Double Top, Big Trend of Stagflation w Rising Recession Risk, Crude Swing Trading

 I、Short-term Double Top, the Big Trend of Stagflation with Rising Recession Risk

In the above screen shot posted on March 30^th，I warned the risk again on very speculative high valued stocks, which after two week's big run up（surely a “dead cat bounce”, are ripe again to go shorting. Here is a paragraph from my March 27^th article 《Bumpy Soft Landing–Uncharted Water ahead, Swing Trading & Hedge》:【A paragraph I posted here on Feb 28^th: “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 8th and 14th, just around 1% from the Feb 25th 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】. Before the market open on March 31^st, the headline news 《U.S. Inflation-Adjusted Spending Falls as Prices Temper Demand》showed that stagflation has becoming pretty much a reality. The Fed has a very challenge task ahead to avoid a likely recession next year.

Short-term, a double top has very likely formed. Today, Nasdaq 100 fell over 2% and was rejected by the resistance around the 200-day moving average. 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.

II、Recent Leading Sector Underperformance: Semiconductor & IYT, and Banks, Earnings Growth Downtrend、Margin Squeeze & Consumer Weakening Demand

During the weekend on March 27th, I suggested 【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 space.】 During the next 3 trading days, Intel had been around $51.5 or above, indeed presented good opportunities to trim Intel long positions which were picked up when there was the blood on the street in late February, please see my February article 《Enhanced DRIP Strategy & Covered Call, Swing & Hedge in a High Volatility Market》 for details. Over 17% profit in less than a month, very stable and steady as well.

My warning on March 1^st during the bargain hunting discussions in the group to exclude the banking sector, especially Citi（C）, has been so far so good, as it dropped another 12.5%. Currently, Wall Street expects Q1 YoY EPS for the big financial sector to decline 17%, the worst among all S&P sectors, which does not paint a rosy picture for the consumption going forward.

Though value tech stock Micron Tech (MU)'s ER beat the street expectations, it has since lagged the overall market；AMD、QCOM、AMAZON etc. were downgraded, and they are chip and e-commerce market leaders respectively；Apple's supply chain stocks are performing badly; lockdowns in Shanghai, and previously Shenzhen etc. Thus, the strategy I suggested on March 27^th to start trimming Intel long positions seems of good foresights.

In the post-epidemic period, reopening trades will likely have some upward potential especially from the long-term prospective, but still it better wait for better entry point, and meanwhile, some previous uptrends will inevitably reverse, thus result in an even longer downward cycle of future electronic consumptions and its upstream chip sector, with potential overall bigger corrections, as semiconductors are still cyclical, though chip demands in AI、Clouding、IoT & EV sectors are still comparatively strong, but more traditional smartphone、PC、notebook sectors already start to show quite some weakness. Another leading sector - the transportation (IYT) fell significantly last Friday. All these likely imply that, the US macroeconomics has already passed its current cyclical peak, yet the Fed has to tighten into this growth weakness, which surely will be very challenge going forward.

III、Short the Short Squeeze on Crude Oil & UCO，and Swing Trading

A paragraph from my March 9^th article 《Short the Short Squeeze on Crude Oil & UCO, shorting on Russia》【The short squeeze, by pumping commodity prices to way elevated level, seriously deviated from the supply demand dynamics, doomed to be impossible to sustain, as demand destruction is one of the most important fundamentals. Today, both WTI and Brent crude oil price dropped a little over 10%, and UCO dropped a little over 20%. We likely have seen the top of the crude oil price, though there will be some back and forth until crude oil settles around $90 level】. In my March 27^th article 《Bumpy Soft Landing–Uncharted Water ahead, Swing Trading & Hedge》，I emphasis on this again 【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】. By far, WTI dropped below $100 a few times, indeed presented good chances to take the chip off the table for the short positions, and then wait on the sideline in order to continue shorting the rally again, for the short-term comparatively big swing of 5-10% in WTI crude price.