NQ, Fed, and bullish gold

NASDAQ

First of all, the price action in G10 FX is mildly astounding as what most perceived to be a USD-negative event (re-rating of AI Capex growth pre- and post-election) has been anything but. EURUSD tried hard to go up yesterday, and it looked reasonable to me to go short USDCHF or USDJPY and yet the USD took a flurry of punches and snapped back like one of those rubber punching clown doll things.

Dynamic rebalancing from real money is part of it. Real money needs to buy USD as equities fall. But this mechanical USD buying does not always have to prevail. This time it has. The hard part about trading the USD on U.S. equity weakness, using a model similar to 2000 which was: (money in = USD UP | money out = USD DOWN) is that there is a timescale mismatch.

The market always buys some amount of USD when stocks get clobbered because the rush for liquidity and mechanical rebalancing trigger demand for dollars. But bigger picture, less demand for U.S. assets and slower U.S. GDP growth on slower AI Capex growth due to financing constraints are all reasons to sell USD. The third factor would normally be positioning, but I don’t feel there is a large USD position out there, either way. So, what you have is a short-term bull trade vs. a macro bear trade and clearly the USD bulls are in control right now.

If you look at various speeds and magnitudes of NASDAQ drops needed to turn the Fed dovish in recent decades, 20% in three months is a good heuristic.

It is a bit regime-dependent, of course. That condition was met in 2022, for example, but the Fed kept hiking anyway because they had long lost control of inflation after misjudging the impact of U.S. MMT. The current regime is nothing like 2022 and so I think the heuristic applies.

We saw the 20% rule play out at the end of 2018 when a hawkish Fed plus uncertainty over midterms and a new Fed Chair combined to push stocks lower and the dollar higher. The mix didn’t crack until the Fed turned dovish in early ‘19.

If NASDAQ futures get to 24000, which is 20% off the high, the Fed will turn substantially more dovish and a December hike will either be off the table, or it will be the last before a series of cuts in 2027. In the meantime, the big level to watch is 26,400. That’s the old double top (old resistance now support) and yesterday’s low.

In case you missed it, part of the reason for the rally overnight in U.S. AI Capex favorites is that Texas governor-elect Hinojosa said that all currently permitted data centers will be allowed to finish construction. This covers all of 2027 and much of 2028. This is a tweet with some video evidence.  We have gone from it’s all fine to it’s all horrible to maybe it’s just kind of maybe bad? Markets are most inefficient when attempting to factor in new and confusing information.

My guess is that the folks at Anthropic are wringing their hands right now, trying to decide whether or not to postpone an IPO that was supposed to be over $2T and was set to land 16/18NOV. Now, it’s maybe $1.2T or $1.3T and could arrive this month, or maybe next year. It will take some intestinal fortitude for the underwriters and executives to stay the course, and to me it’s a 50/50 call right now whether they greenlight or postpone.

If they postpone, the market kneejerk will be to sell off on tightness-of-funding angst—that could easily be the ultimate low in NQ because the supply overhang lifts and the postponement itself is a contrarian sentiment indicator. The ANT perp is trading near its life-to-date lows, around 1.45T on mega volumes.

Gold

You have a strong dollar, weak bitcoin, tumbling tech, liquidity not plentiful as funds shut down various strategies in long/short etc. and yet gold trades well. Bad news / good price for the analog version of bitcoin and the chart is nice, too. See how we took out the 3900 support into Halloween, did all the stop losses and then recovered and zoomed impulsively higher.

The sellers appear to be exhausted. It is a simple risk management setup for longs here because we are still close enough to the lows you can simply be long with a stop below 3850 in spot. This is mostly bad news/good price analysis, but the macro case for gold is not terrible as I don’t take the Fed’s hiking seriously, even after today’s nonfarm payrolls, and the post-parabola hangover from the 2025 bubble in precious metals is fading.

I do not want to be long vol, still, because these post-bubble vol hangovers can last years, so the trade is either long here with a stop below the lows or sell put spreads to buy call spreads. In GLD, that would mean selling a three-month 360/350 put spread to buy a 385/400 call spread. Nothing in here is ever investment advice. These are my current ideas, subject to change at any time.

Looking at 19FEB27 expiries, I see you receive roughly $2.80 for the put spread and pay around $5.10 for the call spread = net you pay around $2.30. Good leverage if we shoot through $400. Options markets are not even open right now as I write this, so these are finger-in-the-air estimates, but give you a sense of what I think would be logical. The target in spot is somewhere up between 4250 and 4480. I will put the simpler expression in the sidebar. Long GCZ6 @ 4050. Stop loss 3844, take profit 4388. Risk 206 to make 338. This is probably a boring trade that will take some weeks to play out.

Calendar

Not a super exciting week. US CPI is theoretically of interest, but the December hike is more sensitive to the next 5% in equities than the current level of CPI and so I am not sure it’s a big mover, especially with a holiday jammed in the middle of the week.

Final Thoughts

1. Good short editorial from Axios.
2. Sign up for Friday Speedrun. It’s always free.
3. I hope that we can spend less time talking about politics now. It is sad how often politics dominates the conversation in the United States. Government should run quietly in the background and provide guardrails and a safety net to smooth out individuals’ volatility. It should be a quiet source of stability. Government’s role is not to entertain or incite the populace[1].

Have a perfect day and a perfect weekend.

The positive and negative valence of particular words, according to people in the United Kingdom

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[1] Dude, you’re literally talking about politics.

good luck ⇅ be nimble