May 260511, two thousand twenty-six (-260517)
Author: Ariston
X: @Ariston_Macro
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Zero. From Livermore, a long time ago
Image: The complete translation will be posted to the community on Monday
Knowledge and patience are both indispensable.
One. Global market bulls begin to diverge (with synchronized proxies for the stock market)
Since the community began going long global markets in early April, a group of core proxies led by technology have driven the indices steadily higher, tracing the parabolic tail of a right-side formation.In this situation, it is difficult to try to subjectively judge when the rally will end. As market participants without pricing power, all we can do is sit quietly and wait for the market itself to tell us, “Time to rest”—when the market dances, we should dance along; when it decides to rest, we should rest together.
Image: Korea-India ratio (daily chart, as of 260517)
We have discussed the chart above many times before in the community. The Korea-India ratio represents global growth versus global value, and can also be seen as a relative-value pair for technology trades versus traditional trades. On the daily chart, it has now traced an extremely steep parabolic right tail. The reason for showing this chart again is that, on the weekly chart, this trade has once again reached a key horizontal level....
Image: Korea-India ratio (weekly chart, as of 260517)
The point of including this here is not to use a single chart to refute the entire thesis for the Korean technology trade. It is simply that when prices reach this area, changes in the risk-reward profile will naturally affect subsequent capital flows, and those flows are bound to show up in prices again. A pause at this level is quite possible.
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Image: 《WEEKLY WRAP 260510》
Last week’s newsletter discussed why the Korean index is so important in this rally. To some extent, compared with U.S. tech stocks or the domestic market’s trade in homegrown alternatives to foreign technology, the Korean index—with its large number of speculative funds and retail traders—has become the best gauge of global leveraged trading in terms of sensitivity. The Korean index’s bull-bear line is also the bull-bear line for leveraged technology trades in global markets. On the daily chart, this line is at 7400, while on the hourly chart it is below the T3 target price identified in last week’s newsletter:
Image: KOSPI (hourly chart, as of 260517)
After prices reached the 7781 target price given in last week’s newsletter, momentum faded and prices moved lower. We closed out our position after the break below T3.
From early April until the bulls closed out their positions this week, KOSPI+ to 47%. At this point, the bulls need a breakout to a new high for confirmation.
Image: KOSPI (daily chart, as of 260517)
The daily chart shows a clearer structure and is also the main battleground for most HF institutions and smart money focused on swing trading.After we turned bullish on the Korean index above 5438, prices rose steadily and reached the daily 7944 target price (the highest close was 7981). After reaching the target, the index plunged -6% in a single day on Friday, its largest daily decline since March (the March decline was when we pointed out that the Korean index had reached a short-term peak).
As of this week’s close, the price is still above the bull/bear level of this larger structure, but the position is precarious.
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Meanwhile, the mainland market has already seen a more pronounced shift in the bull/bear balance.Take the CSI 500, for example: after breaking below the key bull/bear level we calculated on Thursday, it fell further on Friday. If the decline continues, it may reach the bears’ 7900 target at T1, This path will be quite painful for many people. After a relatively clear primary uptrend in technology, it is unrealistic to expect funds to quickly rotate into so-called sector rotation. More likely, we will see a weak and meager handoff from day to day.
The bulls need to reclaim the red line quickly to retake control.
Chart: CSI 500 (daily chart, as of 260517)
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The U.S. dollar index is likewise nearing a bull/bear inflection point, Although my view is that the price will most likely still test T2(it could also break below first and then rebound to test it, forming a failed breakout). If it moves higher again here, I won’t take the trade; I’ll stop opening positions for now.
Chart: SPX (daily chart, as of 260517)
Among non-U.S. markets, a key factor behind the so-called lack of consensus among global-market bulls: the emerging-market trading proxy EEM has closed out its long position...
Chart: EEM (daily chart, as of 260517)
Aside from EEM, the Brazil trade is also worth mentioning here. The main reason is that ever since we turned bearish on Brazil a few weeks ago (see the earlier weekly edition), many die-hard Brazil bulls—often carrying around Stanley Druckenmiller’s video touting Brazil—have fiercely abused and attacked us...
Our view itself is not important. In fact, when we went long Brazil last year, these people were nowhere to be found. If you don’t respect the market’s own dynamics and keep your head down, focused only on your hands and your own thoughts, it is often difficult to get good results. Most importantly, the market really doesn’t care what you or I think.
Livetmor made this classic remark many years ago: in the market, there is only one side that truly exists—not the so-called bull side, nor the so-called bear side, but the “right” side.....
How can you be right? He didn’t go on to say.
Dance when the market dances, and rest when the market rests. In essence, this means letting go of the attachment to the idea of “me” as the subject. Letting go of that attachment at least keeps your position from dictating your thinking. That’s my answer; you can have your own, too.
Chart: It’s actually already been translated; I’ll post it to the Planet tomorrow. I didn’t post it on Saturday because I launched a new Saturday macro chart collection. The “What I’m Reading and Watching” feature may move to after Friday’s close; after that, the schedule should be fairly regular.Every Sunday, the WEEKLY WRAP weekly edition; every Monday, the event-driven trading calendar; on weekdays, regular updates to the data sets, plus occasional updates to fundamental notes, general commentary, and views; after Friday’s close, a selection of my wider reading beyond the markets; and on Saturday, the macro chart collection...
I may add more new features later, as long as you don’t mind there being too much content... or don’t find me too annoying...
II. Synchronous bull/bear signals from some other equity trading proxies:
Note: All content shared on the Planet is for reference only, Recipients are not deemed to be our clients by virtue of reading content on the Planet. Nor does it constitute an invitation to anyone to buy or sell securities or other investment products, and it should not be relied on as a basis for trading.Markets involve risk; invest with caution. All information and views on the Planet do not constitute investment advice. Past performance is not indicative of future results, Investors should carefully assess their own risk tolerance, make independent decisions, and bear full responsibility themselves. Under no circumstances will we be liable for any losses arising from the use of any Planet content.The relevant data may be delayed or inaccurate, and we accept no legal responsibility for the completeness or accuracy of the information.
To start with, as things stand, a large proportion of the assets are still above the long-short dividing line. By “above,” we mean that we can continue to follow the approach set out in“The capital expenditure and innovation cycle currently led by AI still has the capacity to provide some fundamental support for valuations that appear overheated,”as our basis for understanding the situation. The stock market is inherently a reactive creature: it actively amplifies new narratives, attracts incremental capital, and creates pockets of overheating. This is not a bug, but a feature. Capital allocation that looks wasteful today will often give rise to companies that genuinely transform the structure of an industry in the next cycle.Large technology companies are financing themselves and recycling capital through record levels of internal cash flow. This is crucial because it is different from the past, when the story relied entirely on cheap external capital. Large-scale capital expenditure funded internally means the AI innovation cycle is more sustainable and more likely to translate into actual earnings and productivity gains, rather than remaining just a narrative.This is the fundamental reason Planet emphasizes not making rash moves before price itself signals that the trend is ending (of course, you also need to think ahead rather than become immersed in the present, letting your position dictate your thinking).
1/ NVDA: After breaking out of the purple rectangle, it has reached the T1 long target. A break below 220 would trigger an exit to take profits.
Chart: NVDA (daily chart, as of 260517)
2/ INTC: In accordance with last week's weekly plan, the position was strictly managed and has now been closed to take profits.
Chart: INTC (daily chart, as of 260517)
3/ AMD: Still holding. The take-profit level has been moved up from 400 in last week's weekly update to above 408; a break below that level would trigger an exit to take profits.
Chart: AMD (daily chart, as of 260517)
4/ SGML: A proxy for lithium resources. After exiting in accordance with last week's weekly update, we entered again, but the attempt to turn bullish again failed, and we have exited.
Chart: SGML (daily chart, as of 260517)
5/ NQ: It reached the previously planned T2 long target, after which the market fell sharply in a straight line. The take-profit level has been moved to above 29k; a break below that level would trigger an exit to take profits.
Chart: NQ (daily chart, as of 260517)
6/ SOXX: The take-profit level has been moved up from above 480 in last week's weekly update to above 490.
Chart: SOXX (daily chart, as of 260517)
7/ Nikkei: Reached T1, but momentum faded too quickly here, so the take-profit level should not be moved.
Chart: Nikkei futures (daily chart, as of 260517)
Three. Foreign exchange: the yen, the dollar, intervention, and Coordinated Intervention
About two or three weeks ago, we discussed our view on trading the yen. The main point was essentially this:
1) The impact this time will not be as large. 2) Range trading can go either way; the key is the two lines at 157 and 155. Moving above the 157 line would show that the market does not buy the intervention thesis; falling below the 155 line would show that the market has capitulated to intervention.
Chart: USDJPY (hourly chart, as of 260517)
Clearly, pricing took the first path: after breaking above the red line at 157, it has continued to rise. That line has now turned from range resistance into strong support. The main reason is that the market had been discussing this intervention well in advance. The intervention around 160 was an event where the what was known, so the shock came only from the when.
With support in place, there is a fundamental story to tell. Although Japan's Ministry of Finance appears to have carried out a sizable yen-buying intervention, this did not change the market's prior price expectations for dollar-yen (roughly a pricing range of 158–-165). In other words, intervention can control the pace and volatility and buy time, but it cannot reverse the trend.
At present, Japan should still have the capacity for several additional operations. But the hard constraint is not whether it is institutionally able to intervene; it is whether the existing foreign-exchange reserves can sustainably support larger and more frequent interventions going forward.Once the market interprets this reserve depletion as exposing the “remaining ammunition,” attempts to hunt down intervention trades may instead encourage speculators to keep testing the market. Soros's trader, Trader Vic, discussed this in his principles of speculation: what is truly frightening is being caught in the crocodile's jaws. Once your weakness is exposed and your actions are seen as a feeble response that will continue to lose effectiveness, things really can go badly.
Chart: Trends in securities and deposits within Japan's foreign-exchange reserves
Overall, to truly reverse expectations for the range (158–-165), pricing power lies with the United States, not Japan. With no new progress in U.S.-Japan coordination, the only thing Japan may be able to do is push the price below 160.Even if an agreement is reached, it would be difficult to replicate the start of the year. That coordinated rate check was effective largely because it took the market by surprise, and because the United States was concerned that volatility in the Japanese government bond market could spill over into the U.S. Treasury market.
The probability of another coordinated rate check is now low. A genuine coordinated intervention faces an even higher bar and is almost impossible unless the market enters a state of crisis.
Chart: USDJPY (15-minute chart, as of 260517)The second intervention was clearly less effective
In practical terms, 1) In the near term, do not simply chase dollar-yen higher above 160. If holding a position, only move the exit to lock in floating gains, because policy tail risk has been shown to be real. 2) If a second or third round of intervention pushes the price back down in the future, it is better to view that as an opportunity to re-enter long dollar-yen in the medium term than as a signal of a structural reversal. 3) U.S. growth, inflation, Treasury yields, and the Federal Reserve's path—not unilateral Japanese policy actions—will still determine the medium-term direction. There is little need to keep watching the details in Japan; you might as well save that time for other things.
Four. Dual-track inflation in the old and new economies: what is weighing on stocks and precious metals?
Aside from valuations, what has also begun to weigh on stocks in tandem is the so-called reflation narrative. Most of the time, this narrative is described as oil supply-side inflation driven by the U.S.-Iran war. But some of Wall Street's leading institutions see this round of inflation as different because it is potentially driven on two tracks: alongside energy prices, it is also coming from technology component prices. In other words, concern about fuel shortages is one thing; concern about storage shortages is another...
It is precisely against this backdrop of dual-track inflation in the old industries (driven by crude oil) and new industries (driven by storage and semiconductors) that global long-term yields have remained elevated, and have once again come close to a further technical breakout:
Chart: US10Y (daily chart, as of 260517), nearing another technical breakout
Last week we tried going long silver and platinum, but the market ultimately failed to make a major breakout to the upside and instead turned lower. One major factor was US10Y.As discussed in Notes 260420, “When Gold Returns to the Pricing Framework of Money and Interest Rates” (https://t.zsxq.com/E0Kzs）里面写到的，只要这里的名义收益率和真实利率尚未完全回落，整个贵金属就将面临更高的持有成本，而这无疑是阻碍其整体再上行的关键问题之一..
Chart: NMX platinum (daily chart, as of 260517); the long trade on a break above the yellow line has failed
For now, a new long position requires the price to move back above 2180
Chart: CMX silver (daily chart, as of 260517); the long trade on a break above the yellow line has failed
In fact, if you overlay the precious metals as a whole (gold and silver, plus platinum as a representative white precious metal) with US10Y on a lower timeframe, the pressure from long-term yields is very clear:
Chart: Gold, silver, and platinum overlaid with US10Y (daily chart, as of 260517)
Even to some extent, Friday’s stock market decline can be attributed to the huge rise in 10Y...
Chart: NQ, INTC, and KOSPI overlaid with US10Y (daily chart, as of 260517)
If US10Y breaks above the key level of 4.6% next week, a broad market correction led by this would be a likely trading path. Even if there is no sharp decline, it would at least bring divergence and stagnation within the main trades, and reduce tradability (that is, repeated false breakouts in both directions), making the experience less comfortable for participants.
...
Chart: GDX (daily chart, as of 260517)
The attempt to go long GDX again ended in a loss. Bulls here need to wait until the price gets back above 96,
A better approach may still be to keep a close eye on 10Y and wait for confirmation from both.
Five. A few other commodities: oil prices and additional notes on industrial metals
Despite a lack of tradability (oil has continued to move erratically ever since our last round of long and short oil trades), prices have still held above 100 dollars, and this situation may persist. That persistence means that supply-chain recovery after the geopolitical shock is far slower than the expected retreat in prices, which remains a trading theme across the commodity market. Energy will not normalize quickly just because the Strait of Hormuz reopens; natural gas and LNG remain tight, and those potential supply-side issues will continue to be mentioned. Even if the strait reopens in 6 month, a rapid return to the old normal is unlikely.
We have discussed expectations for the strait’s reopening extensively over several rounds in previous weekly reports. Ultimately, the physical constraint of inventories itself will determine the geopolitical outcome. Iran is not capable of provoking every country in the world, and the drawdown of oil inventories will eventually force the Strait of Hormuz to reopen in some form.Supply is never determined by geopolitics first; physical inventory constraints ultimately force political and logistics systems to yield. Therefore, rather than simply playing the headlines, what matters more is a reopening driven by supply, demand, and inventory constraints.
Chart: Oil prices are still above 100 dollars (daily chart, as of 260517)
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For copper, we discussed its main underlying trading logic last week:
Chart: CMX copper (daily chart, as of 260517)
Chart: CU (daily chart, as of 260517), retesting the purple box
One point that needs further elaboration here is the demand side of fundamentals in the real world. According to JPM’s China metals activity tracking data, the pace of copper inventory drawdowns slowed noticeably over the past two weeks. Last week, inventories fell by just 12 kt, a sharp deceleration from the strong drawdowns over the preceding six consecutive weeks. This may mean that Chinese copper consumption is beginning to show price sensitivity in a high-price environment.
The decline came after the US-China meeting concluded. It appears the market does not believe a trade deal will be reached easily. Any updates on the direction of trade could affect the subsequent Section 232 ruling and US protective rules on Chinese steel exports, which in turn could affect expectations for industrial metals.
In any case, this too is a market where results will be available before 6 month. At present, the most likely win-win outcome would be a phased tariff structure. This means that copper prices will still face structural policy-related disruptions on the upside before pricing returns purely to spot supply and demand. You can keep an eye on small-scale moves yourself, especially whether CU can hold above the purple box.
Six. Alternative assets
The long position was blocked at the blue line (the annual moving average); a decisive breakout is needed here.
Chart: Little Yellow (daily chart, as of 260517)
Described as supply-side inflation in crude oil driven by the US-Iran war, but in the eyes of some of Wall Street’s leading institutions, this round of inflation is not
Digression: Labor productivity and the luxury goods industry
US labor productivity growth has risen from 1.5% before the pandemic, relative to the 2020 year trend, to 2.1% since then, and this improvement is likely to continue. This helps explain, to some extent, why US equities have remained so strong despite the simultaneous presence of negative issues such as the oil price shock, fiscal deficits, Fed independence, population decline, cyber and AI security risks, competition between the US and China, and war in Europe.
Unfortunately, this technology-driven productivity growth in labor was not broadly shared in the early stages. What happens later is hard to say; it really is difficult to see clearly. In any case, against this backdrop, the trend of the rich getting richer will continue to be amplified sharply.
There is, however, another rather interesting trend: the luxury goods industry, traditionally associated with the rich economy:
Chart: The luxury goods industry has dramatically underperformed
The luxury goods industry has historically relied heavily on the wealth effect from stock markets. What is unusual is that, against a backdrop of rising global stock markets and a technology boom creating wealth, the luxury goods industry has instead dramatically underperformed the market... In other words, with global equity assets rising so strongly, luxury demand has not shown a sufficiently strong corresponding response. This is not a good sign.Worse still, if stock markets correct in the future (affecting the upper half of the K-shaped economy), demand may be more exposed to the downside from negative wealth effects than it is responsive to upside gains.
One possibility is that, during periods of highly advanced social development, the wealthy have more places to direct their wealth, and so may reduce short-term pleasure-seeking consumption. As the desire for growth fades, the wealth of an ordinary life may instead need the comfort of luxury goods more.
In any case, this is a sector worth watching closely. Volatility could widen going forward, in either direction.
Miscellany: When Goldman Sachs suddenly realized its model had a problem
Something rather amusing happened: toward the end of this week (I forget whether it was Thursday or Friday), Goldman Sachs’ commodities trading desk suddenly published a note saying it had found a problem with its central-bank gold-purchasing model, which had led it to substantially underestimate the overall pace of central-bank buying....
Central-bank gold buying has not slowed as much as they previously estimated. On the contrary, GS now believes that the previous model systematically underestimated the actual intensity of buying starting in 25 year 8 month. The updated model shows that the 12-month moving average of central-bank gold buying in 26 year 3 month was 50 tonnes per month, while the old model put it at only 29 tonnes per month In other words, this most important source of structural buying by central banks is stronger than both the market and Goldman Sachs itself had previously thought.
On the question of “why the model was wrong,” GS explains it this way:
1) Their central-bank gold-purchasing model essentially works backward from physical flows recorded by UK customs and the London market to estimate disclosed and undisclosed official purchases. The reason is that London OTC is the key trading venue for sovereign buyers, while the UK itself does not produce London Good Delivery bars, have large gold mines, or have accredited refineries capable of producing such bars. Consequently, bars traded in London have to be imported.
2) Once gold enters the UK, in theory it has only two paths. First, it remains in London vaults, held by ETF, the Bank of England, or other institutions. Second, it leaves the UK, either to be recast into smaller bars in Switzerland to meet retail demand, or to be transported to sovereign vaults overseas. Therefore, the way the GS nowcast is constructed is by adding together two components: gold bars exported by the UK to destinations other than Switzerland, and the portion exported to Switzerland that is identified as central-bank demand.
3) The key assumption underlying this model is that “although central-bank gold flows should, under international statistical conventions, be excluded from trade statistics, in practice they still mostly appear in UK export data.” GS In the past, this assumption was easy to test: if gold imported into London did not remain permanently in London vaults, then it had to show up in trade or vault flows. UK net exports should therefore broadly match outflows from London vaults. Historically, the two were indeed quite close for a long time, which is why they believed UK trade data could be used to approximate central-bank gold purchases.
4) What actually changed was after 25 year 8 month. GS found that, from then on, London vault data clearly showed gold flowing out, but UK trade data did not fully reflect those outflows. In other words, some gold left London but was not properly recorded in UK export statistics. GS therefore inferred that some sovereign transactions had begun to escape full capture by trade statistics, causing the old model to systematically undercount central-bank gold purchases.
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In short, the market may have worried in the past that central-bank buying would slow at high gold prices, but for now the slowdown has not been as severe. And if geopolitical and de-dollarization motives continue to strengthen, official buying could rise again.
The model update also implies deeper structural information: the transparency of sovereign gold transactions may be declining. If more and more central-bank transactions are no longer fully recorded in conventional trade statistics, the market’s real-time assessment of official demand will increasingly lag. This could make gold’s underlying buying support seem more invisible, yet harder to disprove, strengthening its resilience at high prices.
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(End of article)
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Note: All content in this document is for reference only. It does not constitute any investment advice, nor does it serve as a basis for any laws, regulations, or regulatory policies. Investors should not use or rely on such information as the basis for decision-making.
Note: All content in this document is for reference only. It does not constitute any investment advice, nor does it serve as a basis for any laws, regulations, or regulatory policies. Investors should not use or rely on such information as the basis for decision-making.