• Quite a few markets have rallied out of their short term ranges, although many remain in bearish medium term trends
  • ETFs need to break out of major resistance levels before last week’s rally can be considered to be serious. Watch 416 for SPY, 316 for QQQ, and 191 for IWM
  • Keep watching TLT, if it keeps rallying, be prepared for more turbulence in markets
  • Should EMB (Emerging Market USD denominated debt) turn down again after its recent rally, it will indicate that the global USD shortage is getting worse, which would point towards further sell offs (EMB’s medium term trend is very bearish)

• Energy stocks (XLE) remain way off their peak, and look like they have made their cycle highs. Oil prices are back to ~$100, 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

• Stopped out of IWM at 178.5 for a profit of 1.11%. Will look to re-enter if it breaks lower again
  • High beta small cap stocks are primed to suffer heavy losses given equities’ bearish trend, and deteriorating macro conditions 

• Short position in EMB is close to getting stopped out after its rally over the course of last week, but the fundamental and technical basis of the trade still holds
  • 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
    • It has now broken below its 2020 COVID low, signaling increasing stress in the global USD funding market

• 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

• XLE looks like an increasingly attractive short
  • Global economic conditions are rapidly deteriorating
  • Oil prices are tumbling even with global supplies tight, and Russia’s war dragging on
• IWM remains vulnerable to deteriorating macro conditions, especially with how bearish 2022 has been for small cap equities
  • It is trading a fair distance away from the next major support level at 151.5. 
• LQD, HYG, EMB
  • LQD, HYG can still make a large move lower, with a test of COVID 2020’s lows a real possibility, especially with EMB having already done so
• 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, and looks to be intervening more directly in their housing market

Charts for this week’s report can be found in the slides at the beginning of the article.