Alright you degenerates...
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So now everyone’s freaking out about inflation again. Of course, it always happens AFTER the market pulls back, but never before. If there’s one main takeaway from this year, it’s that opinion follows trend. Traders bounce between two extremes; either the economy’s crashing, and we’re about to go into the dark ages, or prices are out of control, and then the Fed needs to keep assets on a tight leash. The media constantly fluctuates between recession fears and inflation concerns, always keeping traders up at night with something. CNBC must be pretty scary because of how much sentiment cooled off last week. Hedge Funds took off a chunk of exposure after their bout of chasing strength. This pullback was much needed and will help sustain a healthy uptrend. Whenever Hedge Funds are overexposed and are crowded on one side of the boat, the pendulum tends to swing hard in the opposite direction. Thus, we want to see them as pessimistic as possible when the market rallies.
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Regarding CTA positioning, risk/reward is skewed to the downside because of how much buying CTAs already did in the last few months. They are “out of ammo” and must dump that supply hard if the market corrects. Over the next month, CTAs are estimated to buy $24.4B in an “up tape.” If we get a “down tape,” CTAs are estimated to sell $219B worth of equities. As you can probably tell, CTAs will not be your friend if this scenario plays out. While they are just one indicator of many, they play a critical role in price action; you don’t want to fight the tide.
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All the sweeper activity we’ve seen thus far has been in unusual, under-the-hood names that few people are talking about. This is where most traders will check out because these stocks aren’t like the sexy ones they’re used to seeing. As a result, they’ll dismiss the action and go back to watching their beloved FAANG names. Conversely, Steamroom members will swoop in and take advantage of the action. Instead of waiting to see the name on CNBC, they’ll get in early before the riff-raff, thanks to the flow. As themes shift and traders rotate into new sectors, being versatile and willing to new trades will be essential. So peek at what names are popping up on the Wiseguy alerts board. You might find something interesting.