Weekly & Monthly Review

General

Risk assets are lower to start May – led by AAPL and AMZN post earnings. The actual numbers for those companies were more than sufficient and I’m less concerned by AAPL’s lack of Q2 forecast. The company under guides every quarter and there’s no better way to ensure the same in this environment than to simply provide no guidance. That said, one could argue yesterday’s equity high and the 200 day average just a few percent above there marks key resistance for awhile. As regional economies open up, its stands to reason the risk of increased infections spark concerns over prolonged closures.

Equities were the obvious winner in April while the VIX lost roughly 50%. The VIX declined all month but it’s worth noting April’s gains occurred mostly from the close on April 1 to the close of April 14 (the heart of fiscal and monetary stimulus). If we isolate the weekly closes, you’ll see the past two Friday’s ended at 2870 and 2829 in the Emini.

We’re currently inside that 40 point box. The same levels in the Nasdaq are 8812 and 8763 (also inside that box at current). To put that in perspective, a close at current levels today for either SP or Nasdaq would mean the three week closing range is smaller than the average overnight gap in April for the Emini and less than the average hourly range for the same stretch with the Nasdaq. That’s a lot of action the past three weeks to go nowhere.

Scoreboard

European markets are closed for holiday but German fixed dominated the mover board yesterday (aside from Risk Parity) and today’s action is a deflationary theme led by declines in Copper, Platinum, Aussie, Kiwi, And Cad. Crude on its own island back above $20 for the front-month contract

Events

No significant events

Strategy and Levels

Relative to volatility at current levels, global equities have the smallest three-week closing range and the Dollar and Yen (specifically) the smallest three and five-month closing ranges. May should foster general equity weakness and Yen strength. That said, I will cynically note that every 500 bps decline in risk seems to correlate with another $1 trillion in stimulus. Precious metals were a surprise to the downside yesterday and a reminder why stops are essential in trading. I am looking for gold to be higher over the coming weeks but am playing it tactically short and long until it can rally back above 1715.

John Netto