• Most ETFs moved off their lows over the course of last week, taking some of the sting out of early June’s sharp falls, but
  • Trends remain very bearish, and correlation between markets is high, both of which indicate that further weakness is possible
  • More start-stop price action, or consolidation, is possible as most developed markets head into summer 
  • 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

• Energy stocks (XLE) finally catch some bids after their brutal sell off, and might have made their cycle highs. Oil prices are still ~$110, but this is still too high with macro conditions deteriorating all over the world

• Fixed Income ETFs continue to eye a test of their COVID lows
  • LQD and HYG remain slightly above their COVID lows, while EMB has already broken briefly below its own
  • TLT is hovering around the critical 111 level as US long yields come down off their highs

Trading Ideas – Performance

Trading Ideas – Commentary

• Went short IWM again as it broke below support at 181.5
  • 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 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
  • 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

• 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