“When the long-termers who were formerly skeptical at last capitulate to the trend, then you have a total consensus and the end is nigh for the major multi-month / multi-year move. Nigh, but not necessarily over. At this point one of our sentiment gauges comes into its own. We have to watch market action: the way the markets react in relation to the background and to news events.” – John Percival
Summary: NQ and SPX forming a broadening top, while market internals continue to degrade, specifically concerning negative divergence in LQD/IEF. All while most market commentators are calling this a “healthy correction”. We think markets likely chop around a bit more before breaking down to the downside. However, if risk-on looks like it’ll survive then BTC and ETH offer more attractive setups to play for upside. Macro data pointing to a softening labor market and slowing growth, while UST 2yr notes forming a massive H&S bottom. Buy bonds over stocks as bonds.
Alright, let’s get to it.
1. When everyone agrees on market action, it’s time to fade the crowd.
2. Broadening top patterns forming in NQ and SPX. Maybe we see a bit more chop and vol before a downside breakout.
3. Our key market internals continue to degrade, giving weight to our somewhat bearish short-term outlook.
4. The divergence level in LQD/IEF has fallen to a level that often marks/precedes volatile corrective periods.
5. @PeterLBrandt: “ETH chart $ETH now can be viewed as a potential 11-month rectangle.”
6. Crypto getting bid on the ridiculous strategic crypto reserve news. BTCUSD has put in what looks like a bear trap. If general risk on can hold here, then BTC and ETH offer more attractive long setups than equities.
7. Bond sentiment/positioning check…
8. Government labor market recession + huge fade in US household wealth effect = slowing growth.
9. News mentions of layoffs/firings at their highest level since January 2023.
10. Atlanta Fed GDPNow has fallen off a cliff. While this model is being negatively distorted by the trade data and tariff situation, it still strongly suggests we’ll see weakening data in the months ahead.
11. And so what I’m really trying to say is: buy bonds…. UST 2-yr Notes are forming a massive 24m+ H&S bottom. Yields will be coming down.
Join The Collective
Thanks for reading.
