• Heavy selling has returned to most markets as volatility, uncertainty, and correlations remain high

• Most ETFs are still moving in tandem, although some nuance has returned to trading activity
  • SPY is now in a clear short term (for now) downtrend
  • IWM is still in its downtrend but looks to be trading sideways for now
  • QQQ and XLY (Consumer Discretionary) are the most bearish of the major equity indices

• Fixed Income ETFs still look very bearish with the exception of TLT, which is struggling for a clear direction amidst volatile trading
  • Corporate bonds, LQD and HYG continue to drop, opening up the possibility of a fall to test 2020’s COVID lows 
  • The large sell off in EM sovereign bonds (EMB) has finally begun

• Consumer Staples (XLP), Energy (XLE), and now even Utilities (XLU) are rare bright spots for bulls
  • XLE continues to rally with oil prices, boosted by Russia’s invasion, and is very close to testing a quadruple top

• The bearish threat of our twin wildcards have now materialized, catalyzed by Russia’s war in Ukraine:
  • Consumer staples stocks (XLP) continue to outperform consumer discretionary ones (XLY) even as the Fed maintains its hawkish stance
  • The USD continues to strengthen, and the US yield curve has gotten even flatter!

Trading Ideas – Performance

Trading Ideas – Commentary

• XLI stopped out for a loss of -3.45%, as industrials start to break down

• XLF stopped out for a loss of -6.27%, as financials start to look more bearish

• Exited TLT for a gain of 1.72%, as the market is now more focused on the “safe haven” bids narrative rather than the “rising rates” one

• Remained long in XLF as an “aggressive hedge” to the short IWM position
  • Beta mismatch means the gains from IWM falling can outpace losses in XLF, but the reverse would incur losses

• Letting winners run:
  • Remained short LQD, HYG, and EMB to maintain exposure to the “rising rates” narrative
    • Cost push inflation is still high, and will likely be driven higher by the Russian invasion of Ukraine
    • Also, fixed income charts are very bearish, especially EMB
    • Volatility, uncertainty and general bearishness due to the invasion are weighing heavily on EM debt
  • Holding on to long XLE
    • Reasons detailed in this article 
  • XLP – XLY pair trade is still doing well, and is also an “aggressive hedge” with a beta mismatch

Trading Ideas – Long

• XLE to take advantage of how bullish oil prices are

• XLP is an interesting bet which could offer the best of both worlds
  • Defensiveness against current sell off and market volatility
  • Upside potential from very bullish trend

Trading Ideas – Short

• LQD, HYG, EMB
  • LQD and HYG look poised for a large move lower, possibly all the way to COVID 2020’s lows
  • EMB is now in the midst of the large drop it has been threatening since mid Jan 

• IWM is now in a clear downtrend
  • This could be a good short if you do not think a bottom is in for equities, or if you simply want to follow the trend
  • Buying IWM puts is another way to express this view which would also allow you to take advantage of a possible spike in volatility (vol is now expensive as we are in the middle of said spike)

• XLY is struggling, and now that IWM has broken out to the downside, it’s hard to imagine XLY doing well
  • Could hedge a XLY short with a XLP long to create a pair trade that still makes money if XLY falls, and loses less if XLY changes direction

• EEM has now broken below its well established bearish channel, and is looking very weak