Weekly Market Overview April 4, 2020

The new quarter has brought us if nothing else, a market that seems(?) to have stopped liquidating Archegos highly leveraged Hedge Fund with market sell orders. The shortened holiday trading week seemed to see life return into Big Tech, metals sprung back, energy stabilized and commodities caught a bid. 

In currencies the dollar strength continues with the Swiss Franc and Japanese Yen continue to grind lower. 

In crypto, Ethereum and DeFi got back to action with Ethereum $ETH putting in new all time highs on Friday and Polkadot $DOT picking up aggressively over the weekend. 

Let's get to it...

Indices

Going in to the week the $NQ (Nasdaq) had given back all it's gains on the year, but you can't keep a good index down, as it roared back with a year to date +3.42% return. During this whole selloff in March the $NQ moved from a quick visit in Bull Volatile to neutral regime and returning decidedly to the Bull Quiet market regime. 

We will continue to add to our long $NQ positions as we progress through the year. 

The big winner of 2021 so far has been the Russell 2000 $RTY, earning nearly 20% at it's peak, but gave half of that back in March. As the quarter ended the small cap index rallied hard this past week up nearly 5%.

The $RTY has been in Bull Volatile regime for all of 2021.

What I'm keeping my eye on is the RUT/M2 (Money Supply) ratio which is at the top of it's range, showing how overvalued small caps are relative to everything else. Since 1997, every time this ratio made it up to these levels a MAJOR market event (Crash) has happened, 

However, sometimes old tops become the new bottoms. With the massive amount of stimulus coming to market, both fiscal monetary policy throwing everything they have to save the economy there is a very real possibility that a major move higher from here in RUT/M2 ratio could just be the beginning of a massive bull run.

In other words, don't get all beared up by this little bit of bear porn. We get bearish when market conditions favor it, when the regimes are in place, until then looking at a chart like this and taking any major position in anticipation is what helps add fuel to bull markets. 

The DJIA/$YM (Dow Industrials) continues to be our favorite index with the most potential. It has held up the best during the March selloff and last week put in yet another all time high. While the $NQ went negative on the year in March, the $YM held a 1% return and since then has steadily climbed to over an 8% return on the year. 

When we talk about the characteristics of the Bull Quiet regime superseding the SQN indicator signaling a different regime, we always need to allow the characteristic of price action to be the real truth. The $YM is trading EXACTLY how an index that is in a Bull Quiet market regime would trade.

It should be a slow steady stealthy move higher. Any time it gets the best looking sell setup we wait for it to fail, and it keeps giving us clues that we are in Bull Quiet. 

That is exactly what $YM is doing, and will continue to add to your long $DIA calls along the way. The downside of trading the calls vs the outright futures is that when something like Fridays Non Farm Payrolls came out, we were supposed to add to the position as it rallied higher, but since it was a holiday for equities, we had to watch the futures trade from the sidelines. I will be looking to add to $DIA calls next week. 

Equities

The Monthly Macro ETF is up over 26% year to date and there were a number of new entries this month, 4 new ones.

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Commodities

2021 has been a fantastic year for Crude Oil, while metals and ag's have been quite weak. 

There have been a few people coming out this week talking about getting long Gold as it appears to have bottomed, so let me give you my hot take. Gold futures $GC has spent 87.3% of its life in a bullish regime and only about 13% in a bearish regime and only .70% of that time was bear volatile (least likely to happen), so the likelihood of a move back to "normal" (bull quiet) from the current bear quiet regime has good odds. IE a move higher from here.

The double bottom type of price action in March with strength to begin Q2. 

And if we scroll out a bit we can see this price level held a lot of attention in 2020 

and all the way back to 2012 and 2013

I'm not rushing out to buy gold just yet, but being long from here show's more promise than it did a month ago. 

We continue to be long $XLE calls and expect to see 70-100 levels this year, but we are up nearly 100% on the year already so the sideways action might be the star of the show for now to wear off the exuberance of this bull volatile trading regime.

Corn has gone Lock Limit up twice already this year, which isn't all that abnormal but there haven't been any lock limit down days yet this year. As you can see from the chart prices went parabolic in January after entering Bull Volatile regime. Then as expected we eventually had a 8% (or greater) correction followed by new highs. 

Then as soon as Q1 ended this week, Corn went lock limit up, as if prices were being pegged at a key level until the books were closed on the quarter...shocking!

Corn holding steady through the Bull Volatile is a good sign for longs, as each big selloff gets met with a slow quiet grind higher. We want to be long.

Currencies

The dollar has owned the currency markets in 2021 after the whole world had been calling for its demise. The only place I can find a better looking trend is the non stop selling of Swiss Franc and Japanese Yen, with the Euro close behind. 

For our prop traders, we have been all over the short Franc and short Yen pairs this year. At various points this year long USD, GBP, CAD, AUD even NZD vs Yen and CHF has been putting in powerful moves. And only recently taking on the EURCAD pair.

Currencies have been the easiest markets to trade for all of 2021, and things continue to look good. 

The thing about currencies, unlike equity indices, sometimes they have very long steady trends and sometimes that trend ends and reverts to the mean which we can see if we scroll out a few more years. 

The key is to keep your positions sized correctly with stops in place to avoid catastrophe. Because just when you think things are going to continue to do what has been happening forever, things change in a flash.

On this day in 2015, the Swiss National Bank decided to stop defending the Euro peg and EURCHF dropped 20% in a few hours and took 3 years to retest the level which hasn't been seen since. 

Crypto

On Friday, $ETHUSD broke its all time high and also closed above the 2000 level. Ethereum is the core asset necessary to participate in the incredibly lucrative De-Fi markets.  If you want to participate, you need Ethereum $ETHUSD. 

Coincidentally (funny how this whole update has been a coincidence with the Quarter ending) Q1 came to an end the same time that $ETH made new all time highs. 

Side note: Looking at accessing the Crypto markets differently than the obvious routes, ETHUSD or ETHBTC, as of Saturday the best way to access is via ETHKRW (Korean Won). Many crypto brokers offer trading in different currencies, Kraken does I know.

• ETHUSD -4.5%
• ETHJPY -4.74$
• ETHKRW -1.7%
  
  
  

Well then it must be a coincidence that on Saturday the Total Value Locked in DeFi hit a new ALL TIME HIGH.

This is how much was locked in August of 2020, about $10 Billion, and roughly $1Billion a year ago. Currently total DeFi locked value is at $48 Billion, that is, a $48 Billion dollar asset class emerged in less than a year.

The massive disruption to financial markets that de DeFi space will bring is happening now and it's coming in hot!

We will be launching a new crypto site covering everything Crypto and especially DeFi. Stay Tuned!

Final Thoughts

The theme now is new quarter, earnings season is about to begin for equities, as of today 4 million people are being vaccinated per day up from 1 million per day earlier this week, along with all the government stimulus, 2021 will be a welcome change. 

I continue to remain bullish The British Pound and UK assets generally. 

Currently bullish $GBP CAD and $USD, while short $EUR, $CHF and $JPY.

Long $YM $NQ $XLE $SLV $ARKK $DB $F $DBA $DISCA $PCG $AAPL and $UVXY (for a hedge)

Long $BTCUSD $ETHJPY $DOTUSD $SCUSD $BATUSD $KSMUSD $UNIUSD $ADAUSD

We will be adding to our $YM and $NQ longs this week