The positioning unwind is bullish for equities
I have laid out my view on the geopolitical risk and crowded positioning levels in all of the livestreams this week:
The implication is that I believe all of the premiums that have been aggregated in markets are likely to unwind and push risk assets higher as we move through FOMC. I laid out the logic for this in the regime dashboard that I shared today.
Full PDF of the dashboard is here:
The misconception about FOMC and inflation here is that we are moving into a 2022 type of environment where inflation is going to crush equities.
I don’t believe this
In fact, I believe there is so much of a premium in equities that if we don’t have further escalation in the geopolitical side of things, traders will have to unwind their hedges to buy back equities, sell the DXY, and likely sell crude.
Notice that we are already moving in lockstep with what I laid out on Sunday (link): SPX is bidding, crude is hitting a ceiling, and the DXY just got sold for two straight trading days.
We are already seeing the Nikkei begin to find a bottom despite Japan being net short oil as a country.
The risk-reward for crude is likely lower in the absence of any further escalation. Here is how I view the risk-reward moving into tomorrow:
The amount of exhaustion and unwind that has taken place in Bitcoin is likely beginning to help set a bottom in the spot price:
MSTR specifically could see a significant short squeeze since it has been so aggressively sold during the last year:
Vol already blew out when we were at the lows a month ago, so we likely have limited downside moving into the next 2 months.
With this being said, I think the intensity of rotations in equity markets is only going to get more aggressive. Tech has so aggressively dragged on the index as the energy sector is melting up:
But it is clear that the dispersion in the AI and tech space is beginning to be THE largest factor to understand over the next 2 months. Notice that all of the private credit concerns are being priced, but that the AI chips and AI power themes are remaining resilient. The hardware side of the market is literally the only thing keeping the S&P500 from going off a cliff right now: (chart from: https://www.liquidationnation.ai/)
This is why I would encourage you to review the video and connected reports I published on how the AI endgame is playing out. This is still the most important playbook I have published YTD.
Risk and Opportunity:
My view on the global economy is that recession or stagflation is not an imminent risk. However, we are not seeing a massive injection of credit or liquidity yet in the cycle that would smooth over all skeletons hiding under the floorboards.
The implication of this is that you really need to choose your spots. This is why I have talked about my two highest conviction plays being PURR 0.00%↑ and
I am working on the next big bet that I am taking and will be sharing a comprehensive breakdown of the FX market this week as well, with the new AI tools I am running.
I will also be covering the FOMC meeting tomorrow at this livestream link:
Thanks
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Are you bullish even in to triple witching on Friday, assuming your thesis plays out after the fed tomorrow?
In my opinion we need a positive catalyst from the US-Iran situation. Likely Trump capitulating a announcing a "victory" soon.