by bitkogan
There are plenty of reasons for a decline:
- The rising dollar.
- Increasing bond yields (due to the anticipation that there will be further rate hikes)
- Unchecked inflation.
- An ongoing banking crisis.
- Severe problems in the commercial real estate sector.
Perhaps Biden’s statement that an agreement is close helped, and the fact that the president’s sentiment was echoed by House Speaker McCarthy certainly didn’t hurt.
That at least helps to explain the market’s reaction.
For now, I don’t see anything unexpectedly drastic happening. Besides, let’s not forget – today is 19/05. It’s that notorious “witching Friday,” specifically, the expiration date for a significant number of option contracts.
What am I expecting in the near future?
In reality, the market has held the 4080 level and moved upwards. We’re now at 4200. Is there potential for further movement? Yes, there is.
Given the current situation, it seems to me the market has a chance to grow another couple or three percent – we could theoretically see 4300.
Does this mean we need to rush to cut all shorts?
I’m not sure. Given that the situation is still rather uncertain, I’ve primarily made up shorts from the least volatile 3x leveraged instrument – SPXU.
For gold, I’m expecting prices to return to the 1970-2050 range. Therefore, I increased my allocation to gold slightly yesterday.
The conclusion:
I don’t plan to intensify shorts – it’s risky.
Adding gold – it’s a possibility.
TMF – most likely, as it could slightly increase as well.
If the market continues to rise above 4300, we’ll have to make some tough decisions. After all, it’s a fool’s errand to argue with the market.
At this point though, I would focus on Powell’s speech today. If the head of the Fed repeats the words of some regulatory members about the need for another rate hike, the dollar index could break through 104, gold could fall again, and the markets might even become a little gloomy…