Consensus has flipped

Monday Monday

Equities continue to follow the same pattern, week after week. Wednesday, Thursday, and Friday see aggressive shorts and hedging activity into the weekend and then the weekend either delivers something scary followed by dovish comments from Trump, or nothing scary. So, you get this:

As discussed in am/FX and on Twitter, I covered all equity shorts at 23500 in NQ on Friday. We traded significantly lower than that intraday and we’re back there now. I am not bullish, but I think the risk/reward has changed significantly and it felt dumb to be short into the weekend given the pattern of aggressive hedging late in the week continues. I am going to stay open minded here, not relentlessly bearish.

The consensus in early March was that geopolitics is a fade, and most traders were positioning for the FOMO trade on a quick end to hostilities given the many offramps. Now, the consensus is that the U.S. is trapped in an ongoing series of escalations with no offramps after making a litany of miscalculations as it thought regime change was possible through airstrikes and it wrongly gauged that Iran would not have the guts to close Hormuz.

One can sensibly wonder what Trump could possibly say that would be bullish at this point. There is no offramp where he can simply say: “We won!” anymore given the situation in the Strait, so I am not sure what a bullish outcome looks like. But the  pricing, positioning, and sentiment today vs. early March are so radically different that I don’t think risk/reward on core bearish views is very good anymore.

Meanwhile, if you look at FX positioning, the market is some combination of mega bullish USD and/or mega hedged (see positioning report below). Again, contrast this with a few weeks ago when most market players were waiting for the inevitable return to dollar weakness. Or contrast it to six weeks ago when the market was max short dollars. I am still long USD right now but getting increasingly nervous that everyone is on the same side of the boat.

With month end Wednesday, I am looking for one last selloff in EURUSD and AUDUSD and I will take profit on everything. I am antsy, but the original call on the high conviction AUD short at 0.7025 was to ride it into month end and therefore I am trying to stick to the plan.

I am surprised that USDJPY and cross/JPY sold off so much on the Japan policymaker comments. The boy is starting to cry wolf here and I don’t think they are saying anything new at this point. Still, I suppose the continued chirping above 160.00 creates a clear asymmetry for speculators and anyone trading from the long side would have a hard time ignoring the signal.

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Final Thoughts

1. Please complete this very quick market sentiment survey. It will take you less than 90 seconds. Thanks.
2. Nonfarm payrolls on Good Friday this week. That’s odd.
3. Big USDA report tomorrow at noon.
4. UCONN led this game only twice: 2-0 at the start of the game. And 73-72 with 0.5 seconds to play.
5. https://polymarket.com/event/iran-x-israelus-conflict-ends-by

Have a majestic day.

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This week’s calendar!

Hi. Welcome to this week’s report. Dramatic moves in risk reversals have yielded some of the highest positioning scores ever for our report. The market is either mega long USD or mega hedged. Or both. Either way, further USD upside will be slowed by positioning, and any good news out of Iran will lead to huge USD selling. I don’t like to trade on positioning in isolation, but the signals here are strong enough that the prudent course is to be careful with USD longs here.

How to trade the positioning report

Why is the plural of moose not meese?

Goose is of Germanic origin, and those words change when pluralized.

Moose is of Algonquin origin and the default for most archaic hunted or herded animals is the zero-plural pattern (deer, elk, sheep, swine, fish).

Accurate but unsatisfying answer. English is weird.

good luck ⇅ be nimble