Window of Weakness
Updated
There are specific times when the bottom gives out on the markets and we get big drawdowns.
Other times, what you think is going to bring down the markets is actually giving them more resilience.
The Market is not the economy.
It will do what it needs to. In 2008 it was liquidation of banks. In 2020 it was a threat to our way of life.
Tomorrow, who knows.
One thing I can tell you is there are times (a window if you like) of weakness in markets that can be predicted.
We’re approaching one of those such windows now.
Today is a good reason to have downside protection.
JP Morgan Hedged equity funds is 1 indicator I use to determine where these windows could be and where they have occurred in the past.
The market tends to have an easier time to breakdown during the 1st week of the 3rd month of the smallest JHQTX funds rollover occurs.
This window of weakness usually spans into the funds reset and 1 week after.
My assumption is that the smaller of the hedged eq funds have much less reflexivity during the expiration.
Unlike the rally I called in October.
This time is more of a warning than a prediction.
A miss on CPI could almost certainly trigger a sell off in equities.
I think a beat on CPI tomorrow will break the markets above the 50D and set up for a retest of the 200D in the coming weeks leading up to Christmas.
One needs to be mindful of both tails tomorrow.
You combine a HOT CPI number with the QT in bond markets and bitcoin doing exactly what everyone predicted.
You have yourself a bonafide crash risk in the works.
Other times, what you think is going to bring down the markets is actually giving them more resilience.
The Market is not the economy.
It will do what it needs to. In 2008 it was liquidation of banks. In 2020 it was a threat to our way of life.
Tomorrow, who knows.
One thing I can tell you is there are times (a window if you like) of weakness in markets that can be predicted.
We’re approaching one of those such windows now.
Today is a good reason to have downside protection.
JP Morgan Hedged equity funds is 1 indicator I use to determine where these windows could be and where they have occurred in the past.
The market tends to have an easier time to breakdown during the 1st week of the 3rd month of the smallest JHQTX funds rollover occurs.
This window of weakness usually spans into the funds reset and 1 week after.
My assumption is that the smaller of the hedged eq funds have much less reflexivity during the expiration.
Unlike the rally I called in October.
This time is more of a warning than a prediction.
A miss on CPI could almost certainly trigger a sell off in equities.
I think a beat on CPI tomorrow will break the markets above the 50D and set up for a retest of the 200D in the coming weeks leading up to Christmas.
One needs to be mindful of both tails tomorrow.
You combine a HOT CPI number with the QT in bond markets and bitcoin doing exactly what everyone predicted.
You have yourself a bonafide crash risk in the works.
Note
Here is the window of weakness during covid.
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