Macro micro trader

Ever since we have bounced off those Sept-Oct lows, I have been in this zone of the ‘what ifs’! What if the so called bear market that we saw this entire year was just a retracement in the larger bull market? What if the 2020-2021 mania we saw was actually peanuts as against what lies ahead (this idea first came from @hkuppy)? What if the inflation story is over (for now) before it starts again, very very dangerously? What if we are actually headed for a hyperinflationary asset bubble before it bursts? What if the Fed is yet to create the biggest blunders of all time? What if the commodities super cycle is alive and kicking and we are just taking a breather before the boom starts again?

Market is a wild beast and it does what it does. We can continue to have our biases and continue to succeed in the interim, until we don’t when the market whacks us again into a reality check of its supremacy! I have been bruised many a times, especially when I felt I got it! More so when I felt I can gain upper hand over it. I now know that I have a limitation of not knowing everything and I feel relieved over it. The moment we think and start believing that we know everything in this exam, market comes with a surprise and changes the subject altogether.

All through this year I continued to believe and have my bias that the markets and the world economy is in a hyperinflationary period and there is no reason to get bullish. All those bounces would be sold off hard. Until it didn’t. Now the sell-offs are not as hard and wild as those before the Sept-Oct period. The volatility is not as severe as it was for the major part of this year. What changed? Certainly the inflation and the Fed’s reaction to the inflation. We all knew that the Fed won’t give in until it tames inflation. While inflation has come off the highs, but it is still long time before the real rates turn positive (i.e. Fed Fuds rate higher than the inflation). While the Fed is still hell bent of killing the scare of inflation, me being a macro trader who trades the price keeping my macro hats on, I can’t yet fathom the fact that the inflation has not come off enough and yet markets are pricing in a pivot, recession and rate cuts already.

Having said that, lets not try to look at the markets from technical perspective all over again. What if whatever we knew so far was not the right angle and what if the price patterns are different than what we thought earlier? What if the Covid rally was a bigger breakout and the crash this year was only a backtest of this breakout?

Let’s start with NQ first:

NQ (Monthly): What if the crash that we saw this year in the tech stocks has only been a big bull flag and backtest of the breakout of 2020? Monthly chart below is a pointer to that. If this holds true, then there is a long way to go on the upside (including new ATHs) before markets show a bigger crack.

Next couple of charts on ES and YM also show similar story. I don’t need to explain what it all means. Self explanatory.

ES (Monthly):

YM (Monthly): The only index that has already broken out of the bull flag after backtesting the covid breakout.

P.S.: What I wrote above is not my base case and only a “what if” analysis of the possibilities that exist. While we strive hard to decipher what market has to offer, lest we forget to see what lies out there already.