“Obviously the thing to do was to be bullish in a bull market and bearish in a bear market. Sounds silly, doesn’t it? But I had to grasp that general principle firmly before I saw that to put it into practice really meant to anticipate probabilities. It took me a long time to learn to trade on those lines. ~ Jesse Livermore
Summary: A short-term bounce in US equities is likely to start soon, boosted by a washout in sentiment and supported by positive seasonality. But we remain neutral to bearish long-term. Dips should be traded, not invested in, as positioning and flows contradict the fear reflected in sentiment data, indicating more volatility ahead. Crude oil is setting up for a mean reversion long, and the loonie may be putting in a major bear trap.
Alright, let’s get to it.
1. BofA’s March Global Fund Manager Survey was released last week. Here’s the summary with my highlights.
2. And here’s their “charts of the month”.
3. My teammate Chris pushed out our Weekly Systematic Market Review on Saturday. You can find the YouTube vid here and the written report here. In summary, his systems continue to expect positive mean reversion and have buy-stop orders in. I agree. We’re looking for a strong bounce soon.
4. The market will also start benefiting from strong seasonal tailwinds soon.
5. So this is positive and we should expect perhaps a multi-week bounce to begin soon. With that said… our base case continues to be that at best, we’re in for extended sideways chop and vol, and at worst, the market is starting a broader cyclical topping process, and the skew is increasing to the downside.
Notice the lack of correction in actual positioning in the Put/Call chart below. That’s not what you want to see following a selloff like the one that just occurred.
6. Sentiment and positioning are bombed out in both Cotton and Crude Oil. We’re tracking May Cotton for a potential double bottom in the works.
7. Crude is interesting here to play for a long reversion trade. Here’s Large Spec positioning on a 260w oscillator basis.
8. BofA’s FMS shows investor positioning in energy is 1.5std below its long-term average.
9. Crude is in a major long-term compression regime, and compression regimes tend to precede significant expansionary regimes (Trends). Last week, its weekly candle reversed off the lower end of its 3-year sideways channel. This gives us a good technical setup to nest in a buy stop to see if the market can pull us in long.
10. The loonie is historically correlated to the price of crude since Canada is a large exporter of the stuff. CAD has an interesting setup here. First, it saw a bearish breakout from a major compression regime. But it now looks like this might be a significant bear trap. Its monthly bars are reversing off a decade-long support level.
11. This is occurring amidst an absolutely horrid sentiment backdrop on the Canadian economy.
12. We’re also seeing this reflected in CoT positioning (green lines mark past instances when both large and small spec fall below 10%).
We’re looking to get long on a breakout above its current daily trading range.
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Thanks for reading.
