From May sixth, two thousand twenty-five to May eighth, two thousand 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 our positioning in the main assets we are watching or holding. If you haven’t seen it, be sure to read it through first. (Bitco, euro/dollar, dollar/yen, gold, US10Y, SPX, USDX, oil) (India was not included; review it on your own using the two Notes on core-position entries previously published on Planet).

The upper and lower bounds of several key price levels are in Sunday's Wrap (see WeeklyWrap 250504). Today's piece explains the logic behind the trades through answers to questions (Q&A).

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

“Gold: above 3438 is the top zone; above 3300 is the long-position safety zone (neutral zone); 3200 is the first pain point.”

Figure: The three key levels for gold

When gold returned to the neutral zone, as we were forming expectations for its subsequent path, we mentioned two patterns of trend change:

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

There are two types of trend change: one is a trend pause, or what is called a flattening of the slope; the other is a trend reversal (also known as a formal corrective pullback).If it is the former, the gold market may be in for a relatively long period of sideways trading, whose duration cannot be predicted. The best approach is to exit positions and wait for the range-bound period 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 to it in the market and offers macro traders greater certainty than a sideways period.Because at least a corrective pullback has a logic to it in the market and offers macro traders greater certainty than a sideways period.”

3200 is actually the dividing point between a sideways period and a corrective pullback.

If gold trading returns to the top zone, we will also initially watch cautiously from the sidelines (however, because our entry and exit rationales are consistent, this means we will close our Bitco position), because there are assets in the market with more and better opportunities, Corrections after explosive rallies are usually deeper and more prolonged than expected.Healthy, long-term bull trends need a breather.

2. Are gold and the foreign exchange market the same thing?

Careful readers should be able to notice that, for We closed out the U.S. dollar FX position and the gold position at the same time...

That naturally raises another question: if gold returns to the upper range, does that mean we can re-enter the FX market? (We won’t touch gold; if we take this trade path again, we’ll use the FX market.)

Within the same narrative, assets following the same trade path can still have different risk-reward profiles, Choosing which horse to back can sometimes matter more than correctly judging the direction.

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

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

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

Figure: If we add SPX to the chart

Since 4 9 this time, the rebound in U.S. stocks has not brought demand for the U.S. dollar. This suggests the rebound is more like short covering than a renewed allocation by global pension funds to long U.S. dollar assets.In fact, overseas funds are still increasing their dollar-hedge positions (the recent TWD event is precisely an example of this. Readers on Planet should already understand it clearly, but we are adding another Note today to help everyone grasp it more deeply).

For further reading: Notes 250506 The major shift in global FX through the lens of TWD pricing

For further reading: Notes 250430 Revisit that massive rectangle lasting 4700 days 25 years ago: the century-defining election contest of Exceptionalism, from TINA to US

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

If these Steady Hands start selling U.S. stocks again, the marginal impact will be clearly negative for the U.S. dollar. The dollar's response 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 there is a downside breakout in U.S. stocks, it will most likely come after the FOMC meeting. Keep an eye on the dollar.

2025.05.06

The Moment to Short U.S. Stocks in Depth

Short sellers in U.S. stocks have already endured an extremely difficult month—When everyone is waiting for a decline, that decline is very hard to wait for; for longs, as long as there is hope, they will keep holding their positions, and the presence of those positions means the decline is bound not to be smooth. For professional shorts, an uneven decline can be nothing short of hell.

The market's hopes rest on three fronts: one in the White House, one on Main Street, and one at the Fed.

Among these three fronts, as long as even one holds a glimmer of “hope,” shorting will not be smooth. This is the core theory from our earliest internal meetings about 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. It should be clear after reading today's Notes.

First, the first wave of short-seller-driven selling since April second; we have named it the “White House Moment.”

The White House Moment falls within the “first shorting moment,” before Main Street arrives and before the Fed moves.

From liquidation through the raising of expectations, we understand White House policy inside out. There is no need to turn on the TV or check your phone; just look at market prices and you will know what the suited fighters at the podium are about to say:

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

We also discussed this in detail last week; see Notes 250501 When Will the Hard Data Arrive?，For longs, the absence of “clear bad news in the data” is “good news.” This is the core reason the market has been driven by White House statements over the past month.because the hard data are delayed, creating for a time the market illusion that the data are disconnected from the actual fundamentals..

Until the data arrive, prices will be driven by narratives and irrational flows. Narrative trading offers no clear entry point for any professional macro trader. For shorts or longs entering at this time, it will be an extremely painful period. The market will sway back and forth like a dog's tail, with rises and falls depending only on something someone said, perhaps without even thinking.

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

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

Figure: Starting in June, hard data from Main Street will pull 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 is over, uncertainty will disappear, Only one of the last bastions on which longs rely to survive will remain—in this moment when the market is waiting for a chance to short, all professional shorts are waiting for certainty, while longs can rely only on “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 officially enter the second shorting moment, marked by rising volatility. This is the key point at which shorts can truly enter the market.

In other words, What FOMC said is not really important, and there is no need to spend time following it. What market participants need is not abcde, but the certainty of 1 once it is implemented and the 0 they hold while it remains unimplemented. For analysts, abcde is very important, but for those fighting it out in the market, we focus only on whether it is 1 or 0—whether it has been implemented or not.

However, Greater volatility also means desperate struggles and risk changing hands, Funds that have not managed to exit will clear their own risk by pushing the market higher and squeezing out some highly leveraged short positions At this point, the market's swings and commentators and media from all sides will also interpret the meeting's content as noise, turning abcde into a rationale that “fits their own positions.”

This is the real reason there must be a rebound that flushes positions before the genuine decline. Market debate will only grow more intense, not converge.

Third, the final Main Street moment.

When successive waves of cargo ships from China arrive in the United States, and manufacturers across the country begin making investment plans for the next quarter, the Main Street moment of genuinely hard data—the third moment for short sellers—will arrive.

After shorts entered in the second moment, market participants are already on the brink; these data will knock out their third leg.

The narrative no longer works, the White House’s messaging has grown feeble, and the warning that “the wolf is coming” has become deeply ingrained.

Once the data are released, analysts will start churning out research reports in batches. Survey results and reports will travel from Main Street to Wall Street, then spread from Wall Street to trading desks at institutions around the world. At that point, the media will also begin trumpeting the arrival of the short-selling moment (though in fact it arrived long ago), and the final wave of shorts will start entering one after another...

Finally, Institutions with strong performance start showing off and selling new products, while unsuccessful institutions are flushed out... New money re-enters, the White House changes hands, the Fed chair publishes a book, and a group of businesspeople lose their jobs and return to Wall Street for new work. Main Street, with its distinctive resilience, finds a new path forward for the people—and the reshuffling comes to an end.

2025.05.07

The India–Pakistan conflict, and the core trading cohort in regional geopolitical events: one of the fundamentals of understanding the other side of the trade (whose money are you making?)

I hadn’t planned to discuss India, because everything was progressing steadily and we were comfortable with the core positions we initiated at the two shock levels. But as the India–Pakistan conflict continues to escalate, I’ll still update everyone on how we view the Indian market.

For further reading: Notes 250313 India trades can look like + Notes 250414 India: a relatively safe haven

Chart: Posts at the two shock levels + entry into the core position

Before the conflict escalated, India was on the verge of a powerful rectangle breakout (alongside a breakout above the annual moving average),Trading above the annual moving average means the impact of shock trading will be greatly reduced，We Our Notes over the past two weeks have actually been discussing short sellers all along; even in long trades, you need a short seller’s perspective—Short selling aims for a smooth move; an uneven short trade is a nightmare, while the annual moving average is a safety net.

This is also why prices were revised downward after this conflict without causing a major price shock.

So...

1. Historical conflict trading?

Answer: In the four India–Pakistan conflicts since 00, the NIFTY index, after the events, During approximately the first 10 trading days, the median drawdown was 4%, and the decline was fully recovered within about one month from the day of the event The Indian VIX surged sharply in the first few days, with a median gain of 17%, while foreign capital flows remained stable.

Chart: Data source: GS trading desk

2. Rebound perspective one: market breadth?

Answer: Market breadth has not improved. Currently, only 30% of the NSE 500 constituents are above the 200-day moving average, indicating that this rebound lacks broad participation, The market action is not robust, but it is reasonable.

This does not contradict our reason for trading. The rationale for entry is in our first two Notes on India: we did not come back to buy a broad-based rally in the first place, but to apply the safe-haven principle (this is for the core position).

However, if it can return to 45%-55% later on, that would be another useful supporting indicator for entering the trading position. Market breadth reflects the sentiment of local capital, which is sticky and lagging; that lagging, sticky capital provides the market with a safety net (this is for the trading position).

Chart: Market breadth indicator

3. Rebound perspective two: foreign capital?

Since 4 15(We are ahead of the overseas data, so naturally we will also make money from the capital that waits for those data before making decisions, Before entering, it is most important to understand whose money you are actually trying to make; the core position makes money from those people, while the trading position makes money from local capital)，Foreign capital has accumulated net purchases of nearly 50 billion dollars and has continued buying for 14 consecutive trading days, with a remarkably firm pace.

Chart: Let’s keep reciting our phrase together—when an anomaly appears... it means... persistence...

If you still can’t recite it by now, that proves you haven’t been reading the Notes properly and need to catch up.

Chart: Concentration of buying

Chart: In 2, overseas net short positions in Indian index futures once reached 36 billion dollars. They have now been fully covered, overall positioning has returned to neutral, and risk appetite has clearly recovered.

Finally, let’s repeat: whose money do we plan to make on the next trade?

Amid war-related headlines, local Indian retail investors are becoming more cautious and have been reducing positions for the past two weeks. Year-to-date net inflows have also quickly fallen back to flat from a high of +25 billion dollars just a few days ago (see the blue bars at the bottom of the chart).

Sentiment is clearly diverging, and capital is shifting from retail investors to institutions, especially foreign institutions.

Chart: Local retail investors are shedding positions amid risk-related news

A basic point: locals pay closer attention to local news, which also means they are the core trading cohort in this kind of regional geopolitical trade... It is like asking what programs Indians generally watch and which channels they have, versus asking Indians how many channels China Central Television has.

You may not follow their news, but they hear it everywhere—at home, at work, while commuting, and probably even at family gatherings and over drinks.

The environment you are in will probably determine your information flow, and your information flow will probably determine your behavior.

Chart: Retail investors and HNI are also significantly reducing leveraged long positions in individual stocks. They have now cut them by nearly one-third from the peak, reflecting a marginal decline in market risk appetite and rising demand for hedges.

Now, let’s return to the beginning:

1) Why aren’t we continuing to accumulate shares and add to the core position in this wave?Because short selling aims for a smooth move, while being above the annual moving average provides a built-in safety net. The shock trade thesis no longer holds, so it no longer fits the entry logic for the core position.

2) A concentrated rise in a concentrated group of industries is another way to explain our reason for buying, except that A somewhat better outcome means we can make money from a second wave of risk appetite. If it gets too good, we should consider moving our target and exiting, because the market no longer has a consensus.

3) Event-driven shock trades hit local markets; locals sell, Why? Because you don’t even know the name of India’s biggest news program or where to watch it, and you wouldn’t sit at their table to casually discuss politics with them. Regional voices are five or ten times louder in their ears than in yours.

4) Whose money will the next wave come from, and when should we resume? In the four India–Pakistan conflicts since 00, the NIFTY index had a median drawdown of 4% during approximately the first 10 trading days after the event, and fully recovered within about one month from the day of the event.

That’s all for now.

2025.05.08

III. Market Pulse

Our latest Comments on the economic and market environment

A major shift in global foreign exchange markets, viewed through TWD pricing

USDTWD (the U.S. dollar against the New Taiwan dollar) is a key signal that global demand for the U.S. dollar is weakening, We were the first across the entire internet to discuss global capital increasing its U.S. dollar hedges; this logic is central to the actual pricing of bearish U.S. dollar positions.

For further reading: Notes 250430 Revisit that massive rectangle lasting 4700 days 25 years ago: the century-defining election contest of Exceptionalism, from TINA to US

(Must read)

As we’ve said before, what the market considers “strange” is simply what readers who have kept up with the Notes would naturally have expected. Together with USDTWD, this helps everyone understand more deeply the major shift in foreign exchange markets behind this global cycle of dollar-hedge reallocation.

It is quite a coincidence: we had just finished discussing it, and the market had already prepared a set of “study materials” for us...

Chart: The major repricing of TWD

Compared with other currencies whose prices are set by the market, TWD could actually be considered a currency subject to exchange-rate manipulation, except that this manipulation is not carried out by one institution independently setting the price; instead, pricing is driven by Chinese life insurers and liability-driven investment institutions in TW.

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

More importantly, regulators require these institutions to dynamically adjust and hedge their foreign-exchange exposures.Large-scale 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 episode of interconnected moves in history.

Because of its unique economic and industrial model, this is not limited 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 U.S. assets instead of immediately converting them back into local currency.

Chart: Notes 250430 Revisit that massive rectangle lasting 4700 days 25 years ago: the century-defining election contest of Exceptionalism, from TINA to US

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

This gives rise to artificially created weakness in the foreign-exchange market through “delayed repatriation.”

This situation is very comfortable while the United States outperforms the global economy, because it allows two gains at once. There is no need to hedge the risk exposure at all, or only a small hedge is needed—an “irregular practice” that everyone is happy to see.

But, if U.S. exceptionalism disappears, the first market to react,

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

Once a trend reversal begins and dollar hedges start being covered, it naturally means a major repricing with a wider volatility range will emerge. It is the phrase I have repeated countless times in Planet:

Nothing in this world “appears out of nowhere,”

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 particular remark” from Trump or the U.S. government; it is a structural shift in the pricing model.

However, TWD has a feature that other currencies do not...

It is that the main holders of the assets behind it are foreign investors (foreign ownership of TSMC exceeds 70%)...“

A shift in currency pricing will necessarily hit foreign shareholders first. If the currency rebalancing continues, the reaction will naturally extend beyond the purely economic sphere; beyond that, it is hard to say.