Keeping tabs on the overall market correlation across assets on the risk or safe haven side was my focus at the weekend. Even though things eased last week with over $5-T in sidelined cash coming back in just 4 days, circumstances might see it snap back into the Bear’s territory on very short notice. However, there is an additional $10-T+ on the sidelines looking for a place to deploy, stocks are the place.
Learn to focus on behavior, history and strategic interactions of the Key market elements.
Sentiment is a volatile motivator. It often overrides event risk that may define a Bullish or Bearish course according to a textbook interpretation of a systemic backdrop.
So, let’s take the pulse of the speculators. And the majority I talked to at the weekend said they believe that the recent bounce is a pause in a broader Bear trend.
Speculative positioning suggests a similar outlook.
Looking at the positioning among retail CFD traders, there has been an big swing in net Short interest this past week. As more than 70% of those with exposure to the derivative on the benchmark were holding a Short view.
And the number of Long positions has shrunk to levels commensurate to the marks preceding the fall while Short interest has more than 2X’d in a few days.
In a backdrop where sentiment hangs on a gossamer thread, and pain is inevitable, influence will skew towards timely updates and converge where the data is closest to systemic in influence.
This week, the US NFPs will be the focus.
Last week’s initial jobless claims exacted serious economic concern, but the March full labor report will give a more comprehensive read on the damage.
Sentiment surveys and PMIs will offer similar scale for intent and proxy of GDP.
The Eurozone and US sentiment readings along with the Chinese and US (ISM) PMIs will be Top figures to watch.
The Key fundamental and speculative developments to watch in here are the GBP after PM Johnson was diagnosed with COVID-19 and Canadian Loonie (CAD) following Friday’s surprise 50 bpt rate cut.
Gold is an important benchmark for the entire system. Whether or not they are effective, the world’s central banks are mounting an enormous upgrade to their stimulus effort. That will come with a cost to the value of the traditional fiat (paper) assets: currencies and government debt.
If risk aversion kicks in and critique of the government influence grow, the precious Yellow metal will gain. If risk aversion is severe and the money metal falls that signals a liquidity event.
USD has come out as a ‘haven of last resort’ in the last 5 wks. That said, the amazing 4-day dive last week mirrored 4-day EUR/USD rally since August 2015 reflects an easing pressure of severe financial instability aka a credit crunch. Should pressure come back, concerns will increase big time.
When participating in a very tradable volatile market discipline is Key.
Do your work and place your bet…
Have a healthy week, stay home!