Weekly Macro Note: 5.19.2024
As the USD (yellow) traded lower into a support area, 104, from a resistance area, 106.50, rates (candles) have moved lower (price higher) and equities higher (orange). Not quite what consensus had in mind. The USD has done its fifty-percent retracement as far as I am concerned and am now stalking for bullish turn in that market. If this turns out to be the case, and capital flows back into USDs, then we would see distributive price action in risk assets such as equities.
On the flip side, if the USD happens to get sold lower given that the stark economic reality is setting into capital flows, then we could very well see a continuation of lower rates (higher prices), and a rollover in equities. Crude has already shown signs of weakness prior to its most recent upward retracement from the 76 area, and the market is tight; therefore, it is presumed to be lack of market demand as the market has rarely found strength since touching 86.64 on April 12. Have we seen the fifty-percent retracement of the February to April run from 70 to 86? Time will tell and we will let the market do the work, but we have noted in the interest of completeness here.
The following chart is the NASDAQ futures chart, where the blue vertical lines denote the “dips to buy” in the USD, and the red vertical lines denote the “rips to sell” in the USD. The thing to focus on is how delayed the reaction can be in the actual market, that is, NASDAQ futures. Or how it just will not play out how you think it will. This is why it is important to never lean on what could be an obvious axiom that isn’t always true because humans. For example, the blue lines from 27 December 2023 and 8 March 2024, both occurred while equities trucked on higher. Only toward the end of that move, the week of 12 April 2024, did we see equities reacting to what had already happened.
The following chart is the USD (candles) and NASDAQ futures (orange). Note the channel that the USD happens to be trading in. If the 104-support area stands true, then it will be interesting to see what, if anything, happens in equities. Equities are structurally bullish, as we have seen upward momentum take the market to new highs in the face of a weak USD. However, if markets enter some type of transition phase that will be important to be aware of. Markets are not linear and capital flows in nonlinear ways; important things to note. I will follow up with market structure thoughts on the next daily plan.
