Reaction > Data

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Throughout this cycle, the reaction to CPI data has been more important for future direction than the data itself.

by Brent Donnelly

December 12, 2023

2024 is a leap year

If the year is divisible by 4, then it’s a leap year, UNLESS it’s also divisible by 100, then it’s not a leap year, UNLESS FURTHER the year is divisible by 400, then it is a leap year. Obviously.

Current Views

Long EURCHF @ 0.9444

Stop 0.9339

Take profit 0.9644

Short QQQ @ 391.60

Stop 397.60

Take profit 378.85

December 12, 2023

PDF version

Reaction > Data

I wonder if we have achieved enough of a euphoric year-end high that today’s CPI will mark the turn. That’s my view for now, similar to yesterday as I see gold and crypto sending some warning signs and I observe that ownership of megatech is in the 99th percentile according to GS and the overall level of excitement out there feels overdone.

This is not me reacting to the price action after the number, I tweeted this view before the release and posted it in my client chats. In this cycle, the reaction to CPI is more important to future direction than the number itself. The trade is still short QQQ, despite yesterday’s wild and crazy rebalancing price action. The main question is whether or not I survive the noise. For listed products, stop losses are only active when the market is open so you face more gap risk but sometimes get lucky overnight.

While the drop in the Magnificent 7 yesterday can be viewed as good or bad because it was part of a rebalance that juiced the other index constituents, my view is that the pain is in MAG7 and therefore you now have a bit of a turn and some pain in the most crowded trades. MAG7, gold, and crypto. And QQQ should follow. My stop loss might be too tight, but we will see. The problem is that the next big high is 411, and that’s too far away for what is a tactical “I’m taking a shot right here” kind of trade.

QQQ big top is 411

Today’s CPI data contains no new information, so the information will come from whether or not the USD rallies and risky assets swoon. I think they will.

In FX, there is not much of an overall theme as USDJPY just follows US yields and the BOJ story flashes on the market’s radar like a MiG-31 and disappears just as quickly. On BOJ day, things will get interesting again, but with various media reports contradicting one another, future reports probably won’t matter and as we wait for the BOJ meeting, USDJPY and yields will continue to tango like this:

USDJPY vs. US 10-year yield, hourly back to mid-November

Final Thoughts

I was wondering if big drops in bitcoin are predictive. I looked at 10-day performance of bitcoin after a one-day 5% drop vs. after a 5% rally. Average 10-day return after a 1-day drop of 5% is 1.4% with a 45% hit rate. After a one-day rally of 5%, average 10-day return is 2.6% with a 58% hit rate. So 5% drops are a small warning.
Good piece from Florian Kronawitter – The Playbook: Ten high probability assumptions, and how they line up to a constructive outlook for early ’24
I wonder if 2024 will be great for carry again because you get a full extra day of compounding.
This chart is rather eye-opening. It’s about a week old but I just saw it and thought it was worth sharing.

Hope your day is full of giant leaps.

good luck ⇅ be nimble

The Spectra FX Positioning and Momentum Report

I knew LYV was trouble when I saw this

Hi. Welcome to this week’s report. FX specs are close to home now as the buildup in GBP longs has been cleared as sterling drops, JPY shorts have been cleansed by the fall in USDJPY, and the only meaningful measure that remains is a medium-sized short CHF position in anticipation of this week’s SNB meeting.

Last week’s signal to go long USDCHF has been a good one so far, and this year has been good for micro factors like positioning and seasonality. In contrast, 2023 has been much more difficult for macro factors as we switched macro narratives about 84 times in the past 250 days. FX positioning offers no signal this week so let’s talk T-Swizzle.

Person of the Year

Time Magazine’s Person of the Year often marks the peak of a person’s influence because the honor is the ultimate mean reversion signal. Appearing on the cover of Time as their Person of the Year is by definition an extreme outlier event and extreme outliers tend to be followed by data that reverts to the mean. As such, selling TSLA stock when Elon Musk was Time’s Man of the Year in 2021, or selling Amazon when Jeff Bezos was Man of the Year in 2000 will go down as two classic Magazine Cover Indicator signals. Or… Selling Joe Biden’s approval rating in late 2020.

Biden and Harris, Persons of the Year, 2020

With Biden Approval Rating, 2020 to now

Elon Musk, Person of the Year, 2021

With TSLA stock price, 2019 to now

While your first reaction might be to short the Kansas City Chiefs, their performance is probably less linked to Taylor Swift’s success whereas that of Live Nation (aka Ticketmaster, NYSE: LYV) depends more on the ravenous deep-pocketed Swifties. LYV is probably a more suitable target for shorts. The “experiences are worth any price!” mantra appears to know no bounds, but it’s hard to imagine concert staging companies having a better run than they just had after the services and tourism-led bacchanalia of 2021, 2022, and 2023.

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Positioning and Momentum Data

That’s this week’s report. Thanks for reading.

https://en.wikipedia.org/wiki/Leap_Day_(30_Rock)

In Excel

=IF(OR(MOD(A1,400)=0,AND(MOD(A1,4)=0,MOD(A1,100)<>0)),"Leap Year", "NOT a Leap Year")

In English

If the year is divisible by 4, then it’s a leap year, UNLESS

… it’s also divisible by 100, then it’s not a leap year, UNLESS FURTHER

… the year is divisible by 400, then it is a leap year.

1996 was a leap year, but 1997, 1998, and 1999 were not. The year 2000 was a leap year, because even though it is divisible by 100 it’s also divisible by 400.

https://slate.com/technology/2016/02/the-math-behind-leap-years.html