• The majority of ETFs did not do much last week except for USTs (and fixed income in general). Could this signal their alignment with other major macro markets?
  • UST yields tumbled, with the 10y now ~2.9%, and 30y ~3.1%. If this continues, UST yields will have finally aligned with the bearishness signaled by the stronger USD,  flat/inverted yield curve, and weakness in base metals
  • Keep a close eye on TLT, if it keeps rallying, be prepared for more turbulence in markets

• 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) are back to testing support, 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 are in a precarious position even with USTs rallying
  • 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

• 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
  • EMB can still fall even if prices of USTs keep rising (yields fall), if macro conditions get bad enough

• 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

• 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