Macro micro trader

Before I start with the technical update for the markets, here’s some anecdotes from my visit at the Bloomberg Invests’ NYC event:

Those views below are from the biggies of the investing world who manage trillions of dollars combined and they are also the ones who have delivered positive returns for their clients in the times like these and hence when they something of context, we better take note:
1) Inflation will come down, but don’t expect 2-3% inflation anytime in the next 3-5 years.
2) This painful market environment will last for longer than many people assume.. probably longer than we all have ever seen.
3) ECB, BOE and the Fed combined have raised 25bps rate 24 times this year already and expected to raise 44 times more in the next six months.. so anyone who thinks rates would be lower next year is fooling himself.
4) What we have seen in the markets so far this year has been very orderly – and that’s a real problem! Because for markets to bottom, there needs to be a shock and awe event that makes everyone fearful.. so long as that’s absent, we are far off from the lows.
5) Markets would bottom out way earlier than the recession gets over. So start cherry-picking as and when you see real pain on the streets.

While many of those points do resemble my own macro view, I was equally shocked to hear far deeper and glimmer view from the biggies of the investing world. What it also means is that we have to be far more vigilant with our capital. Let’s not force ourselves into the trade and not get driven by one or two day’s bullish bearish trend that we have seen in the past few days. Those are at best traps for bulls and bears equally and we still have a long way to go in this bear market.

Let’s now dive into what are the charts showing us:

ES (4H): The bounce that we saw last week, post CPI was quite sharp, while I did expect markets to bounce (and hence this tweet), as the expectation was based on the premise that while 4H demand line was broken towards the lows, MACD was still not negative, in fact it diverged positively and hence the tweet to not go short. Also, I did not expect the bounce to be so sharp in one single day. What followed next day is a sell-off exactly off this falling wedge’s upper trendline and corrects some anomaly of that bounce.

ES (Daily): On the daily, it got rejected off the 20 SMA – mean reversion and reversal!

ES (Weekly): When we zoom out to the weekly the picture is far more clearer – It is the weekly 200 SMA driving bulls and bears crazily for the past 3 weeks. Sell on rise, but don’t short the hole until the hole gives way into the valley!

NQ (4H): Similar story for the NQ as well, rejected off the upper end of falling wedge on 4H.

NQ (Daily): On the daily – 20 SMA.

NQ (Weekly): While ES was able to sustain above 200 weeks MA for the past 3 weeks, NQ has struggled to sustain it for the equal number of weeks. What this tells me is that NQ would probably drive us lower in the coming days/weeks, as has been the case all of this year.

YM (Daily): Similar yet different story – The diamond bottom resulted in a breakout post CPI, but it couldn’t even cross the diamond high (key) along with failure to sustain above 20 SMA. Although I’m still holding the long entered on Friday, I may get stopped out (29,565 is my stop).

YM (Weekly): Similar to NQ even YM has not been able to cross past the 200 weeks MA for the past 3 weeks – another cue as to where we are headed!

RTY (4H): The barometer of small caps has been forming this bearish low base on the 4H – Not a pretty picture for the bulls, as these kind of low bases, when breakdown, they go a long way down.

RTY (Daily): Although on the other hand, this weekly demand has been sustained for 3 weeks now.

RTY (Weekly): While the weekly demand has been sustained for last 3 weeks, it has not been able to cross past the confluence of 200 weeks MA and 20 weeks MA

Overall conclusion:

1. On the 4H and the daily charts, there is a positive MACD divergence, telling us to not be short as the bounces would be sharper (just as we saw on Thursday).
2. On the weekly, inability to cross past the 200 weeks MA on almost all the index futures tells me that bulls are still weak to sustain any bounces.
3. My earlier thesis that MACD would turn positive on the weekly before we bottom out, is fading away as we continue to make new lows.
4. What it also means is just as the macro signals turn bearish, even technicals are not getting any better.
5. We will have to trade far more lesser and far more bearish as bullish trades won’t yield much results. But going short at the right time would be far more important now.
6. Probably we wait for those wedges to breakout to the upside and then short around those weekly supply lines.
7. Key note – The next time if and when a sharper bounce comes, it could probably go all the way towards 50 weeks MA before we get any shorting opportunity.