Traders reap the value of intermarket technical/quantitative analysis in capturing junctures, where various asset classes have reached potential inflection points. Such levels can be support/resistance in terms of TA, or moves in material magnitude, such as 20% or 30% declines/gains, which trigger program driven trading. So during Thursday's market carnage (equity indices and cryptos), I sent the below charts (created on Thursday) to my WhatsApp Broadcast Group, highlighting the vital technical levels in five key markets. It's all about confluence across different asset classes. Here's how. 

In Thursday's case, as S&P500 fell to 3928, I highlighted 3840/50 as the point of 20% decline from its highs, qualifying as bearish market territory. I added the 11720/50 level for Nasdaq100 as the -30% threshold and 31400 in the DOW30 as 15% downside from its highs. Identifying the levels in these 3 charts served as a warning—even as those levels had not yet been hit by the time of chart publication (Thursday 16:15 London Time).

Considering the correlation between cyptos and risk-assets, I highlighted the 28500-29000 range as the must hold level for Bitcoin (March 2020 trendline support on a closing basis), combined with other quantechicals, shared exclusively with the WBG. 

Towards the end of Thursday's US session, markets sustained a fresh risk-off attack, forcing SPX, Nasdaq100 and Dow30 to new daily lows at 3858, 11690 and 31220 respectively. The levels were in line with the points highlighted in the charts as it was for Bitcoin. The sole exception was gold, which ended up breaking the $1830 trendline and is currently resting atop $1800. 

As time of writing (Friday 18:50 London time), indices are up more than 3% for growth and 1.5% for value and are about to deliver the first Up-Friday session since March 25. The next challenge is where do we mark the top in this bear market rally?  But this could all change if SPX manages this 100-WMA accomplishment stated here.

The term “intermarket analysis” is so widespread to the extent of often diluting the powerful benefits it brings to analysts and traders alike. 15 years ago this month, I began writing “Currency Trading and Intermarket Analysis” into the eventful summer of 2007 and completing it in (a more eventful) summer 2008. More on those 12 months in another post. The book had a currency angle, but could have been more effective if it showed how to combine intermarket dynamics with classical technical analysis. Over the last 10 years, I deepened my involvement in markets, studying and trading the cross-asset dynamics with key chart patterns. The above charts illustrate how it's put to use. 

So how do you trade all of this? 

Become a member of our WhatsApp Broacast Group. 

 

Readers of this column went from vaccine "experts" to a Russia connoisseurs and yield curve whiz, while picking up a few nuggets about bear market corrections. So let's move to the more controversial subject of inflation. Whether it's transitory or not is not the question. Today's release of US April CPI showed a long-awaited pullback, printing 8.3% y/y from 8.5% in March-- the first slowdown since August. Here's how it may play out.

The CPI pullback emerged largely from slowing energy prices and retreating prices of used autos. Since the former is expected to push back up due to rebounding gasoline prices, deflationistas will hope for an offset from prolonged declines in used autos.

The challenge ahead for traders is to figure out when markets shift their focus from inflation to recession.  The simultaneous accelerating decline in bond yields and tech stocks (around 2 pm Eastern) may have been related to robust demand in the 10-yr auction, but keep an eye on the big picture. Read on…

Gold rebounded $25 from 1832, while bond yields resumed the week's decline alongside fresh selloff in stocks. Apple hit a new low for the year, Amazon broke its 6-year trendline and Netflix extended its losses to -75% from the highs. The stocks-bonds damage to “SuperPortfolios” is officially joining the damage to “WorkingClass” purchasing power to break consumer demand/growth and corrode that wealth effect. 

Recession rumblings were amplified today after CPI went from 8.5% to 8.3%. Imagine what noise the “stag” part will do when “flation” goes from 8.3% to 8.0%...or below 8.0%. Let's not even look at the month-month figures. 

Don't forget the yield curve metric. Many think we need to see another round of inversion to spell recession. Wrong. Any continued steepening from current levels will mean the doves are coming around. But if the 3-5 spread soon drops below zero from its current 0.06 and 2-10 nears 0.10 from 0.28, then it might take a bit longer. 

Currency developments also bear watching. German-US 10 yr spread has continued to stabilize alongside EURUSD, and EURGBP is strengthening its negative correlation with risk assets. Then you have gold, which is fighting to hold above its 200-DMA and August trendline. 

We're not sure what will come first: A sub 5.0% inflation print in the US, or an official recession declaration from the US NBER. But here's my latest call: By the time US CPI drops near 6%, we'd see a steeper yield curve, a more confident Fed (with its inflation-taming efforts) and weaker growth. Metals will get their next wave of vigour once markets realise consumer prices have settled at a higher low. 

  

Just as traders learn to forget buy-the-dip habit and embrace selling-the-bounce instincts, in comes today's attempt to reverse indices into the green. A higher S&P500 close today would be the first positive Friday close since March 25th. What this really means, is that equity indices have not had a positive Friday close since reaching the intermediate peak of March 29. Friday's closing action tend to be quite relevant as it reflects traders' willingness or preference towards risk ahead of the weekend. And what is different this week from Tesla-Apple-Microsfot TAMs.   

Before looking ahead, let's highlight some hard lessons of the past 2 weeks. The SPX fell 9% in April (a seasonally strong month), which was the biggest April decline since April 1970 -- when the index fell by the same magnitude. The Dow's 4.9% April drop was also the worst April since 1970, when it fell 6%. You would have to go back to the "Kennedy Slide of 1962" to find April declines greater than 1970. Nasdaq fell 13% in April, the worst since the 14% plunge in April 2000. Lessons from this statistics tell us that long-standing seasonalities are often broken by meaningful developments. “This-time-is-different” tend to be relevant here.

The 2nd lesson (more of a reminder) is the presence of bear market rallies. When you see indices end the session up 1%-2% after reversing an intraday drop of 1%-2%, remember to curb your bullish hopes as such violent reversals are more prevalent during falling markets. Said differently, such intraday volatility is more common during uncertain times, but rarely during “healthy” markets. 

With the weight of the Fed and NFP behind us, there remains the comforting prospect of positive technical price action from Apple, Microsoft and Tesla helping to defend technology, consumer staples and beyond. As for the double bottom in VVIX/VIX mentioned here ,we remain above the worrying support line of 3.5. 

In FX, the most striking development was GBP's break after the BoE's dovish rate hike, as well as USD/CNH's ascent towards its 200-week MA. Notably, G10 currencies held their own vs the USD during Thursday's all-round plunge in indices. This was also helped re-emerging speculation of an earlier than anticiated ECB rate hike.     

 

What's the point of using fancy indicators ratios such as the VVIX/VIX ratio, when you can simply use the VIX, or the S&P itself? You know that I'm a fan of using the VVIX/VIX ratio in helping me spot inflection points in indices, particularly the S&P500 index. Here's an instructional video on using the VVIX/VIX ratio. Two days ago, I sent the below chart below to our WhatsApp Broadcast Group, in pointing out that stabilizing bearishness in indices will transition to gradual upside ahead. 

As the WhatsApp snapshot shows, the idea is to observe the higher lows in the VVIX/VIX index. This means the VVF low from this week is higher than the VVE low of mid-March. This is similar to the lows in March and May of 2021, when VVB and VVD coincided with crucial bottoms in LowB and LowD respectively. 

For a detailed overview on how to use the VVIX/VIX, watch this video.

Tying the fundamental rationale to the aforementioned thesis, could be supported by Beijing's latest vow to stimulate the economy ahead of May Day Holiday, a dovish 50-bp rate hike from the Fed and propagation of forward-looking optimism by Apple and Meta Platforms.