Shares down – US greenback and rates of interest up

Main American inventory indices fell to their lowest ranges in over a yr this week whereas the hit a 20-year excessive. The Fed will of tighter financial coverage at their assembly subsequent week.

Shares

From All-Time Highs in January 2022, the is down ~14%, the Vanguard Complete Inventory Market Index Fund ETF Shares (NYSE:) is down ~15%, whereas the is down ~11%.

S&P 500 Weekly Chart
VTI ETF Weekly Chart

The Index and the Index peaked in November 2021 and have fallen ~24% to 17-month lows. The NYSE Advance/Decline ratio ended April at its lowest stage in over a yr.

RTY Weekly Chart
NYAD Weekly Chart

Market sentiment is extraordinarily destructive, and a few analysts anticipate lack of development to be a much bigger drawback than inflation. Implied volatility on the had its highest weekly shut since October 2020.

S&P 500 Total Returns Index

S&P 500 Total Returns Index

AAII Bearish Readings

AAII Bearish Readings

Most share buybacks have been on hold throughout the earnings season but will be back big-time in May. The total for 2022 is estimated to be an ATH of ~$1.2 Trillion.

Share Buybacks 2022 Estimates

Share Buybacks 2022 Estimates

Currencies

The USDX was super strong in April, registering its biggest monthly gain (5%) in over a decade. It had rallied ~17% from its Jan. 6, 2021 inflection point, when the mob stormed the Capitol Building in Washington, DC.

The US dollar , despite massive trade deficits, as capital continues to flow to America for safety and opportunity.

USD-JPY 10 Yr Yield Spread Chart

USD-JPY 10 Yr Yield Spread Chart

USD-Yuan 10 Yr Yield Spread Chart

USD-Yuan 10 Yr Yield Spread Chart

has “held its own” against the USD this year and has rallied substantially against other currencies. The CAD is at a 7-year high against the and .

EUR/CAD Quarterly Chart

Interest rates

Late last year, while the Fed was still talking “transitory,” the market began higher interest rates. The re-pricing was gentle at first, but the delta (rate of change) increased dramatically starting in January.

EuroDollar Weekly Chart

Bond markets have been hit hard this year, as have 60/40 stock/bond portfolios.

iShares National Muni Bond ETF (NYSE:)

MUB ETF Weekly Chart
US 10 Yr Bonds Daily Sentiment Chart

US 10 Yr Bonds Daily Sentiment Chart

Rolling 4-Month Total Return Of Barclays Aggregate Bond Index

Rolling 4-Month Total Return Of Barclays Aggregate Bond Index

World Govt Bond GDP Weighted Return Index

World Govt Bond GDP Weighted Return Index

Commodities

The have tripled from the 20-year lows hit during the March 2020 COVID Panic—but are still historically “cheap” relative to equities.

US Commodities vs S&P 500 Performance

US Commodities vs S&P 500 Performance

hit 22-year highs following the Russian invasion of Ukraine (and Western sanctions on Russia), while (diesel) soared to new All-Time Highs.

briefly spiked to new ATH on the invasion but could not sustain those levels as the USD and interest rates soared. Gold dropped below pre-invasion levels this week (circled in this chart), down ~$200 from Mar. 8 highs.

Gold Daily Chart
ETF Investment Demand

ETF Investment Demand

Grains, oilseeds and other have rallied from major lows in March 2020.

DBA Fund Monthly Chart

My short term trading

The trading environment: Short-term market price action is very choppy and volatile. Liquidity is low. Open interest in several vital futures markets has dropped to multi-year lows.

People are limiting participation as there is a lot to worry about: Ukraine, European energy, Russian aggression, the Fed, rising interest and mortgage rates, China lockdowns, global supply chains, global food shortages and the existential risk that something BIG is underway, for instance, stock market and real estate prices have gone parabolic over the past couple of years—maybe the top is in!

I called the mid-to-late March stock market rally a bear market rally. That call is looking more prescient, but I don’t base my trading on Big Picture Calls—I make money from managing risk, not from having a great crystal ball!

I bought the yen and TNotes Sunday night and sold them for decent gains on Monday. I rebought the yen on Monday and covered it for a slight loss.

I bought the S+P Monday and sold it early Tuesday for a small profit.

On Thursday, I bought the S+P and the CAD and closed both positions for a profit early Friday. I was flat at the end of the week; my P+L was up 1.8%.

On my radar

I can imagine that a significant top in the stock market has happened and that the market is now in a bear market phase. The stock market (and the real estate market) had a remarkable run since the GFC, with much support from accommodative monetary and fiscal policies.

Now there seems to be a sea-change at the Fed, and even though they have been slow to act, they may follow through on their determination to “take away the punch bowl” like the Fed of old.

But the current sentiment is extremely bearish, so pressing the short side here is not without risks.

I’ve written before about passive investing—where people invest money every month in a broad stock market index, regardless of price, assuming that, despite temporary corrections, the stock market will continue to rise over the longer term. Don’t try to time the market, and don’t try to pick stocks or sectors.

Retail and institutional money flows into passive investment strategies have grown dramatically over the last decade, overshadowing active management strategies. I wonder if/when a continuing bear market will cause passive investors to have “second thoughts” and withdraw money from passive systems.

I think it will require a “crash” without much of a recovery, and then there will be relentless selling from that sector.

Currencies: I’ve traded currencies since the mid-1970s, and one of my mantras is that trends in the currency markets go WAY further than seems to make any sense, and then they turn on a dime and go the other way. (See leads and lags.)

Ideas on buying and selling

Probably the greatest issues about penning this weblog is that I can swap emails with individuals I’d in any other case by no means have met. This week, a subscriber and I exchanged emails about “lacking trades.” Right here’s my newest e-mail to the subscriber:

I’ve combined ideas on “missed trades.”

Often, the missed commerce is one thing that has made a giant transfer over an prolonged interval – at the least weeks, if not months, and I’m wondering, “how may I’ve missed that?” (Just like the Japanese Yen!)

However I often don’t provoke trades with a long-term time horizon as a result of I must danger “an excessive amount of” from my entry level. I’d additionally should “imagine” the story that justified the commerce – and I don’t imagine in a lot, besides imply reversion! (h/t to JMP!)

So (to keep away from lacking a giant commerce), the implication could be that I get right into a commerce utilizing my customary time horizon, then understand the thought is means larger than I assumed at first; I modify plans (add measurement and danger) and experience out the large winner.

That actually doesn’t appear doubtless. (I’ve no illusions about being the Tiger Woods of buying and selling, though I’m at all times attempting to enhance.)

So I make my peace about lacking trades; you possibly can’t catch all of them, buying and selling will not be a sport of excellent, and a few guys can reside with enormous drawdowns—that’s not me.

I don’t envy any dealer. Some guys swing large and hit homers; others, like Invoice Hwang, swing large and undergo enormous losses.

Quotes from the pocket book

“Unsuccessful merchants are obsessive about evaluation as a result of it provides them a way of certainty with their commerce. There isn’t a certainty. Be inflexible together with your guidelines – be versatile together with your expectations.”

– Mark Douglas, Buying and selling within the Zone, 2001

My remark: Buying and selling within the Zone is a superb e book, crammed with gems like this one. Through the years, I’ve seen so many individuals seek for “somebody who is aware of,” and so many individuals cling to a story as if it was “the reality.” Mark Douglas is the King of “Something Can Occur.”

“Each waking second of day-after-day, we’re predicting the implications of no matter is in entrance of us. The interpretation is within the type of an anticipated feeling/emotion. For those who embrace this, you’ll make higher choices.”

– Denise Shull, The ReThink Group, on Twitter, April 2022.

My remark: Plainly making predictions is a part of our DNA. We will’t cease doing it, and we are able to’t cease studying different individuals’s predictions. So, reside with that; simply don’t let it run your life or your buying and selling.

I’ve three separate computer systems on my buying and selling desk, together with my laptop computer. They’re all loaded with the identical software program and many others. If any of them fail, I’ll have redundancy, however usually one pc is strictly for charts, quote boards and a buying and selling platform, whereas the opposite is for emails, web shopping, and many others.

The buying and selling pc is the place I make or lose cash; the opposite is the place I learn and write. I’ve seen that I spend extra time on the learn/write pc (however consistently glancing on the different one!) I’ve purposefully determined to spend extra time on the buying and selling pc.