Macro Edge #35Originally posted on thepensivenugget.comMarkets have seemingly calmed down, with the US yield curve moving out of inversion, and commodities along with the USD off their highs.But, traders and investors need to avoid falling into complacency.Global conditions are fragile, and under increasing pressure with each passing day.Not A Time To Be Complacent The US yield curve managed to steepen out of its inversion in both the 2s-10s and 5s-10s, but: The curve is still very flat, and the financial stress it signaled by inverting should not be ignored; inversions tend to happen months in advance of a recession Recession risk is now real, compounded by high levels of inflation in food and energy globally Commodities prices remain high even as they start to stabilize WTI continues to

Originally posted on thepensivenugget.com The recent failure of Silicon Valley Bank (SVB) has driven markets into a frenzy of trying to understand why it happened, and what broader systemic implications it may have. The US government has stepped in to backstop depositors in an attempt to prevent further bank runs, but mainstream narratives continue to miss a broader point — bank runs are symptoms of a much more troublesome problem. One large enough to potentially trouble the entire global financial system. The Repo Lurking Behind The Narrative Popular narratives that have been used to explain SVB’s blowup run along similar lines: Banks took in cheap deposits when rates were low and couldn’t lend all of it out, which led them to invest in

ETF Edge #17Originally posted on: thepensivenugget.comMarkets are crashing all over the world, with levels of risk and volatility rising sharply.Times like these, while scary, provide rich opportunities for those who are well prepared.Markets Finally Breakout… Look Out Below! 2 weeks of carnage in global markets have pushed major markets to break below key support levels SPY, QQQ, and IWM are looking very bearish XLRE turned from bullish to bearish in a little over 2 weeks IWM’s underperformance vs the major US indices, and XLP’s outperformance vs XLY, has proved to be prescient in signaling the lack of conviction in the broader Mid-March to April rally Energy stocks (XLE) are still elevated, but with macro conditions deteriorating all over the world, how long can demand for oil remain at

ETF Edge #14 Originally posted on thepensivenugget.com Some ETFs are showing signs of wanting to breakout, but have yet to do so decisively. It is best to wait for the market to give us direction at this point, considering the deteriorating macro backdrop, and the potential for a resurgence in volatility from war headlines. Waiting For Decisive Moves Most ETFs are hovering around key levels Watch for SPY$SPDR S&P 500 ETF Trust(SPY)$, QQQ$Invesco QQQ Trust(QQQ)$, XLY$Consumer Discretionary Select Sector SPDR Fund(XLY)$, XLRE$Real Estate Select Sector SPDR Fund

ETF Edge #16Originally posted on thepensivenugget.comNote: We will be taking a short break. Regular posting of ETF Edge will resume in May. Thank you for reading!The long weekend in most markets left many of them trading sideways, with some still hovering around major support levels.Watch for breakouts of these levels, and the opportunities that they present.Watching For Breakouts Instead Of Easter Bunnies Easter holidays in a number of major markets made for a shortened trading week, and lots of sideways trading. Will we see some breakouts this week? SPY, QQQ, XLY are consolidating after their selloffs, but have not yet moved to retest their post invasion lows IWM’s underperformance looks to have been prescient (at this point) in signaling the lack of conviction in the broader Mid-March t

Macro Edge #34Originally posted on thepensivenugget.comThe US yield curve has inverted, indicating that recession risks are very real.Pay special attention to the USD in the coming weeks and months. A stronger USD will indicate growing risks of global financial problems, as will US nominal yields turning down.Yield Curve Inverts, Time To Watch The USD Closely The US yield curve between the 2s and 10s inverted last week, and remains inverted between the 5s and 10s Recession risk is now real, compounded by high levels of inflation in food and energy globally Commodities prices remain high even as they start to stabilize WTI is back below $100, but is still too high for a world contending with high inflation and growing recession risks Wheat is still expensive, although it has come back down

Macro Edge #33Originally posted on thepensivenugget.comThe US yield curve continues to flash huge warning signals to anyone willing to listen.As the potential for deflationary outcomes increases, smart traders/investors need to position themselves accordingly.If you would prefer to read this article in a slideshow format, you can do so at: https://bit.ly/Macro_Edge_33The Yield Curve Is Flashing A Huge Warning Signal The US yield curve between the 2s and 10s is very close to inverting, and remains inverted between the 5s and 10s Indicating much reduced potential for long term growth-driven inflation, even as US breakevens stay elevated Volatility in Commodities remains high even as prices of the most affected commodities pull back a bit WTI has fallen back to ~$100, which is still too high

Originally posted on thepensivenugget.com Talk of global recession is gaining momentum as we begin 2023. Here are three signs which will indicate that a broad market selloff is imminent. Before we begin, it is important to note that a broad market selloff occurs when all markets are aligned on a cyclical basis. This means that the general idea behind looking out for indications of a coming selloff rests on understanding where important markets are trading in their own cyclical patterns, as well as how they normally trade just before inflection points. 1. The Dollar Strengthens, Or Remains Strong As you can see from the charts, the Dollar (DTWEXBGS) was the first market to turn, way back in mid-2021, signaling that USD funding conditions were b

Market Edge #56 Originally posted on thepensivenugget.com Recession or no recession? This is the crucial question that traders are grappling with at the moment. Naturally, how you answer the question will determine how you position your portfolio for the months ahead. But what if you simply want to wait for the markets and/or data to give a clearer heading? Waiting and not trading is certainly one way to go, but so is taking non-directional positions. Markets Remain Uncertain About The Future… Markets are not fully aligned towards a weaker global economic environment (do note that they were fully aligned and indicating a global recession as recently as October 2022) Weaker USD in short term, but the medium term trend is s

ETF Edge #15 Originally posted on thepensivenugget.com Markets seem to have returned to their pre-war trends (most of them, at least). While it remains uncertain how long this will last, given that the war in Ukraine is still ongoing, the continuation of previous trends creates trading opportunities. Markets Seem To Be Returning To Their Pre-War Trend Most ETFs that were selling off before Russia’s invasion have reverted to selling off, and vice versa SPY, QQQ, XLY have tumbled over the past week, but have yet to retest their post invasion lows IWM’s underperformance looks to have been prescient (at this point) in signaling the lack of conviction in the rally over the last 2 weeks, although it remains stuck in its range XLU continues to make new all time highs; XLI, XLF are starting to l