Trading on a Knife Edge

With Friday’s SPX close over 4444, the market is poised to move higher albeit within an atmosphere with a lot of crosscurrents. Maybe four things stand out, 1) Ukraine, 2) Inflation numbers, 3) Economic Activity, 4) FED messaging.

First Ukraine..

Just watch the news, Putin has lost the fight, but now he may just be trying to kill everyone that he can. Who knows how this will end. In a sense, although Biden appears inept in terms of messaging, like in Afghanistan, he may be having a huge victory in terms of formulating a great force of Free World people who now understand the dark forces of evil that still exist, they didn’t all die when the wall came down. If the US had drawn the red line before the invasion we would probably have seen all kinds of arguing amongst the Free World as to whether the US was still trying to dominate the world.

2. Inflation..

Commodity prices continue to push higher but this is really a one-sided equation based on supply, demand has yet to be determined.

3. Economic Activity..

Latest numbers from the Atlanta Fed suggest GDP for the First Quarter is down to around 1.3 %. It will be important to closely monitor the many indicators of activity to see the magnitude of the downturn.

4. FED Messaging..

Powell and the FED are in a bind, they truly want to get inflation under control but are unwilling to do what would have to occur to make it happen, like a) push 2 year rates up to 4.5 % or b) reduce the Balance sheet by at least 2 – 3 trillion dollars. So it will be a shaky time as we wait to see whether an economic downturn stops inflation in its tracks.

How we are trading this..

We have had our base long position in SPXL and TQQQ put on during pressure periods during the January 25th – March 18th, 4200 to 4400 SPX, trading period.

Now we will be adding leverage on minor sell offs into the 4385 SPX level. Part of this opportunity is developing with today’s action, as we are seeing the bears come out and put on short positions based on a belief that this has been a dead cat bounce and the FED is in control by pushing up short term rates and inverting the yield curve.

We have a little speculative short position in SCO oil ETF. And we have some small positions in stocks that should benefit from what I see as a practical technology boom, technology that will tackle climate change, EV stocks like RIVN and QS, and the way out there ARKK innovation ETF’s.