April twelfth, two thousand twenty-six (260406-260412)
Author: Ariston
X: @Ariston_Macro
Custom models via DM (currently open only to custom daily models for the Chinese and U.S. stock markets plus a basket of crypto assets)
Zero. In the brief life between birth and death, people can choose to seek out their kind, or choose to create their kind.
One. Introducing the candlestick-chart teaching indicator and the results from the three indicator suites to date
Today, we completed syncing the third shared indicator on the platform. It is a teaching indicator about Japanese Candlestick Charting Techniques, based on the revised second edition of Steve Nison’s book on candlesticks:
Image: The physical copy on my bookshelf
Compared with reading dry text, this version makes it easier for everyone to observe the effectiveness of candlesticks and the logic behind their use in actual markets. Compared with poring over a book, this approach is closer to real-world practice and is the fastest way to learn, understand, and improve:
Image: How it works in practice
Image: Open any label for a detailed explanation and instructions on how to use it
Link:https://www.tradingview.com/script/GEbJXe9E-Nison-Candlestick-Arison/
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Our own use and understanding of Japanese candlestick techniques See Notes 25-12-05, “A Beginner’s Manual of Technical Analysis for Our Readers (One): Japanese Candlestick Techniques,” which explains in detail why we have distilled and use only the engulfing pattern, and how to use it:
Image: Notes 25-12-05, “A Beginner’s Manual of Technical Analysis for Our Readers (One): Japanese Candlestick Techniques”
Reading link:Read article
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Image: Now we have a full suite of tools for everyone
Two. My view on Iran: why a deal is bound to be reached, even though it is equally certain that things cannot return to how they were before the war began
Before the outcome of the U.S.-Israeli negotiations was announced, three posts were published in succession on the platform. The following is my framework for viewing the various events and news outcomes since the Iran war began, and it answers the question Why, as long as regime change is not a viable path, a deal will ultimately be reached This is the question it addresses.In fact, in training at foreign affairs institutions, the first thing every official will tell you about negotiations is that everything in a negotiation is about producing an outcome.
Negotiations may be avoided, but once the negotiating process begins, it must produce an outcome, whatever happens—especially in a bloody geopolitical conflict.In other words, from the very outset, an outcome was inevitable. The only difference lies in how the gains from negotiations are divided. But whatever the terms, once negotiations begin, the worst-case scenario can no longer continue indefinitely:
1/3 Iran does not belong to its people; it belongs to the group of religious leaders who rule it. Therefore, analysis cannot be framed from the public’s perspective. The leadership is focused on two things: maintaining public perception and protecting its own fundamental interests.
2/3 This is why the Iran war differs from the Vietnam War. It comes down to one central point: the United States has effectively given up on regime change. What remains is to reach a new set of arrangements over the division of interests with the successor, in a way that saves face and respects religious sentiment. The timing of the ten demands makes this clear. They were put forward precisely as Ali Khamenei’s religious mourning period ended—not a day later. Ultimately, this is all about money. The ruling group is simply seeking a larger share in the new order. Don’t overthink it.
3/3 Make an offer, counteroffer, and close a deal. A deal is a deal. Those who think the system is too complex do not really understand how power works. As long as there is a clearly defined ruling group, a deal can be reached. Historically, prolonged wars have often occurred where there is no single, coherent governing authority within the territorial state.
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Three. Market pricing: foreign exchange
By the weekly close, the market had largely held on to its ceasefire-driven gains:
Chart: Ceasefire-driven pricing held through the close
Given our fundamental assessment framework (see above), the most likely path over the next three to six weeks is a marginal easing of tensions around the Strait of Hormuz and a reversal of stagflation pricing; however, since the United States and Iran have yet to reach agreement on the nuclear issue, tail risks have not disappeared. Therefore, Two natural conclusions follow: 1) At the portfolio level, maintaining large-scale defensive positions is no longer appropriate; 2) the framework should shift to smaller positions tilted toward risk-on trades.
Chart: U.S. Dollar Index (four-hour chart, as of 260412)
In this environment, the risk-reward of broad dollar longs is starting to deteriorate. After we advised actively or passively closing most of the previous long foreign-exchange positions, the dollar has continued to decline. It has not only gapped below the rising red line in place since early 3, but has also returned to the upper bound of the 98.8 trading range; from here, the red line will become a strong resistance level, and our view on the dollar shifts from strongly bullish to trendless and range-bound.
If U.S. equities weaken relative to other markets around the world, this could rekindle the earlier trend of long-term investors reconsidering the allocation weight of dollar-denominated assets, increasing the FX hedge ratio, and even bringing capital back to domestic markets...
Chart: The fact is that US equities haven’t performed as well versus Rest of World as one might expect during a cyclical macro shock
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Continuing from above, Since the ceasefire, exchange-rate performance has no longer been driven primarily by relative terms of trade, as it was in 3, but has been influenced more by risk premium compression; the clearest evidence is NOK, which was still among the strongest G10 during the week oil prices fell. This shows that investors are not trading mechanically based on oil prices and terms of trade, but are actively compressing geopolitical risk premiums:
Chart: NOK (daily chart, as of 260412)
If the trading framework continues to shift from “safe-haven hedging” to “trading a risk recovery as tensions ease,” then the EUR/AUD pair will become the main proxy for capital flows; the logic is that, as tensions ease at the margin, AUD can more directly capture a broad high-beta rebound, while EUR has less upside sensitivity. Therefore, short EUR/AUD is a purer trade than continuing to hold AUD versus SEK/GBP:
Chart: EURAUD (daily chart, as of 260412)
Finally, Breaking above the yellow line, our long position in SEK is now underway:
Chart: SEK overlaid with CL (daily chart, as of 260412)
The rationale was detailed in earlier Notes. This is a risk-premium-unwind trade we have been watching for over a month.
IV. Market pricing: equities (the renminbi enters the #3 phase, alongside Chinese equity indices)
The renminbi and the US dollar have moved in sync into the #3 phase, characterized by two-way fluctuations but gradual appreciation.This provides a basis for remaining bullish on domestic-currency assets while maintaining exchange-rate stability and export growth. This means as long as the renminbi-dollar exchange rate remains within the #3 zone bounded by the two blue lines, mainland equity indices will not see a sharp decline. They can only follow one of two paths: a steady rise (1) or range-bound trading (2):
Chart: Renminbi against the US dollar (daily chart, as of 260412); the #3 appreciation zone after entering #2
The Shanghai Composite found support above the 200-day moving average, The expectation is for it to continue rising in a choppy fashion along the annual moving average within the golden-line range of 3800–-4200. It will still be led by the two main hard-asset themes: technology and resources (see earlier Notes for definitions):
Chart: Shanghai Composite (daily chart, as of 260412)
The Shenzhen Component is similar, but may break above the upper golden line first.If this breakout occurs as expected, we should likewise avoid leveraged longs and wait for the Shanghai Composite to confirm it:
Chart: Shenzhen Component (daily chart, as of 260412)
Chart: Hang Seng TECH Index (daily chart, as of 260412)
The Hang Seng TECH Index is making a determined attempt to break out of its bottoming range. We went long at Monday’s open (see last weekend’s Wrap) and are now urgently looking to hold the position. Going forward, we need to watch whether it can hold above the yellow line (1) and whether it can stay above our entry-level low and make a higher low in April (2).
V. Market pricing: equities (South Korea and Japan)—why a global stagflation path is difficult to achieve
Specifically, although the narrative is relatively coherent, global stagflation is a difficult outcome to realize (stagflation confined to the United States is the only possibility, but even that is unlikely to materialize in the real economy). Trades used as proxies for this thesis can only be played as swings, with profits taken at the narrative peak.
For South Korea, Brent priced in won surged 50% in 3 alone, far more than the 32% cumulative increase over 2 months at the start of the Russia-Ukraine shock in 2022. But local gasoline prices in South Korea rose only 11% in 3, less than the 19% cumulative increase over two months in 2022. In other words, the shock to crude oil was substantial, but policy significantly dampened the price increases felt by households.
Government price-stabilization measures are a factor here. But even after fiscal and administrative tools are withdrawn, further inflation is still almost impossible given the constraints imposed by the broader economic cycle.South Korean wages are not in a position to generate second-round inflation, because population aging will continue to weigh on wages.South Korea’s working-age population aged 30–-60 has declined continuously since peaking in 2016; employment growth has recently come almost entirely from people aged 60 and above. Based on the 3-month average, regular employees’ base-pay growth had fallen to 2.1% in 1, its lowest since the pandemic began in 2020.In other words, the labor market is a very weak amplifier of inflation. This is true in South Korea and Japan, and is still true in China. Fundamentally, against the backdrop of a narrative of emerging from deflation that has only just eased, the idea that global stagflation would immediately follow may sound appealing, but it would be difficult to realize.
In this situation, rather than stagflation, what is more likely—using South Korea as an example—is a K-shaped economy that continues to become more pronounced.On one side, exports, especially technology exports driven by AI and the chip cycle, remain strong; on the other, consumption remains persistently weak, affected by soft employment, high household leverage, and eroded purchasing power.Rising energy prices will further squeeze households’ real incomes and consumption, while a weaker won benefits technology export profits. South Korea’s economy will therefore look more like a structure in which “technology stands out alone while domestic demand remains persistently weak.”
Chart: KOSPI (daily chart, as of 260412)
Chart: TIGER 200 (daily chart, as of 260412)
The chart above is a clear example: KOSPI has moved from a downtrend back to a trendless state and has returned above its 50-day moving average. But the Tiger 200, which is tied to domestic consumption, remains in a downtrend and is still below its 50-day moving average.
Chart: Nikkei futures (daily chart, as of 260412)
The Nikkei, one of the core representatives of the index longs highlighted in last week’s newsletter, has been a successful bet.
Six. Market pricing: equities (EWZ, EEM), on continuing to favor non-U.S. markets
Part Three discussed the U.S. equity market’s weaker-than-expected growth. Against the backdrop of risk unwinding, our two main trade proxies for going long non-U.S. markets are naturally making a limited-time return, with the time of their next exit still uncertain. After reclaiming the key price level we previously identified for a shift from short to long, both have continued to rise:
Chart: EWZ (daily chart, as of 260412)
Brazil proxy (EWZ): since re-entry, up approximately +15%; the current take-profit level (exit point) has been raised to 38.44.
Chart: EEM (daily chart, as of 260412)
Broad emerging markets proxy (EEM): since re-entry, up approximately +10%; the current take-profit level (exit point) has been raised to 59.47.
Seven. Market pricing: commodities
First, if you have started using the Planet’s commodity relative positioning chart, you should have noticed the unusual move across the white precious metals:
Chart: Relative positioning chart (as of 260410)
Chart: Relative positioning chart (as of 260410)
This is also beginning to show up in the absolute price performance of the underlying instruments at the micro level. The chart below shows the daily chart for CMX silver through today:
Chart: CMX silver (daily chart, as of 260412)
1) continues to approach the price level for turning long again. For now, a break above 80.34 would trigger another attempt to go long in the daily model. 2) Leveraged funds have resumed adding to their long positions since 4 month 9 day.
Chart: Platinum (daily chart, as of 260412)
Platinum has turned long. Likewise, 1) leveraged funds have resumed adding to their long positions since 4 month 8 day, and 2) the take-profit level has been raised to 1966.
Chart: Palladium (daily chart, as of 260412)
Palladium, now turned long; likewise 1) leveraged funds began adding to long positions again from 4 month 8 day, 2) take-profit level moved up to 1430
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The other three instruments already in Improving status:
Chart: CMX Gold (daily chart, as of 260412)
Gold, 1) leveraged funds began adding to long positions again from 4 month 8 day, 2) take-profit level moved up to 4718
Chart: CMX Copper (daily chart, as of 260412)
Copper, 1) leveraged funds began adding to long positions again from 4 month 7 day, 2) take-profit level moved up to 5.57
A few more words on copper:The macro backdrop behind our earliest long positions in industrial metals was China’s PPI turning positive year over year. This backdrop has now officially ended, so subjectively, our view on copper has shifted from bullish to trendless range-bound trading. We are not bullish on the so-called long bull market in commodities narrative; there is no such thing as excess returns that persist forever. Those who were bearish on commodities more than two years ago were following narrative inertia; those who are still bullish on a major commodities bull market now are likewise following narrative inertia.
Ultimately, industrial commodities are used by people. If they are not used as much, companies’ profit margins fall, and naturally your prices will fall too. This differs from precious metals: sometimes, goods with no practical use can have greater scope for imaginative pricing. For useful things, people will still assign an end value based on what they can actually do.
Let’s see what happens after this round; the long position here may subsequently be reduced to 0.5x.
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Chart: Cocoa (daily chart, as of 260412)
After a major short-selling round at the start of the year, cocoa prices have stayed in a bottoming range since February. There were two attempts to go long during this period, but both failed. At present, cocoa appears to be starting to form a new move on the relative price chart. Here, 1) a break above 3361 would make the model flip from short to long; 2) a move above 3500 would kick off a formal price recovery.
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Nine. Market Pricing: Alternative Assets
Chart: Little Yellow (daily chart, as of 260412)
It remains confined within the two blue lines. Turning long requires the price to get above 76873. Don’t make rash moves before the market confirms a direction. A narrow range offers no real returns; there are only five words for it: all effort, no reward.
Commentary: Defense and Aerospace Basket
Longtime readers should remember the several rounds of LMT we traded. After we took profits and exited at the top, it has traded sideways ever since, while the linked defense spending basket has also remained stagnant. This is highly unusual fund behavior. The war in the Middle East has not brought new funds into this theme; on the contrary, existing funds have even continued to flow out.
If you also remember our explanation of the logic behind market pricing—that prices trade on sentiment and memory, not on actual fundamental information then the conclusion is clear as well: if the market really starts to believe today that geopolitical shocks will not continue to worsen in a linear fashion, then the appeal of pure defense and military stocks will decline, and the “fundamentals” of defense spending will start to deteriorate. Even if spending remains high, it will be difficult for basket valuations to keep rising. Of course, areas such as civil aviation and maintenance, which were previously under pressure but remain resilient, will be bought again. This will be a process of divergence.
Wall Street’s discussion of defense stocks has turned into the question, “What will it take for them to rise again?” Take the GS defense basket, for example: since its prewar high, it has pulled back -5%, with CSG down -30%. Moreover, the entire basket weakened notably again that day amid some ambiguous news from Ukraine, indicating that confidence in the defense trade is fading significantly.
Chart: Defence made another lower high during early phases of the conflict and has since re-traced to midpoint of the range, stuck in no-man’s land.
Of course, with real spending taking place, this theme is unlikely to fall very far. So trading it as a range may be quite comfortable: at least through year-end, buying at the Pivot Low and selling at the Pivot High, rather than chasing it higher at the top, would be a better choice.
Overall, the defense sector does indeed (for now) lack a fresh incremental catalyst for another valuation expansion like last year’s.
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Commentary: Restart QT?
The possibility of the Fed resuming QT is rising (although most central bank researchers still think it is unlikely, and we remain skeptical, but you cannot ignore “what could prove us wrong”), and recent papers by Miran and Logan both discuss how to restart balance-sheet runoff with more efficient reserve management and regulatory easing in place. QT itself is usually unfavorable for spreads, but if improvements in bank liquidity management and regulatory easing come first, before QT, we could instead see a period of abundant liquidity, with the net effect potentially looking more like a spread curve flattener.
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Miscellaneous: Continuing the example of Korea, why inflation is difficult to generate globally
I have been following research on the impact of technological shocks on the labor market. A fairly common conclusion is that workers displaced by technology not only have more difficulty finding new jobs in the short term, but also suffer lasting effects. In the short term, it takes workers displaced by technology about one month longer on average to find a new job, and their real wages after reemployment fall by more than 3%. In the long term, their income growth over the next ten years is nearly 10 pct lower than that of people who were never unemployed, and about 5 pct lower than that of people unemployed for other reasons; their probability of becoming unemployed again also remains higher over the long term.
More importantly, the impact of technological displacement varies considerably across groups.
Younger, more highly educated, urban workers and those with shorter job tenure are much less affected; training can cushion the impact. And if technological displacement occurs during a recession, the harm is amplified further, including longer periods of unemployment and higher probabilities of becoming unemployed again or leaving the labor force.
If the labor market really continues to undergo expanding structural changes, inflation will be difficult to generate.
That is all for now.
(End of article)
A quick plug: our U.S. equities, A-share and Hong Kong stocks, and commodities planets are designed to be used together, and their content continues to improve.
U.S. equities:https://www.meridianresearch.app/home?product=us-strategies(Xingzhi)
A-shares and Hong Kong stocks:https://www.meridianresearch.app/home?product=asia-strategies(Ganglong)
Commodities:https://www.meridianresearch.app/home?product=commodity-strategies(Dixin)
Note: All content in this article is for reference only and does not constitute investment advice or serve as a basis for any laws, regulations, or regulatory policies. Investors should not use this information as a basis for decision-making or rely on it.