Bumpy Soft Landing–Uncharted Water ahead, Swing Trading & Hedge

 I、The Soft Landing Narrative Likely with Big Bumps Ahead

The Fed has lost some credibility on inflation, thus its narrative of soft landing road ahead will likely encounter big bumps with more equity market high fluctuations. As I mentioned a few times before, curbing the very sticky high inflation has become the most important political task in this mid-term election year, it's very hard to image that such arduous task can be achieved economically pain-free. Very aggressive rate hikes and somewhat of QT expectations were quickly priced into US bond markets very recently, yet the current effective monetary policy is still very supportive for the real economy, thus the US equity market has been and will likely swing within a big trading range of high volatility with downward pressures, as facing the uncharted waters ahead, it will take some time for the market to fully price in the sudden reality of the very aggressive tightening monetary policy and the associated big uncertainties.

II、Prediction made on Feb 28^th regarding the Ultimate Failure of Putin's Aggression, and Planned Swing Trading Strategy

A paragraph I posted here on Feb 28^th：【Germany urgently added an additional 100 billion euros to its defense budget, and countries on the European continent, including Turkey, began to support Ukraine because of national security concerns. Putin's strategy of making a quick conquering of Ukraine has failed, and now he has encountered obstacles, being put in a hard situation of equally difficult to go on or retreat, thus Putin had no choice but to start the nuclear blackmail. The uncertainty is so great that the European and American markets will likely test the bottom again. But personally, I feel that the probability of a nuclear war （or World War III） is very small, thus shorting positions need to be taken the chip off the table in batches, and bargain hunting good value stocks when there are bloods on the street, and wait for better opportunities to sell into and go shorting the rallies again in the near future】. Indeed, the markets tested the bottom again, as S&P 500 reached 4157.87 and 4161.72 on March 8^th and 14^th, just around 1% from the Feb 25^th bottom of 4114.65, and meanwhile, quite some richly valued growth names reached new lows, such as ARKK and its cousin ETFs and most of the components、the very similar type as MEME and SPAC styles that I warned the high risks quite a few times since early last November. The swing trading strategy of “shorting positions need to be taken the chip off the table in batches, and bargain hunting good value stocks when there are bloods on the street” has proven to be so far so good.

III、Divergences to Indicate Top of the Range and Strategies ahead

In the above last Wednesday March 23^rd post, I predicted that: 【Likely, the strong resistance around S&P 500 4550 will be difficult to effectively breakthrough in the short term, while rebound extreme level would be around 4590】. And during the market hour last Friday (see below), I made this follow up：【Today, S&P 500 went to as high as 4546.03, reached the aforementioned strong resistance level around 4550, with quite some top divergences, which shall be a very good opportunity to sell into, or shorting the rallies at resistances】. With apparent RSI and volume divergences, the risk reward ratio wasn't favorable for most long positions in the short-term, thus as a prudent strategy, it's better to trim some long positions or at least partially hedge the exposure, even for value stocks with somewhat long-term growth biased yet in very strategically important sector, such as Intel which I mentioned here a few times recently, and start to avoid crowded spaces, meanwhile use the very speculative yet still richly overvalued ones as good shorting candidates for hedging.

IV、The Quickly Approaching Inversion of the Yield Curves

A paragraph from my January article 《End of a Currency Carnival Era & Rising Global Stagflation Risk》：【During the recent two years, deep negative real yields has greatly boosted global macro leverage and quickly added to the huge amounts of inefficient debts, and meanwhile helped worsening the entrenched habit of very low net domestic saving rate which is for sure a big handicap of funding domestically for the future US economy growth, thus added the growing risk of stagflation, especially when quickly tightening financial conditions somewhere next year leads to widening corporate credit spreads, then things could get really ugly, even with the risk of huge debt induced deflation coming onto the table, and such risk can't be underestimated, as the overall flattening yield curve has already started to flash light yellow warning signal】. Now, the quickly approaching inversion of the yield curves of 10Y-2Y and 30Y-5Y are flashing an even yellow warning signal.

V、Review of Short the Short Squeeze on Crude Oil & UCO

First，please review my March 9^th article 《Short the Short Squeeze on Crude Oil & UCO, shorting on Russia》, regarding the key fundamental and technical reasons of going short on Crude Oil & UCO, and then followed by swing trading.

On March 14th, I posted the above in the group：【WTI has fallen to $97.1, a quick drop of close to 20% in the matter of a week…still somewhat far away from the target price of less than $90…surely there will be technical rebounds along the way. Thus, it is strongly recommended to use the current weakness as a good opportunity to lock in partial profits, or at least partially hedge the short positions of UCO, and wait for better opportunity to short the rally again in the near future】. It turned out that, WTI crude once dropped even more than expected in the very short-term to below $94 on March 15^th, and then quickly rebounded to over $116 on March 24^th, indeed very high volatility and thus very difficult to predict in advance regarding the very short-term top and bottom of the range, however, sticking to “shorting the rally and then swing trading” will very likely be a comparatively good strategy, with the intermediate term target price of below $90.

As one of the warning signals, the future crude oil price correction may likely point to the weakening demand as well, which is normally associated with the start of the downturn from the peak US real economy.