Hi YXI friends,

Last week, I mentioned to “prepare for a pullback”. A week later, the market raged to new highs. And I see a lot of “I told ya” posts online, just short of screenshotting their gains.

At the same time, oil prices have not dropped meaningfully. The market does not expect another cut this year. The trading volumes are very thin on this way up. Realised volatility has been rising rather than declining. When you check back historical conditions similar to ours today, we tend to get a pullback, or some consolidation, sooner or later.

And while our models historically followed the price trends, they are currently not buying this rally in equities and crypto. In contrast, they are more convinced of a commodities rally. Last time this combination happened, the market was in the October - November consoldiation.

As oil prices remain high, Bessent has even given Warsh an excuse not to cut rates, “If they need, for their own sanity, to wait on interest-rate cuts, I understand it”.

My read is that the current equities market is extended from its macro fundamentals. They could prove right in the end, if there is a genuine regime change that I am too slow to adapt. But for now, I remain cautious and prefer trimming / profit taking the longs here.

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