Originally posted on thepensivenugget.comEveryone has heard of the law of large numbers, but what about the law of small numbers?In truth, there isn’t really such a law.The turn of phrase is simply used as a parody of the actual law (of large numbers) to illustrate that humans tend to draw firm conclusions from small samples — to their detriment.9. Believing In The Law Of Small NumbersA common example of this would be traders coming to the conclusion that their strategy is sound after a small number of profitable trades, which is related to some degree to the recency bias.This also applies to the o

Originally posted on thepensivenugget.comHindsight is 20/20.You’ve probably heard this phrase at some point or other in your life, and it refers to the clarity that comes with retrospection, which isn’t available to you at the point of making a decision.8. Hindsight biasThis is very common in trading and investing, where laments along the lines of “I should have bought this stock when the price was lower”, or “I should have taken profits last week before markets tanked” can often be heard.It is especially common among less experienced market participants, who tend to be more emotionally affected by outcomes of their trading decisions than grizzled veterans.In a way, the hindsight bias is related to the

ETF Edge #24Originally posted on: thepensivenugget.comMarkets are trading in a start-stop manner, which is frustrating for bulls and bears alike.Sharp falls followed by large rallies may continue for a while as many developed markets head into summer, but stay mindful of how bearish trends are.Start-Stop Markets Frustrate Bulls & Bears. Trend Still Bearish! Most ETFs moved off their lows over the course of last week, taking some of the sting out of early June’s sharp falls, but Trends remain very bearish, and correlation between markets is high, both of which indicate that further weakness is possible More start-stop price action, or consolidation, is possible as most developed markets head into summer  XLF is telling us something interesting - financials are “supposed” to do well

Macro Edge #43Originally posted on: thepensivenugget.comCommodities prices, especially base metals, are flashing serious warning signs.We now have three major macro markets indicating worsening global conditions — the USD, US yield curve, and base metals.When will UST yields follow?Commodities Are Aligning To Signal Global Weakness Commodity markets are aligning with the USD and the US yield curve to signal serious deterioration in global conditions WTI failed to test its current cycle highs ~123 before tumbling lower, now trading slightly above $100 Base metals are breaking lower, with Dr Copper finally breaking below its range to trade below $4, Iron Ore falling sharply off resistance, and Aluminum still crashing The USD cooled off over the past week, moving sideways against most other c

ETF Edge #23Originally posted on: thepensivenugget.com The selling pressure in markets continues to be broad based and relentless.Shorts continue to do well, with many markets making new lows for the year.Selling Remains Broad And Relentless US markets have a shortened trading week, which might be a good thing, as the market selloff continues to be broad and relentless, with almost everything continuing to fall together High beta, low beta, and the SPY itself continue to fall XLF is telling us something interesting - financials are “supposed” to do well in rising rate environments, like now, but they aren’t. The economy clearly isn’t doing well, at least from the market’s perspective  Energy stocks (XLE) continue to sell off, and might have made their cycle highs. Oil prices are down

Macro Edge #42Originally posted on thepensivenugget.comThe bounce is over, as the USD erases its May losses.Problems grow by the day, with the US yield curve inverting again, EU debt troubles brewing, and high food and oil prices choking already weak growth.Dollar Bulls Return, And They Mean Business European debt concerns have reignited with spreads between Italian and German bonds widening. The ECB held an emergency meeting to discuss the issue, but why isn’t anyone asking the crucial questions: How healthy is the European economy if the ECB is so worried that rising rates will spark a new debt crisis? If the economy is not healthy, with the ECB having just announced plans to raise rates (and not by a lot), how effective are their policies considering that they have held rates below

ETF Edge #22Originally posted on thepensivenugget.comThe recent market bounce is clearly over, and the bloodbath across all markets continues.Naturally, this means that most trading opportunities are biased to the short side.More Pain Incoming, a.k.a The Bounce Is Over The markets are done bouncing and have moved into the second leg of their selloff, which has been brutal, with everything falling together High beta, low beta, and the SPY itself have all seen dramatic falls XLF is telling us something interesting — financials are “supposed” to do well in rising rate environments, like now, but they aren’t. The economy clearly isn’t doing well, at least from the market’s perspective Even Energy stocks (XLE) took a tumble, and are off their highs. Oil prices remain elevated ~$120, but wi

Macro Edge #41Originally posted on: thepensivenugget.comMacro markets have taken a break from moving in tandem, but the global macro backdrop remains challenging at best.How long can markets keep going their separate ways before moving together again?Macro Markets Start To Diverge… But For How Long? While the USD is no longer broadly correcting, its performance is diverging Commodity currencies are still eking out gains against the USD, while EUR, GBP, and most importantly the CNY, have begun to consolidate US 10y and 30y yields look like they want to make a run to test their current cycle highs after rallying strongly, but Long yields are struggling to make new highs even with record inflation and a very hawkish Fed Together with the broadly stronger USD and flat yield curve, global marke

ETF Edge #21Originally posted on: thepensivenugget.comThe market has lost a good amount of upside momentum over the past few days.Is the bounce fading? Or is everyone just taking a collective breath? Either way, watch for breakouts!Is The Bounce Fading? Or Are Markets Just Taking A Breath? The bounce, bear market rally, or whatever you want to call it, has slowed markedly in recent days, with most markets starting to trade sideways - watch for breakouts! SPY and QQQ are both consolidating, as IWM tries to test resistance XLRE, XLF, XLY spent the last week trading sideways; even XLP’s heroic rally has stalled Energy stocks (XLE) are still making new highs for the year, but with macro conditions deteriorating all over the world, how long can demand for oil remain at current levels? XLU

Macro Edge #40Originally posted on: thepensivenugget.comThe USD’s correction might be over, which may spark more chaos in global markets, especially if correlations remain high.Is The USD’s Correction Over? USD weakness over the last 2 weeks may be over, as it looks to have turned against many currencies This may mark a shift back toward broader sell offs, or a chance to establish Dollar longs US 10y and 30y yields may have made their cyclical highs and could be turning lower as the global cycle shifts Yields can’t seem to make new highs even with record inflation and a very hawkish Fed (US 2y yields are in the same boat) Together with the broadly stronger USD and flat yield curve, global markets are looking at further, and possibly steeper, sell offs The USD is broadly stronger against a

ETF Edge #20Originally posted on: thepensivenugget.comMarkets continue to bounce, especially in equities, but not all markets are bouncing equally.Broader trends remain bearish, and macro conditions are weakening.Focus on the weakest ETFs, and how they have been trending over the medium term.The Bounce Continues. Focus On Broader Trends & Weakness US markets have a shortened trading week, but attention will remain on whether equities can continue their bounce The bounce/ bear market rally/ whatever you want to call it has caused some markets to move in a differentiated manner again, but will this last?  QQQ is still looking bearish, even as SPY and IWM try to regain a bullish footing XLP is bouncing up and down like a yo-yo, even as XLY continues to look very weak XLI and XLF

Macro Edge #39 Originally posted on: thepensivenugget.com US yields aren’t pushing higher anymore, regardless of the Fed’s hikes, or crazy inflation. If US yields keep falling, global markets are in for more chaos. US Long Yields May Signal More Global Sell Offs US 10y and 30y yields may have made their cyclical highs and are turning lower as the global cycle shifts Yields can’t seem to rally further even with record inflation and a very hawkish Fed (US 2y yields are in the same boat) Together with the broadly stronger USD and flat yield curve, global markets are looking at further, and possibly steeper, sell offs The USD is broadly stronger against a whole host of currencies. Stress levels in USD funding markets are obviously high, and still increasing Global USD funding conditions are cr

ETF Edge #19 Originally posted on: thepensivenugget.com ETF performance is starting to diverge. Can this last, or are markets just taking a breather after their panicked selloff? Whatever it turns out to be, keep an eye on what the weakest markets are doing. ETFs Are Starting To Diverge, Sell The Weakest Markets are starting to move in a differentiated manner again, but will this last?  QQQ is still looking very bearish, even as SPY and IWM take a breather XLI and XLF still look weak XLP and XLY are now both very bearish, as inflation begins to bite into retailers’ margins Energy stocks (XLE) are still making new highs for the year, but with macro conditions deteriorating all over the world, how long can demand for oil remain at current levels? Fixed Income ETFs still look very bearis