Newsletter #16 Macro looking ominous...
In last week's letter, I mentioned how the model is bullish on the US dollar which could spoil the party for the risk assets. The dollar continued its upward march throughout the week. Model continues to be bullish on DXY.
So what potential risk is the model detecting? A few of them, the biggest one being Model is bullish on DXY which historically hasn't been great news for risk assets such as crypto or stocks.
While most market pundits attributed the severe fall in the stock & crypto markets due to FED Chair Jerome Powell's speech, the ominous signs were already there if you knew where to look.
Last week I also wrote this about the volatility index a.k.a VIX. Model was spot on and VIX is up over 30% since. Don't think the move is over yet as the model is expecting more upside.
Lastly, VIX which is currently at 20, has been coiling last many weeks, and the model is picking up signals that VIX could have sharp upward movement.
Next element was Crude Oil.
Thirdly OIL, models bearish call on Crude Oil around the $115 area has played out well and oil is down over 20% since then. The model continues to be bearish, however, it's picking up early signs of reversal.
Model has flipped from bearish to neutral on Crude oil. Model was able to capture around 21% of the bearish move.
If the price action continues then the model could flip from neutral to bullish which could really put a dent in the inflation cooling narrative. I will update if there's a change in the trend.
Last but not the least, US 10-year interest rates. Model continues to be neutral though it's picking up early signs and could flip bullish in days to come. I'll update if that's the case.
Coming to the models performance, Models timely exit signal on Bitcoin, Ethereum, and some of the alts turned out to be pretty accurate.
Model exited all of its remaining long positions too with the following gains.
At some point, many of these positions were up significantly higher and the model did end up giving up some of the gains.
$LDO 25%
$UNFI 20%
$SANTOS 191%
$OG 62%
$ASR 15%
$PORTO 123%
$JUV 4%
$BAR 16%
$PSG 2%
$LAZIO 67%
Model is sitting on 100% Cash currently. It will continue to be bearish on risk assets such as Crypto, S&p500 and Nasdaq100 till the risks subside.
Below are the updated chart of Bitcoin and Ethereum with Models signals from 2020 to date.
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