Don't fight the retail army!

Updated: Feb 18, 2021

In this week's Macro Insight call we discussed...

What’s been happening in the news this week to drive markets. Stocks continued higher, particularly technology and also EM/China. However, wild intraday price swings suggested some underlying fragility to this rally.

High short interest stocks featured on WallStreetBets Reddit forum are having massive short squeezes as the rise of retail stock speculation defies what traditional hedge funds believe to be overvalued stocks. Gamestop, Palantir and Blackberry are some of the names catching headlines this week. Melvin Capital was the unfortunate casualty.

The high levels of implied volatility and skew versus very low realised volatility in SPX suggested that despite extreme bullish sentiment and positioning, real money managers are well hedged for downside risk.

This meant that market corrections are unlikely to be too dramatic in the short term. DXY seemed to have formed a base. Target at 92 still looked realistic if 89.5 support can hold. Gold seemed to have found a range of stability between 1820 and 1880.

If bonds continued their recent sell off then I would have expected a retest of the lows around 1760. The vaccine news in November shifted the markets mentality from Stagflation to Reflation as bonds finally broke down. Gold reacted to that switch.

Filmed on Tuesday 26th January 2021.

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