The Markets Are Speaking and No One Is Listening

It almost never works out when commentators assure us this week or next week will be the big one. All will be revealed. Then we move on to the next hugest event. Which goes to show, with many exceptions, that it's usually the surprises that pack the most bang for the buck. They haven't been analyzed to death with all the reasons at the ready to explain any deviations from forecast to be trotted out. If there wasn't weather, we'd have to invent it.

So, fully aware that I'll no doubt regret it, we are in for a very interesting patch. With, as far as I can see, an awful lot of traders ignoring the price action in favor of the preferred narrative. And resolutely positioned against what seems the pull of the tides. An unusually resolute stance in a year when things have been going merely so so for asset managers. I can only surmise that being "flexible" hasn't worked to plan so traders are choosing to stand their ground. Good luck with that.

There's no arguing that the world has plenty of problems to go around. But the not even dead-cat bounce in equities, emerging markets or the likes of the Australian dollar from headlines about Treasury Secretary Mnuchin considering a trip to China to work on trade differences and China cautiously welcoming the gesture shouldn't be ignored. Positioning is working against traders right across the board. And looking at the charts, stale positions, which are growing not shrinking, are not on the side of the path of least resistance.

Take CFTC positioning with a grain of salt. Especially if you only look at the top line. But it struck me that with all the news flow, geopolitical and relative monetary policy related, the dollar short position increased last week. Yet you don't have to be a dollar bull to wonder why. The dollar index isn't out of the woods, but support levels look a lot clearer than resistance. The more inclusive Bloomberg dollar index paints a similar but even more constructive picture. Even the supposedly impregnable emerging market currency indexes are noticeably sagging.

The euro and yen, both of whose central banks have meetings this week are giving a wonderful presentation of currencies looking to probe their downside. Yet there's no shortage of wishful thinkers opining on "someday when they get going."

The S&P 500 future last week tried and failed to surmount resistance marginally above 2700. Don't dismiss the protective reaction functions but we know now the clearly defined topside challenge. Which as of last week became even more formidable. And watch the ever creeping higher and much ballyhooed 200-day moving average. Eventually the ever- hopeful earnings season will begin to wind down. It's one thing to challenge support on a headline. Another if it happens just because.

As for bonds, using an investment thesis of, it has to stop somewhere, is a very QE view of the world. Several times over the weekend, I read about bond vigilantes. I reject the characterization. The sellers who have driven yields to multi- year highs aren't protesting monetary and fiscal policy developments. They are embracing them.

Trading off news is what we do. Trading off the sheer weight of flows, however is the better way to make money.