, EMB
  • LQD, HYG can still make a large move lower, with a test of COVID 2020’s lows a real possibility, especially with EMB having already done so
  • Like IWM, it is inadvisable to enter shorts now, and a wait-and-see stance is required, especially if HYG continues to outperform LQD
• XLE looks like an increasingly attractive short
  • Global economic conditions are rapidly deteriorating
  • Oil prices are tumbling even with global supplies tight, and Russia’s war dragging on
• EEM and FXI are good short candidates, as their charts are looking weak even as the summer rally progresses
  • Remember that change starts at the margins and spreads to the core (learn more about this in our Global Macro course). In market terms this means that weakness in EM (EEM, EMB, FXI) often presages weakness in DM 

Charts for this week’s report can be found in the slides at the beginning of the article.

• US ETFs continue to push higher. IWM has broken above major resistance, with SPY and QQQ testing major resistance
  • XLI, XLF, and XLY have also rallied strongly

• EEM is still languishing even as US and EU equities rally
  • Remember that changes occur in the margins first, then spread to the core. EM weakness is a warning sign that DM equities are not out of the woods yet

• Energy stocks (XLE) remain way off their peak, and look like they have made their cycle highs. Oil prices are back to ~$90, but this is still too high with macro conditions deteriorating all over the world

• Fixed Income ETFs are in a precarious position even with USTs rallying
  • TLT has broken out of its range, if it pushes higher, be prepared for more turbulence in markets
  • EMB (Emerging Market USD denominated debt) has rallied strongly, but should it turn down again, it will indicate that the global USD shortage is getting worse, pointing towards further sell offs (its medium term trend is very bearish)
  • LQD, HYG, and EMB are not mechanically tied to UST prices. Should a financial or economic crisis arise, UST prices can rise even as other fixed income assets sell off
  • With more macro markets moving into alignment, the probability of such a scenario is increasing

Trading Ideas – Performance

Trading Ideas – Commentary

• Stopped out of IWM at 178.5 for a profit of 1.11%. Will look to re-enter if it breaks lower again
  • High beta small cap stocks are primed to suffer heavy losses given equities’ bearish trend, and deteriorating macro conditions 

• Stopped out of EMB at 87 for a profit of 3.33%. The fundamental and technical basis of the trade still holds, we are looking to re-enter the position if it breaks lower
  • Trade aims to capitalize on EMB’s bearish trend, as well as deteriorating global macro conditions
  • EMB can still fall even if prices of USTs keep rising (yields fall), if macro conditions get bad enough
    • It has already broken below its 2020 COVID low, signaling increasing stress in the global USD funding market

• Entered a straddle on XLU at a strike of 72, expiry Sep ‘22
  • Position will be profitable if XLU makes a decisive move in either direction
  • Volatility in XLU has increased dramatically, with sharp falls and rallies. However, the net effect of both has been little underlying price movement, which is not good for our straddle’s profitability

Trading Ideas – Long

• A straddle on XLU is an increasingly interesting prospect 
  • Consolidating between critical support and all time highs, which way will it break?
    • Straddles are expensive, but will allow us to profit as long as the market makes a decisive break
    • With global macro conditions deteriorating, and energy prices remaining sky high, XLU will have to move in one direction or the other
• TLT
  • This trade is covered in our Macro Edge reports

Trading Ideas – Short

• XLE looks like an increasingly attractive short
  • Global economic conditions are rapidly deteriorating
  • Oil prices are tumbling even with global supplies tight, and Russia’s war dragging on
• IWM remains vulnerable to deteriorating macro conditions, especially with how bearish 2022 has been for small cap equities
  • It is trading a fair distance away from the next major support level at 151.5 
• LQD, HYG, EMB
  • LQD, HYG can still make a large move lower, with a test of COVID 2020’s lows a real possibility, especially with EMB having already done so
• EEM and FXI are good short candidates, as their charts are looking weak even as the summer rally progresses
  • Remember that change starts at the margins and spreads to the core (learn more about this in our Global Macro course). In market terms this means that weakness in EM (EEM, EMB, FXI) often presages weakness in DM 

Charts for this week’s report can be found in the slides at the beginning of the article.