The Reflation Theme: The Seven Day Scope (Snipers Only)
“Do not anticipate and move without market confirmation - being a little late in your trade is your insurance that you are right or wrong.” - Jesse Livermore
Welcome to our free weekly report.
What are my “thoughts” on the Fed cutting rates? First off, I try to stay away from having feelings about it. Secondly I try to look at what the market is telling me to understand the economic landscape. There is what politicians or the media says and then there is what is really happening.
What is the market telling us? Yields are still higher for longer. The yield curve is still inverted and the market is trading like they have been cutting rates for an entire year. As a trader we have to be open to signals. The market will and can do whatever it wants to do.
I have the same thought that I have had all year. Seeing rate cuts means that we will see pain somewhere. We will not see cuts before that. That means in the economy, the market… anywhere.
“I have been in the speculative game ever since I was fourteen. It is all I have ever done. I think I know what I am talking about. And the conclusion that I have reached after nearly thirty years of constant trading, both on a shoestring and with millions of dollars back of me, is this: A man may beat a stock or a group at a certain time, but no man living can beat the stock market! A man may make money out of individual deals in cotton or grain, but no man can beat the cotton market or the grain market. It's like the track. A man may beat a horse race, but he cannot beat horse racing.”
― Jesse Livermore
The models are still saying to be ready for more inflation. While the media is saying the opposite. The old “inflation is dead” narrative.
"By far the best economic predictor I've ever met is the inside of the stock market," Druckenmiller
I believe this as well. I use intermarket analysis. Sector analysis and liquidity analysis to tell me where and how I should position myself.
This keeps me out of the game of guessing what the media wants me to think from week to week. This is the way that I have outperformed the market for a decade. I think anyone can learn it and I think anyone can use it successfully.
Important things to watch. Bonds, copper, Gold, oil, currencies (majors) and relative outperformance in the stock market sectors.
From StockCharts.com “Intermarket analysis is a branch of technical analysis that examines the correlations between four major asset classes: stocks, bonds, commodities and currencies. In his classic book Trading with Intermarket Analysis, John Murphy notes that chartists can use these relationships to identify the stage of the business cycle and improve their forecasting abilities.”
Everyone who knows me knows that I am basically obsessed with the business cycle. Understanding where we are within the cycle means everything to me. Intermarket analysis helps me to figure out where we are within the cycle.
Since October 2022 we have been in a goldilocks environment with a hint of inflation living under the surface.
Why do I say that?
Because gold rings the dinner bell for a run in inflation. When gold bottoms, the commodities follow (those of you who have been here for awhile remember me talking about this back in 2020) in 8-16 months. This happens every single time. This is why I always find it funny when people think that gold has to move with the rest of the commodities complex. It does in a way. It is just much earlier than the rest of them.
Oil bottomed in the middle of 2023. If this is a new bull cycle, what type of pressure would that put on to the Fed? Would they cut in the face of inflation? These are the questions that we need to continue to ask ourselves. I personally can not see them cutting rates if inflation continues to rise. The likely situation that I see is that for some reason they do a rate cut and inflation gets completely out of control. Then they pause again.
Sector internals YTD. Energy is starting to catch up in the last month but also look at XLB and small caps leading the way. We are positioned in most of these areas already as we continue to get buy signals.
It is time to keep digging in to the energy sector, banks, industrials, materials, commodities, commodity currencies (AUD, CAD) and more. Do not buy blindly, let the market confirm our suspicion by giving us buy signals and then buy.
The tech trade is still raging at the moment so we will continue to stay long tech until that changes. However as traders we have to watch the signals to continue to position correctly again and again.
Finding the right positioning is everything. Trading is chaos and we are early in this regime change idea. This comes to mind because I am a dork.
Bitcoin, highest weekly close EVER.
Money keeps flowing right out of GBTC and into cleaner products like…
FBTC
IBIT
Where this ends up, I am not sure. We don’t have to be sure to make money, we just have to be patient and keep our trailing stop loss ready.
Gold miners-We are long gold and silver. We are ready to start buying gold miners if we see the right signal. A new buy signal would set up if we get a close above 31.80. Waiting patiently.
Copper-The final piece of the reflation trade. Here is the set up that I would like to see to get overly bullish on the reflation narrative. More than anything else, this is what I am waiting on. Keep an eye on 3.91. We NEED to see a close above that level to make a trade. China is a key component in this puzzle. If China is actually reopening and if their market is going to go higher, it is going to show up here first!
Small caps are moving nicely and we are in a seasonal hot spot as well. Everything is moving for the most part. Copper is the last piece to the intermarket analysis part of the Reflation trade.
Stay informed. Stay resilient. Against all odds.
Warm regards, Jason Perz
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jperz1985@icloud.com