I decided to go through and consolidate my charts this week to make for easier decision making. Friday’s sell off was a sign of weakness in a market that was already showing strain. While the drop on resumed trade war threats was swift, the rest of the market had a muted response. Heading into this week, we should see another big move and I will try to be open to trading either side depending on how this develops.
1. Macro
Gold is still in its uptrend and that is unlikely to change anytime soon. I don’t have it charted here, but Gold’s volatility index
GVZ spiked during Friday’s session, however buyers seemed to be absorbing the volatility since it still closed up over 1%. Gold has already made a new ATH today and I do not expect to see the trend change this week.
The dollar
DXY seems to be near the top of its deviation from the flat EMA. I think we will see the dollar move lower which could boost Gold, Stocks, or both. Next, we saw 
US03MY remain relatively flat during Friday’s sell off while US10Y moved sharply lower during the session, making the US10Y-US03MY spread very tight once again. Since real yields are still edging up and the 3M bond stayed flat during the panic, that leads me to believe the bond market volatility was contained and may not be indicative of a true risk-off reaction.
One reason why US Treasuries will continue to catch a bid is that as forward inflation expectations continue to slide (bottom left chart), the real return is still attractive compared to bonds from other major countries. We’ll see if the renewed trade sparring will change the forward inflation exceptions trend since the data from TIPS is delayed, however for now I’ll continue to base my perception on what I’m currently seeing on the chart.
Lastly, Oil is continuing to see an average decline. Hopefully middle eastern peace efforts are successful, which could keep the price subdued. On the bottom chart I have combined the average of
COPPER1! and Corn 
ZC1! into a single line compared to DXY , which aims to show real demand (and/or inflation) pressure against the Dollar’s relative strength. Here we can see commodities took a hit on Friday but the trend is still very strong to the upside. Since forward inflation expectations are down and the dollar is flat, this may be pointing to the presence of real demand, which should be bullish for equities.
2. Risk
Even when looking at the past six months on a line chart, the pullback, Friday’s drop was significant. As I mentioned last week, there are important risk-health items to watch for here. I’m now just charting the High Yield OAS - Investment Grade OAS spread, which was already starting to move up before Friday’s sell off. This data is only reported once per day for the previous session, so the impact on corporate bond yields is not yet known. This will be very important to pay attention to, as it could signal true aversion to risk.
Next, the EES1!/GOLD spread is declining and should continue until Gold enters a re-accumulation phase. Anyone’s guess when that will be so for now I think it’s safe to assume that Stocks will continue to underperform Gold, and if Friday’s drop was any indication of which side is in control, it serves as confirmation that stocks are sensitive to bad news. Buyers seem to be the ones getting absorbed.
The third chart on the top shows that although
NQ1! has been outperforming 
YM1! since the market bottomed, the momentum seems to be stalling out. I’ll be looking at the sectors to find any further signs of sustained rotation.
3. Sector Analysis
My notes are best explained in the screenshot but my comment is that most of the decline on Friday came from
XLK (Tech sector) selling off. Other sectors performed better against SPX, with 
XLP (Consumer Staples) seemingly breaking out of a decline, however as you can see from the chart on the right, it has still been the worst performer against the other indices over the past three months.
One session is not enough to change the trend, however it will be important to watch for continued rotation out of tech and into other sectors. This could causeNQ1! to decline against YM1! as I suggested earlier, and would signal the market is positioning for a more sustained downturn - likely caused by disappointing growth.
4. Bias
This is the chart I have tried to condense the most. I have switched to just using Line Break as my main chart for ES, which I found performed better than Renko when combined with my other indicators. On the lefthand side, I am using Session CVD but got rid of my other indicators and made a CVD Momentum indicator, which tracks the momentum of CVD rising or falling over an anchor period (1 week). I’m still using a range chart calculation for this chart, currently set to 20R.
On the right, I am using what I’ll call my Volatility Dashboard, however it does not start producing a useful signal until premarket. Based on Volatility, it can be said with certainty that dealers went long on puts right before the sell-off began.
From a technical standpoint, the price was in a rising wedge and dumped after it made a higher high that did not reach the upper trend line. Rising channels are generally bullish, however the extent of Friday’s free fall could mean that even if the price quickly recovers, it may be forming a top similar to what we saw last December. This is why risk indicators like corporate bond spreads, sector performance, and changes to the macro structure will be important to monitor over the coming days.
—
Conclusion
For this week, all I can say with certainty is that I think there will be some good opportunities. Here is what I believe can be safely assessed from this analysis:
1. Stocks remain under pressure, however “smart money” will require more time to rotate out of tech, leading to repeated retests of the top of the range.
2. Tailwinds for stocks are potential real demand in agriculture and industrial material that is not impacting the market’s forward inflation expectation.
3. “Smart Money” will sell volatility (puts) into pullbacks if the price is set to be driven higher, or will do the opposite, buying volatility (puts) and selling calls on low volume rips
This is why I will be looking for more confirmation before taking a side, as the market’s goal now is to clear out liquidity. When it comes to the larger trend, I tend to think that stocks do not seem to be showing strength over the larger macro structure, however that does not necessarily dictate that the index will come down another 8%. Instead, I think at the very least we will stay in a flat range for the time being.
I do not think the market is ready to go on a bull run, nor do I think the environment is showing a risk-off bias that is strong enough to warrant stocks going straight down. If we meet resistance near the top of the range, I’ll look at volatility positioning and CVD for the signal to go short. Conversely, if we make a higher low I will go long on calls to the top of the range.
Good luck to all and thanks for reading!
1. Macro
Gold is still in its uptrend and that is unlikely to change anytime soon. I don’t have it charted here, but Gold’s volatility index
GVZ spiked during Friday’s session, however buyers seemed to be absorbing the volatility since it still closed up over 1%. Gold has already made a new ATH today and I do not expect to see the trend change this week. The dollar
DXY seems to be near the top of its deviation from the flat EMA. I think we will see the dollar move lower which could boost Gold, Stocks, or both. Next, we saw US03MY remain relatively flat during Friday’s sell off while US10Y moved sharply lower during the session, making the US10Y-US03MY spread very tight once again. Since real yields are still edging up and the 3M bond stayed flat during the panic, that leads me to believe the bond market volatility was contained and may not be indicative of a true risk-off reaction. One reason why US Treasuries will continue to catch a bid is that as forward inflation expectations continue to slide (bottom left chart), the real return is still attractive compared to bonds from other major countries. We’ll see if the renewed trade sparring will change the forward inflation exceptions trend since the data from TIPS is delayed, however for now I’ll continue to base my perception on what I’m currently seeing on the chart.
Lastly, Oil is continuing to see an average decline. Hopefully middle eastern peace efforts are successful, which could keep the price subdued. On the bottom chart I have combined the average of
COPPER1! and Corn ZC1! into a single line compared to DXY , which aims to show real demand (and/or inflation) pressure against the Dollar’s relative strength. Here we can see commodities took a hit on Friday but the trend is still very strong to the upside. Since forward inflation expectations are down and the dollar is flat, this may be pointing to the presence of real demand, which should be bullish for equities. 2. Risk
Even when looking at the past six months on a line chart, the pullback, Friday’s drop was significant. As I mentioned last week, there are important risk-health items to watch for here. I’m now just charting the High Yield OAS - Investment Grade OAS spread, which was already starting to move up before Friday’s sell off. This data is only reported once per day for the previous session, so the impact on corporate bond yields is not yet known. This will be very important to pay attention to, as it could signal true aversion to risk.
Next, the EES1!/GOLD spread is declining and should continue until Gold enters a re-accumulation phase. Anyone’s guess when that will be so for now I think it’s safe to assume that Stocks will continue to underperform Gold, and if Friday’s drop was any indication of which side is in control, it serves as confirmation that stocks are sensitive to bad news. Buyers seem to be the ones getting absorbed.
The third chart on the top shows that although
NQ1! has been outperforming YM1! since the market bottomed, the momentum seems to be stalling out. I’ll be looking at the sectors to find any further signs of sustained rotation. 3. Sector Analysis
My notes are best explained in the screenshot but my comment is that most of the decline on Friday came from
XLK (Tech sector) selling off. Other sectors performed better against SPX, with XLP (Consumer Staples) seemingly breaking out of a decline, however as you can see from the chart on the right, it has still been the worst performer against the other indices over the past three months. One session is not enough to change the trend, however it will be important to watch for continued rotation out of tech and into other sectors. This could cause
NQ1! to decline against YM1! as I suggested earlier, and would signal the market is positioning for a more sustained downturn - likely caused by disappointing growth. 4. Bias
This is the chart I have tried to condense the most. I have switched to just using Line Break as my main chart for ES, which I found performed better than Renko when combined with my other indicators. On the lefthand side, I am using Session CVD but got rid of my other indicators and made a CVD Momentum indicator, which tracks the momentum of CVD rising or falling over an anchor period (1 week). I’m still using a range chart calculation for this chart, currently set to 20R.
On the right, I am using what I’ll call my Volatility Dashboard, however it does not start producing a useful signal until premarket. Based on Volatility, it can be said with certainty that dealers went long on puts right before the sell-off began.
From a technical standpoint, the price was in a rising wedge and dumped after it made a higher high that did not reach the upper trend line. Rising channels are generally bullish, however the extent of Friday’s free fall could mean that even if the price quickly recovers, it may be forming a top similar to what we saw last December. This is why risk indicators like corporate bond spreads, sector performance, and changes to the macro structure will be important to monitor over the coming days.
—
Conclusion
For this week, all I can say with certainty is that I think there will be some good opportunities. Here is what I believe can be safely assessed from this analysis:
1. Stocks remain under pressure, however “smart money” will require more time to rotate out of tech, leading to repeated retests of the top of the range.
2. Tailwinds for stocks are potential real demand in agriculture and industrial material that is not impacting the market’s forward inflation expectation.
3. “Smart Money” will sell volatility (puts) into pullbacks if the price is set to be driven higher, or will do the opposite, buying volatility (puts) and selling calls on low volume rips
This is why I will be looking for more confirmation before taking a side, as the market’s goal now is to clear out liquidity. When it comes to the larger trend, I tend to think that stocks do not seem to be showing strength over the larger macro structure, however that does not necessarily dictate that the index will come down another 8%. Instead, I think at the very least we will stay in a flat range for the time being.
I do not think the market is ready to go on a bull run, nor do I think the environment is showing a risk-off bias that is strong enough to warrant stocks going straight down. If we meet resistance near the top of the range, I’ll look at volatility positioning and CVD for the signal to go short. Conversely, if we make a higher low I will go long on calls to the top of the range.
Good luck to all and thanks for reading!
כתב ויתור
המידע והפרסומים אינם אמורים להיות, ואינם מהווים, עצות פיננסיות, השקעות, מסחר או סוגים אחרים של עצות או המלצות שסופקו או מאושרים על ידי TradingView. קרא עוד בתנאים וההגבלות.
כתב ויתור
המידע והפרסומים אינם אמורים להיות, ואינם מהווים, עצות פיננסיות, השקעות, מסחר או סוגים אחרים של עצות או המלצות שסופקו או מאושרים על ידי TradingView. קרא עוד בתנאים וההגבלות.