Friday Paper Round

April 21, 2023

Happy Friday to all my old and new subscribers. The community is growing, and it’s giving me another level of enthusiasm and determination to push this stack to higher levels. Bear with me; there are some good things in the pipeline.

So, let’s focus again on the charts and what the model is trying to telegraph to us. Last week, many markets were on the brink of breaking out. The confluence of the recession narrative was supportive of bonds and precious metals. While momentum signals were strong, I urged caution at critical junctions, which was the right call. Now, let’s dig in and see what has changed.

Global liquidity conditions have deteriorated a bit and as I showed in a tweet with charts from Citi’s excellent Matt King presentation (see here for link), this is predicted to contract further, giving TGA dynamics.

Buy cheap protection when you can, not when you have to. VIX has been smashed following collapsing bond market implied vol (MOVE).

ES is still a buy according to the model. Oscillators are heading lower, indicating a higher probability of a setback in the weeks ahead. The model isn’t far from closing the longs.

NQ is showing a similar pattern with a very small historical range. Something will be moving soon. Model still long.

FTSE is close to historical highs. These are all multinational companies, so don’t read too much about the state of the UK economy. See below the corresponding ETF for the FTSE 250, which incorporates more domestically oriented companies.

FTSE 250 (ETF proxy)

DAX is also close to ATH’s. The model is long. DAX P/E is around 15x. Still cheap relative to its US counterpart. Although, here, we don’t talk about valuations, the model doesn’t care.

Nikkei is showing some upside exhaustion, worked nicely last time, although that was ironically just at the onset of the SVB crisis at the beginning of March.

ZN (10y Future) found good support on the 50d average and now looking to leap the 20d, which is acting as resistance. A retest of the March highs is on the cards but will take time to form.

Le BUND doesn’t like to play ball with its US counterparts. It’s sitting in a pretty good set-up spot, however. Paper is tempted to have a little long for a trade.

Gold tried the break and failed. Now we are flirting with prospects of testing the 50-day, which is at 1946. Risk-reward would dictate not to buy here.

BTC is back in the range from a few weeks back. 30k, for now, still seemed a bit too lofty of a proposition. I would expect the range around 28k to be holding for now. No strong views.

ETH/BTC we looked at last week indeed struggled above the 200-day average. No clear direction from here.

Radar trades: NOKSEK is at crucial levels. There is a trade here either way. My take is we hold this level, and I’d be buying NOKSEK.

Overall the market has refused the range breaks we observed last week. Liquidity/debt ceiling is on people’s minds. Meanwhile, Vol has collapsed. There are trades to be had, but taking a stance on the overall market direction is leaning slightly bearish. As always, stay nimble and careful out there.

Have a great weekend

Paper Alfa

Music

one-two one-two, a bit of a Friday feeling with this epic tune. The beats and ever-changing speed make this one of my favourite shake-along pieces. Have a great weekend in your gravel pit.