As it turns out, markets can remain solvent longer than you can remain irrational.
Stocks continue to catch a bid. This is despite any so-called "banking crisis" or even the "upcoming recession" that I've been hearing about for so long.
Markets remain solvent as the major US Large-cap Indexes keep pushing up against new highs.
It's been broad based appreciation in stock prices since that October morning.
Every US Sector is positive and many are up over 20%, just since October alone. The numbers are even better when you anchor back to when the new 52-week lows list peaked in June.
Historically, during bull markets you see more and more stocks going up and making new highs. In bull markets you see more sectors participating to the upside and more countries around the world breaking out.
This is exactly what's been happening for about 10 months now.
All these uptrends you're seeing in most stocks is not a new phenomenon.
Trendless price action remains the way right now for currency markets.
Yes, some of our bearish dollar trades have triggered and are trending. But most have not.
It doesn’t mean they won’t, of course. But it would be irresponsible not to consider potential outcomes that conflict with my bearish USD thesis…
If the dollar rips, what USD dollar pair would I use to express a bullish outlook?
The answer: the South African rand.
Check out the weekly chart of the USD/ZAR pair:
The dollar has been in a strong uptrend versus the rand for more than a decade. It’s been one base breakout after another, leading to the USD/ZAR challenging its all-time highs last month.
Check out the chart of Canadian dollar futures with the Commitment of Traders Report (COT) in the lower pane (red line for commercials, black for large speculators, and gray for small speculators):
Commercials hold their largest net-long position since early 2019. Extreme positioning such as this tends to mark key inflection points.
Why?
Because commercial hedgers represent the largest short sellers for any given market. And strong hands move markets.
You're seeing the permabears pointing to the Equally-weighted S&P500 falling down towards new 52-week lows relative to the Market-cap weighted version.
Fed Chair Jerome Powell spoke this afternoon after the central bank announced a 25-basis-point rate hike.
The fed funds futures were all over the place, from pricing in a 25-basis-point increase to a double-hike. They settled in around a single hike, with a slim chance of a pause.
But, instead of guessing the Fed’s next step or parsing Powell's words, I’ll rather sit back, wait, and prepare to trade a decisive breakout.
When I think about the latter stages of the hiking cycle or a potential pause, my mind immediately turns to one currency in particular…
The Japanese yen.
Since the Fed began raising rates last spring, the yen has been one of the strongest trending markets. It stands to reason it could experience a significant trend reversal as the Fed changes course.
Luckily, we have a clear level to set our alerts and define risk.