• Volatility remains high with large intraday swings since the start of Russia’s invasion of Ukraine, with almost all markets moving in lockstep with each other

• Most ETFs followed the same pattern of selling off heavily and then reversing their losses since Thursday (the day of the invasion), but to different degrees
  • 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 still looks the most bearish of the major equity indices

• Fixed Income ETFs still look very bearish with the exception of TLT as USTs get a “safe haven” bid
  • Corporate bonds, LQD and HYG, have bounced but still look weak 
  • EM sovereign bonds (EMB) still looks poised for a larger sell off

• Consumer Staples (XLP) and Energy (XLE) are rare bright spots for bulls
  • XLE continues to rally with oil prices, boosted by Russia’s invasion

• Wildcards:
  • Consumer staples stocks (XLP) continue to outperform consumer discretionary ones (XLY) even as the Fed grows increasingly hawkish
  • The USD remains strong, 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

• 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
  • 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

• XLF if you buy into the narrative that rate hikes are good for bank stocks
  • If you don’t, most traders do, and would be looking to position themselves accordingly
  • Regardless, XLF is trading in a very bullish manner

• 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 also looks set for a large drop

• 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

• 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 is trading in a well established bearish channel