May sixth, twenty twenty-five to May seventh, twenty twenty-five

I. Foundation

resistance to change and hence greater dependability for the results shown in the past.

II. Insights

Our Viewpoints and ideas on market.

The key answer to when to buy back

On Sunday, we reviewed the positioning of the main assets we are watching or holding. Anyone who has not read it should read it all first. (Bitco, EUR/USD, USD/JPY, gold, US10Y, SPX, USDX, oil) (India was not included; please review it yourselves in light of the two earlier Notes on base-position entries published on the Planet.)

The key upper and lower price levels are all in Sunday’s Wrap (see WeeklyWrap250504). Today’s article explains the logic behind the trades in a Q&A.

1. What do the three gold trading points in the Wrap mean?

“Gold: above 3438 is the top range; above 3300 is the bulls’ safe zone (neutral range); 3200 is the first pain point.”

Chart: The three key levels for gold

Gold returned to the neutral range. When we were forecasting the subsequent price action at the time, we mentioned two patterns of trend change:

“The next question is: if a correction begins, how will it unfold from there?”

There are two kinds of trend change: one is a trend pause, meaning the slope flattens; the other is a trend reversal (which can also be called a formal corrective pullback).If it is the former, the gold market may be headed for a fairly long consolidation cycle, and the duration of a consolidation cycle cannot be predicted. The best approach is to exit positions and wait for the consolidation to end; no one has a crystal ball to predict the market, and neither do we. If it is the latter, that is actually better, because at least a corrective pullback has a logic in the market and, compared with a consolidation cycle, offers macro traders greater certainty, because at least a corrective pullback has a logic in the market and, compared with a consolidation cycle, offers macro traders greater certainty.”

3200 is actually the dividing line between a consolidation cycle and a corrective pullback.

If the gold trade returns to the top range, we will first watch cautiously (though, because the reasons for entering and exiting are consistent, that means we would close our Bitco position), because there are assets in the market with more and better opportunities, A correction after an explosive move is usually deeper and lasts longer than expected.A healthy, long-term bull trend needs to rest.

2. Are gold and the FX market the same thing?

Attentive readers should be able to notice that, regarding we closed out our dollar FX and gold positions at the same time...

This naturally raises another question: if gold returns to the top range, does that mean it is possible to re-enter the FX market? (We will not touch gold; if we follow this trading path again, we will use the FX market to take the position.)

Within the same narrative, assets following the same trading path can still have different risk-reward ratios, Choosing which horse to send into the race is sometimes more important than correctly judging the direction.

Chart: If you flip gold, it is actually the same trade as FX

Viable trading proxies include the Swiss franc, the yen, and the euro; keep monitoring them.

3. So, are gold, FX, and U.S. stocks also the same thing...

Chart: If we also overlay SPX

After 4 9 this time, the rebound in U.S. stocks did not bring demand for the dollar, indicating that this rebound was more like short covering than a reallocation by global pension funds back into long dollar assets.In fact, overseas funds are still increasing their dollar hedge positions (the recent TWD event was exactly about this; readers on the Planet should already have understood it clearly, but today we are adding another Note to help everyone understand it more deeply).

For further reading: Notes 250506 — The major transformation of the global FX market through the lens of TWD pricing

Read alongside: Notes 250430 revisits that massive rectangle lasting 4700 days from 25 years ago: the century’s great election beauty contest, from TINA to US Exceptionalism

This is essential reading: it is the most central explanation of the logic behind all the key trades at present!

Once this group of Steady Hands resumes selling U.S. stocks, the marginal impact will clearly be bearish for the dollar. The dollar’s reaction to equities is now asymmetric: U.S. stocks rise, the dollar moves sideways; U.S. stocks fall, the dollar falls. The dollar is our key indicator for shorting U.S. stocks.

If U.S. stocks break down, it will most likely happen after FOMC’s meeting; keep a close eye on the dollar.

2025.05.06

The moment to short U.S. stocks in depth

Short sellers in U.S. stocks have already gone through an extremely difficult month—When everyone is waiting for a decline, that decline is very hard to wait for For bulls, as long as there is hope, they will continue to hold positions; and as long as positions remain open, the decline is bound to be uneven. For professional bears, an uneven decline can be nothing short of hell.

Market hope rests on three fronts: one is the White House, one is Main Street, and one is the Fed.

As long as there is a glimmer of “hope” on any one of these three fronts, shorting will not be smooth. This is the core theoretical basis from our earliest internal meetings for the three key moments for shorting U.S. stocks the core theoretical source Many people do not understand why we are waiting until after this week’s FOMC meeting; after reading today’s Notes, it should be clear.

First, it is the first wave of short sellers driving prices down since April second which we have named the “White House moment.”

The White House moment falls within the time frame of the “first moment to short” when Main Street has not yet arrived and the Fed has not yet acted.

From liquidation to boosting expectations, we have become thoroughly familiar with the White House’s policies. There is no need to turn on the TV or look at a phone; just look at market prices and you will know what the suited fighters at the podium are going to say:

Chart: Guided by this idea, we were able to predict the daily headlines (with precision)

We also discussed this carefully last week; see Notes250501 — When will the valid data arrive?，For bulls, the absence of “clear bad news in the data” is “good news.” This is the main reason the market has been driven by White House statements over the past month because the delay in valid data creates, for a time, the market illusion that the data are disconnected from actual fundamentals..

Until the data arrive, prices will be driven by narratives and irrational capital. Narrative trading offers no certainty of execution for any professional macro trader. For shorts and longs entering the market at this time, it will be an extremely painful period; the market will sway back and forth like a foxtail, with rises and falls determined solely by things some people say without even thinking.

This is also why we chose to close our short positions in U.S. stocks, our short dollar position, and our long gold position after the “first moment to short.”

We are waiting for the second and third moments to short; those are the key moments to make our move.

Chart: Starting in June, hard data from Main Street will lead us into a period of greater volatility

Second, the Fed moment.

Why do we say volatility will expand after this week’s FOMC meeting? Because once the meeting has taken place, uncertainty will disappear, Only one last bastion will remain for the bulls to rely on—in the market’s waiting period for the short trade, all professional bears are waiting for certainty, while the only thing bulls can rely on is “expectations.”

The end of the Fed’s remarks means that only one of the three expectations will remain; the pillars will no longer be stable, and the market will formally enter the second moment to short, with expanding volatility. This is the key point at which short sellers can truly enter.

In other words, What FOMC says is not really important, and no one needs to spend time following it. For market participants, what matters is not abcde, but the 1 of certainty once it is finalized and the 0 of expectations while it is not finalized. abcde is very important for analysts, but for those fighting it out in the market, we only care whether it is 1 or 0—whether it has been finalized or not.

However, Expanding volatility will also mean a desperate struggle and a transfer of risk, Capital that has not had time to exit will clear its risk by pushing the market higher and forcing some highly leveraged short positions out At this point, the wavering market and analysts and media of all kinds will also interpret the meeting’s contents as noise, turning abcde into reasons that “fit their own positions.”

This is the real reason there will necessarily be a rebound and shakeout before the actual decline. The market debate will only intensify, not converge.

Third, the final Main Street moment.

When ship after ship from China arrives in the United States, and manufacturers across the country begin making investment plans for the next quarter, the moment of truly hard data from Main Street—the third moment to short—will arrive.

After short sellers entered in the second moment, market participants are already tottering; these data will knock out their third leg.

Narratives no longer work, and the White House’s messaging has become feeble; the “boy who cried wolf” has become ingrained in people’s minds.

The release of the data will prompt analysts to begin mass-producing research reports. Survey results and research reports will travel from Main Street to Wall Street, then from Wall Street to trading desks at institutions around the world. At that point, the media will also start touting the arrival of the short-selling moment (though in fact it arrived long ago), and the last wave of short sellers will begin to enter one after another...

Finally, Institutions with strong performance start showing off and selling new products, while failed institutions are cleared out... New capital re-enters, the White House changes hands, the Fed chair publishes a book, a group of business professionals lose their jobs and return to Wall Street for reemployment, and Main Street, with its unique resilience, finds the people a new way forward—a reshuffling comes to an end.

2025.05.07

III. Market Pulse

Our latest Comments on the economic and market environment

The major transformation of the global FX market through the lens of TWD pricing

USDTWD (USD/TWD) is a key signal of weakening global demand for the dollar, We were the first anywhere online to discuss global funds increasing their dollar hedge positions, and this logic is the core key to actually pricing dollar shorts.

Read alongside: Notes 250430 revisits that massive rectangle lasting 4700 days from 25 years ago: the century’s great election beauty contest, from TINA to US Exceptionalism

(Must read)

As we keep saying, what the market considers “strange” is simply what readers who have kept up with the Notes naturally expected to happen. Combined with USDTWD, this can help everyone understand more deeply the major changes in the FX market behind this global cycle of dollar hedge reallocation.

It is quite a coincidence: just after we finished explaining it, the market provided us with “study materials”...

Chart: The major repricing of TWD

Compared with other market-priced currencies, TWD can actually be considered a currency whose exchange rate is manipulated, However, this manipulation is not carried out by a single institution independently setting prices; rather, pricing is determined by China's TW life insurers and liability-driven investment institutions.

China's TW insurance industry was already enormous, and over the past fifteen years it expanded rapidly until its assets were equivalent in scale to 140% of GDP, most of which are invested overseas.This makes insurers extremely sensitive to the appreciation of TWD: if the U.S. dollar depreciates, their dollar assets will incur paper losses, while the corresponding liabilities remain denominated in local currency and fixed.

More importantly, regulators require these institutions to adjust dynamically and hedge their foreign-exchange exposure.Large-scale position unwinding by exporters triggered a chain reaction of position adjustments by insurers, which in turn caused the New Taiwan dollar to appreciate sharply—a rare synchronized event in history.

Because of their distinctive economic and industrial models, this is not unique to China TW. Many similar economies with specialized divisions of labor share the same expectation of “dollar inflows”: they earn dollars and reinvest them in other long-term dollar-denominated assets instead of immediately converting them back into local currency.

Figure: Notes 250430 revisits that enormous rectangle lasting 4700 days, 25 years ago: from TINA to the century's election pageant for US Exceptionalism

The assumption behind this approach is that the local currency will not appreciate, at least relative to USD.

The result is an artificially created weakness in the foreign-exchange market through “delayed repatriation.”

This situation is quite comfortable when the United States is dominating the global economy, because it allows one to make two profits at once. There is no need to hedge the risk exposure at all, or only a little hedging is needed—an “irregular practice” that everyone is happy to see.

But, if American exceptionalism disappears, the first to react will be,

it will certainly be the foreign-exchange market (not the stock market, not economic data).

Once the trend reversal begins and dollar hedges start to be unwound, this will naturally signal a major shift in pricing, with a wider range of fluctuations. As we have said countless times on the Planet:

Nothing in this world “appears out of thin air”,

If it appears, there is a reason; if it appears, it is a trend.

This shift is not confined to “a particular asset,” nor can it be changed by “a single remark” from Trump or the U.S. government; it is a structural change in the pricing model.

However, TWD also has a characteristic that other currencies do not...

That is, the main holders of the assets behind it are foreign investors (foreign investors own more than 70% of TSMC)...

Changes in currency pricing will necessarily affect foreign shareholders first. If the currency rebalancing continues, the reaction will naturally extend beyond the purely economic sphere; it is hard to say what else.