- Strictly Macro
- Posts
- WEEKLY MACRO NOTE - Blow off top
WEEKLY MACRO NOTE - Blow off top
Process, Contextualising Thursday, Rates & Gold, Levels for next week
Antonio C. Nobile
November 13, 2022
Read time: 8 mins
“There is what one may call a relativity of time in financial markets. Early on, but mostly when developing the multifractal model, I came to think of markets as operating on their own "trading time" quite distinct from the linear "clock time" in which we normally think. This trading time speeds up the clock in periods of high volatility, and slows it down in periods of stability.”
Time certainly sped up on Thursday.
A once in a lifetime kind of day on many accounts, and a stark reminder of how possible the improbable is in financial markets.
If there is one thing that Mandelbrot drills down upon in his books is that the standard Gaussian bell curve of outcomes cannot be applied to markets. As Taleb would say, markets have Fat Tails.
As market practitioners, this is something we should always keep in mind.
TABLE OF CONTENTS
TRADING PROCESS
CONTEXTUALISING THURSDAY
WEEKLY WRAP UP
DISINFLATION, RATES & GOLD
SENTIMENT
ECONOMIC CALENDAR
LEVELS FOR THE WEEK AHEAD
We discussed this at length last week, including a great callout by me about FTX on Sunday, so I will not spend any time on this today.
However, I do want to emphasise that you should not underestimate the consequences of the FTX bankruptcy. FTX was systemic, its interconnectedness means that it will set off a cascade of dominoes, the consequences of which have yet to be fully seen.
TRADING PROCESS
Four weeks ago I discussed the idea of a potential rally in Nov/Dec, and brought it up again two weeks ago. It appears I should have given more credence to this possibility than I did at the time.
Looking back at my most recent articles, I was very right in pointing out that shorting tech was no longer attractive at the lows last weekend, instead, I shifted my attention to Europe, which had rallied +14% at the time, but it turns out I was early.
When it comes to taking on a trade you are evaluating probabilities.Let's assume you estimate the probability of a trade working out to be 70%, but you turn out to be wrong and the less likely 30% happens.Next time, faced with the same decision, what would you do?Mathematically the only logical thing to do is go with the 70% chance again.
This method does not give you certainty, but in terms of decision-making, it is the only reasonable process over time.There is no certainty in markets.
This is precisely why you should take your time to build your positions, size your trades based on how favourable the set-up is and never put yourself at risk of blowing up if the unlikely happens.
The unlikely is always more likely than you think in markets.
CONTEXTUALISING CPI THURSDAY
We have never seen a +5% 1-day rally with a starting VIX below 30. Tier1Alpha’s data shows that the market was pricing in a +/- 1.5% post-CPI move, instead, the result was almost four times that.