Weekly Memorandum 1/18/2021
Markets in the U.S. are closed today in observance of the Martin Luther King Jr. holiday. Futures are basically flat in pre-market trading. A few weeks back, we mentioned that stocks were due to form a high. This increasingly appears to be the case, and it may have already happened. We could expect a rise in volatility these coming weeks, so risk management will be of utmost importance.
We also observe that a short-term bottom appears to have formed in both the U.S. Dollar and the T-Note market. In other words, interest rates appear to have made a high in the short-term, and could decline for the next couple weeks. This has all the marks of a "risk-off" environment for markets in the near-term, especially considering the epic rally we've witnessed in various agricultural commodities in recent weeks, plus the rally in Crude Oil-- we are due for a pause. Commodity rallies are inflationary, and we appear to be set for a mean reversion here. We anticipate corrections in existing trends versus an actual reversal in them.
In the crypto-world, we see some price congestion taking place. This is quite normal to see after an epic run like we've witnessed. Our long exposure has been reduced in an attempt to see how this market shakes out in the short-term. It's imperative to not let greed overtake our good sense after an epic bull run like we've witnessed in this sector. We would not be surprised to see further congestion or even a price retracement in various cryptocurrencies. Side note: Crypto perma-bulls are just as ridiculous as stock market perma-bears.
The presidential inauguration is also set to take place this week. It seems that the press is hyping the event, suggesting that some form of unrest could unfold. As analysts, we note that events don't always unfold in the way the crowd expects. Students of history know that there will always be marketplace for ideas, and no amount of coercion or ridicule will stop people from believing what they wish, and ultimately, it is their right to do so.
As Gaius Julius Caesar once said, "Men willingly wish what they wish to believe."