Trade the Extremes
USD on the Front Foot Again
We won’t lie…yesterday caught us rather off guard. Risk, for lack of a better word, capitulated. US shares plunged 4%, their biggest daily drop in almost 2 years. Earnings reports from US consumer titans (Walmart, Costco, Target) disappointed and fuelled concerns that high inflation is squeezing margins and weighing on consumer spending. Target’s share price suffered the most since Black Monday in 1987.
So where to from here? Well risk looks on fragile ground – VIX back above 30 – but we still struggle to be short risk at these levels and instead look for opportunistic levels to build long risk positions. Watching markets this morning, you’d be forgiven for questioning our sanity. However, we stand resolute (for now) and remain patient. This is as light positioning as we have had on for a while now.
Risk aversion has also crept into crypto markets unsurprisingly. Alts lead the way lower with SOL and ADA down c.8% and 9% respectively. The majors are also a touch lower with ETH back below $2000. Crypto markets are just trading in line with the wider risk sentiment and with equities having a horrid day yesterday and opening on the backfoot today, its tough to see how or why crypto markets will rally. The only silver lining is considering the move equities did have crypto markets are holding in ‘ok’ for now.
We have found today one of the hardest to write a piece. We ultimately sit in the ‘trade the extremes’ camp. Would happily buy a 5% sell off in risk markets and would equally sell into a similar rally. I feel this is how a lot of people feel – confused and unsure as to which camp they truly sit in. Until the picture becomes clearer we will remain nimble and respect support and resistance levels.
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