• The markets are done bouncing and have moved into the second leg of their selloff, which has been brutal, with everything falling together
  • High beta, low beta, and the SPY itself have all seen dramatic falls
  • XLF is telling us something interesting – financials are “supposed” to do well in rising rate environments, like now, but they aren’t. The economy clearly isn’t doing well, at least from the market’s perspective 

• Even Energy stocks (XLE) took a tumble, and are off their highs. Oil prices remain elevated ~$120, but with macro conditions deteriorating all over the world, how long can demand for oil stay as it is?
  • XLU has made an aggressive reversal to the downside, and now looks more intent on testing support than making new all time highs

• Fixed Income ETFs continue to sell off strongly together, with a test of COVID lows looming
  • LQD and HYG move closer to testing their COVID lows, while EMB has already broken briefly below its own
  • TLT has fallen below critical support as US 10y yields move above 3.3%

Trading Ideas – Performance

Trading Ideas – Commentary

• Went short IWM again as it broke below support at 181.5, but order was filled at 180.5 due to a gap open

• Re-entered short position in EMB as it broke below short term support at 90
  • Trade aims to capitalize on EMB’s bearish trend, as well as deteriorating global macro conditions

• 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
  • Straddle is paying off as XLU has very aggressively reversed its direction

• Shorts in LQD and HYG stopped out as both spiked higher over the end of May, for respective returns of 4.93% and 3.33% 

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

Trading Ideas – Short

• IWM has broken out to the downside and remains vulnerable to further sell offs given how harsh deteriorating macro conditions are on small cap equities
  • It is trading a fair distance away from the next major support level at 151.5. Its short and medium term trends have now realigned 

• LQD, HYG, EMB
  • LQD, HYG, and EMB can still make a large move lower, with a test of COVID 2020’s lows now a real possibility

• EEM recently broke below its well established bearish channel, and is looking very weak
• EZU and FXI are also good short candidates, as their charts still look bearish
  • FXI is trickier to trade now as the Chinese government has verbally intervened once to halt the selloff in Chinese stocks