May sixth, two thousand twenty-five to May ninth, 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.

Key answer to when to buy back

On Sunday, we reviewed the positioning of the main assets we are watching or holding. If you have not read it, be sure to read it first. (Bitco, euro-dollar, dollar-yen, gold, US10Y, SPX, USDX, oil) (India was not included; please review it yourselves using the two earlier Notes on the planet about entering a core position).

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

1. What do the three gold trade levels in the Wrap mean?

“For gold, above 3438 is the top range; above 3300 is the bull safety zone (neutral range); 3200 is the first pain point.”

Figure: The three key levels for gold

Gold returned to the neutral range. When we projected its subsequent path at the time, we mentioned two patterns of trend change:

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

There are two kinds of trend change: one is a trend pause, or a flattening of the slope; 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 heading into a fairly long period of sideways trading. Such a period is unpredictable, and the best approach is to exit positions and wait for it to end; no one has a crystal ball that can predict the market, and neither do we. If it is the latter, that is actually better, because at least a corrective pullback has a rationale in the market and, compared with a sideways period, offers macro traders greater certainty, because at least a corrective pullback has a rationale in the market and, compared with a sideways period, offers macro traders greater certainty.”

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

If the gold trade returns to the top range, we will initially wait and see cautiously (although, given the consistency of our reasons for entering and exiting, that would mean closing our Bitco position), because there are assets in the market with more and better opportunities, Corrections after a strong rally are usually deeper and longer-lasting than expected.A healthy, long-term bull trend needs a period of consolidation.

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

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

This naturally raises another question: if gold returns to the top range, does that mean we can re-enter the foreign exchange market? (We will not touch gold; if we return to this trade path, we will use the foreign exchange market.)

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

Figure: If gold is inverted, it is essentially the same trade as the foreign exchange market

Viable trading proxies include the Swiss franc, yen, and euro; continue to monitor them.

3. So, are gold, foreign exchange, and U.S. stocks all one and the same...?

Figure: If we also add SPX

Since 4 9 this time, the rebound in U.S. stocks has not brought demand for the dollar. This suggests that the rebound is more like short covering than a reallocation by global pension funds into dollar assets.In fact, overseas capital is still increasing its dollar-hedging positions (the recent TWD event is actually an example of this. Friends on the planet should already understand this clearly, but today we are adding another Note to help everyone grasp it more deeply).

For further reading: Notes 250506 The great upheaval in global foreign exchange markets as seen through TWD pricing

For further reading: Notes 250430 Revisiting the huge rectangle that lasted 4700 days 25 years ago: from TINA to US, the century-defining election of Exceptionalism

This is a must-read: it is the most essential article explaining the logic behind all the key trades we are making now!

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

If U.S. stocks break lower, it will most likely be after the FOMC meeting; keep a close eye on the dollar.

2025.05.06

The moment to delve into shorting U.S. stocks

Short sellers in U.S. stocks have just endured 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 keep holding positions; and as long as positions remain open, the decline is bound to be choppy. For professional bears, a choppy decline is practically hell.

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

Any one of the three fronts, as long as there is even a trace of “hope,” will keep short selling from being smooth. This is the core theory behind our earliest internal discussions of the three key moments for shorting the three key moments for shorting U.S. stocks the core theoretical basis 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 selling since April second which we have named the “White House Moment.”

The White House Moment falls within the time frame of the “first moment for shorting,” before Main Street arrives and before the Fed acts.

From liquidation to raising expectations, we understand White House policy inside out. We don’t need to turn on the TV or check our phones; we only need to look at market prices to know what the suit-clad warriors at the podium are going to say:

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

We discussed this in detail last week as well; see Notes 250501: When will effective data arrive?，For bulls, no “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 reliable data are delayed, which will create the market illusion for a time that the data are disconnected from the actual fundamentals..

Until the data arrive, prices will be driven by narratives and irrational capital flows. Narrative trading offers no certainty of execution for any professional macro trader. For bears and bulls who enter at this point, it will be an extremely painful period; the market will sway back and forth like a foxtail, rising and falling based only on certain people’s words, sometimes words spoken without even thinking.

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

What we need to wait for is the arrival of the second and third moments for shorting; 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 larger swings

Second, it is 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, The bulls will have only one last bastion left to rely on. During the market’s period of waiting to short, 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 officially enter the second moment for shorting, with expanding volatility. This is the key point at which bears can truly enter.

In other words, What FOMC says is not really important, and there is no need to spend time following it. For market participants, what matters is not abcde, but the certainty of 1 once things are finalized and the 0 held in anticipation while they remain unresolved. abcde is important to analysts, but those of us trading in the market focus only on whether it is 1 or 0, whether it has been finalized or not.

However, An expansion in volatility will also mean a desperate struggle and a transfer of risk, Capital that has not had time to exit will clear its own risk by pushing the market higher and squeezing out some highly leveraged short positions At this point, the volatile market and the various analysts and media outlets will also interpret the meeting’s contents as noise, turning abcde into a reason that “fits their positions.”

This is the real reason there will always be a rebound to flush out positions before the genuine decline. Market disagreements will only intensify, not converge.

Third, it is the final Main Street Moment.

When waves of cargo ships from China arrive in the United States, and manufacturers across the country begin planning and investing for the next quarter, the true Main Street moment of hard data—the third moment for shorting—will arrive.

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

The narrative no longer works, the calls from the White House have become weak and ineffective, and the story of “the boy who cried wolf” has taken hold.

The release of the data will prompt analysts to begin mass-producing research reports. Survey results and research will flow from Main Street to Wall Street, then spread from Wall Street to trading desks at institutions around the world. At this point, the media will also start promoting the arrival of the bear market moment (though in reality, it has been here for a long time), and the final wave of bears will begin to enter...

Finally, Institutions that have achieved results begin showcasing and selling new products, while failed institutions are cleared out... New capital enters again, the White House changes hands, the Fed chair publishes a book, a group of businesspeople lose their jobs and return to Wall Street, and Main Street, with its unique resilience, finds people a new way forward—the shakeout comes to an end.

2025.05.07

The India-Pakistan conflict, and a discussion of the core trading groups in regional geopolitical events: one of the fundamentals of understanding the other side of the trade (whose money you make)

We did not originally plan to discuss India because everything was progressing steadily, and our core positions entered at the two shock levels are comfortable. However, as the India-Pakistan conflict develops, we are still updating everyone on the positioning in the Indian market.

For further reading: Notes250313 India trades can look like this + Notes250414 India: a relatively safe haven

Figure: 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 (combined with a breakout above the annual moving average),Trading above the annual moving average means the impact of shock trades will be greatly reduced，We In the past two weeks, our Notes have actually been discussing short positions; even when trading long, one should also have a short seller’s perspective—Short selling seeks a smooth move; an uneven short trade is a nightmare, while the annual moving average is a safety cushion.

This is also why, after this conflict, there was a downward revision but no major price shock.

So...

1. Historical conflict trades?

Answer: Across the four India-Pakistan conflicts since 00, the NIFTY index, after the events occurred, had a median drawdown of 4% over approximately the first 10 trading days, and 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.

Figure: Data source is the GS trading desk

2. Rebound perspective one: market breadth?

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

This does not contradict our trading rationale. The reasons for entry are in the first two Notes about India; we were never coming back to buy a broad-based rally, but were following the safe-haven principle (this is for the core position).

However, if it can return to 45%-55% later on, that would be another good supporting indicator for entering the trading position, because market breadth reflects the sentiment of local capital. Local capital is sticky and lagged; that lagging, sticky capital provides a cushion for the market (this is for the trading position).

Chart: Market breadth indicator

3. Rebound perspective two: overseas capital?

Since 4 month 15(We are ahead of overseas data, so naturally we will also make money from the capital that waits for this data before making decisions, Before entering, it is most important to first understand whose money we are actually trying to make, the core position makes money from these investors, while the trading position makes money from local capital)，Overseas capital has accumulated net purchases of nearly 50 billion dollars and has kept buying for 14 consecutive trading days, at an extremely steady pace.

Chart: Let’s keep reciting our line together—when an anomaly appears... it means... it will persist...

If you still can’t recite it by now, that proves you haven’t really read the Notes carefully; you need to catch up.

Chart: Concentrated 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 once more: whose money are we planning to make next?

Indian retail investors are becoming more cautious amid war-related headlines and have continued reducing their positions over the past two weeks. Year-to-date net inflows have also quickly fallen back to flat from a high of +25 billion dollars 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 investors.

Chart: Local retail investors shed positions amid risk-related news

A common-sense point: locals pay more attention to local news, which also means they are the core trading group in this kind of regional geopolitical trade... It’s like asking what shows Indians generally watch and which channels they have, then asking an Indian how many channels CCTV has in total.

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

The environment you are in will most likely shape your information flow, and your information flow will, in turn, most likely shape your behavioral logic.

Chart: Retail investors and HNI are also significantly reducing leveraged long positions in individual stocks; these positions are now down by nearly one-third from their peak, reflecting a contraction in marginal 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 we want the short-selling move to be smooth, while above the yearly moving average there is an inherent safety cushion. The shock trade no longer holds, so it no longer fits the entry logic for the core position.

2) Concentrated gains in concentrated sectors are another way of explaining our reason for buying, except that A somewhat better outcome means we can make money from a second wave of improved risk sentiment; if things go too well, we should consider raising our target and exiting, because the move will no longer be broadly aligned.

3) Event-driven trading hits the local market; 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 and chat casually with them about current affairs. Regional voices are five or ten times louder in their ears than in yours.

4) Who will the next wave make money from, and when will it continue? 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 each event, and recovered within about one month from the event date.

That’s all for now.

2025.05.08

III. Market Pulse

Our latest Comments on the economic and market environment

The major shift in global foreign exchange markets as seen through TWD pricing

USDTWD (U.S. dollar/Taiwan dollar) is a key signal that global demand for the U.S. dollar is weakening, We were the first anywhere to point out that global capital was increasing its dollar-hedging positions; this is the core factor in the actual pricing logic for dollar bears.

For further reading: Notes 250430 Revisiting the huge rectangle that lasted 4700 days 25 years ago: from TINA to US, the century-defining election of Exceptionalism

(Required reading)

As we have said, what the market finds “strange” is simply what those who keep reading the Notes naturally expected to happen. Taken 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 really is a coincidence: just after we finished explaining it, the market provided us with a “study guide”...

Chart: The major shift in TWD pricing

Compared with other currencies whose prices are market-determined, TWD can in fact be considered a currency subject to exchange-rate manipulation, Except that this manipulation is not priced independently by a single institution; it is priced through life insurers and liability-driven investment institutions in China’s TW.

China’s TW insurance sector was already enormous, and over the past fifteen years it expanded rapidly until its assets reached 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 exposure.Large-scale position unwinding by exporters triggered a chain reaction of position adjustments by insurers, which in turn led to a sharp appreciation of the Taiwan dollar—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 roles share the same expectation of “dollar inflows.” They earn dollars and reinvest them in other long-term U.S. assets rather than immediately converting them back into local currency.

Chart: Notes 250430 revisits that giant rectangle from TINA to US, which lasted 4700 days 25 years ago: the century’s grand election beauty of Exceptionalism

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

This creates an artificially induced currency weakness through “delayed repatriation.”

This situation is very comfortable when the United States is outperforming the global economy, because it lets you make money twice at once; there is no need to hedge the risk exposure at all, or only a small hedge is needed. It is a “rule-breaking 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, not economic data).

Once the trend reversal begins and dollar-hedge positions start to be unwound, that will naturally signal a major repricing with a wider range of volatility. It is the line we have repeated countless times in the Sphere:

Nothing in this world ever “appears out of nowhere,”

It appears, therefore there is a reason; it appears, therefore it is a trend.

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

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

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

A change in currency pricing will inevitably hit foreign shareholders first. If the currency rebalancing continues, the resulting reaction will naturally move beyond the purely economic sphere; it is hard to say what else may follow.

2025.05.06

Let’s revisit the May meeting: the key question is how long it takes for deterioration in soft data to be confirmed by hard data.

In fact, this week’s 5 FOMC meeting conveyed only one core signal:The Federal Reserve confirmed that the timing of its policy actions will clearly lag the turn in “hard data”; nothing else is sufficient to change the policy direction.In other words, this meeting officially dispelled the market’s illusion that “pre-emptive rate cuts” were possible—there will be no getting ahead of the curve this time.

“Now is not the time to take pre-emptive action,” Powell’s words nearly put the current policy logic beyond dispute. In our earlier Notes 250507: The moment to short U.S. equities in depth mentioned that, To observe the U.S. market, we need to watch three key axes: the White House (fiscal policy), the Fed (monetary policy), and Main Street (the real economy).

It can now be confirmed with reasonable confidence that the Fed will choose to act only after changes in Main Street data, with a lag.

Although the Fed has not abandoned its use of soft data (survey data) in its communications, given the frequent “false positives” in several recent soft-data indicators, What truly triggers rate cuts must be unequivocal weakness in the labor market at the level of “hard data.”（A substantial weakening of the labor market is the key prerequisite for rate cuts.）

Soft data can serve at most as an early warning, but it will not be the basis for policy. While the inflation path remains off target and is moving in the wrong direction, Policy will shift materially only when the two hard variables, “growth and employment,” show a clear and systemic decline.

So the question naturally turns to:

How long is the lag between deterioration in soft data and confirmation in hard data?

Chart: Lag between the impact on soft data and hard data

This chart is very important; please save it.

In the many recessions historically triggered by “unexpected events,”The average lag from a decline in soft data to confirmation of deterioration in hard data was about 60 working days.If we project using this historical lag, meaningful deterioration in hard data will most likely not begin to appear until 7.

This also aligns with what we said in Notes 250501: When will effective data arrive?is consistent with the estimate of the “release timing for effective data” made in:

Given that the 6 data will be released in 7, the market is currently pricing 7 cuts for 20.

But from our perspective, the Fed will most likely respond more slowly than the market expects... in other words, the actual rate-cut landing point is more likely to be in 9, and the only key trigger remains a substantial weakening of the labor market, and this change will most likely not provide the sufficient and necessary conditions for a policy shift until late summer.

2025.05.09

Before the trade talks

The so-called “trade deal” announced by the U.K. and U.S. this week was extremely limited in substance; one could even say it reinforced the policy stance of “tariff floor 10%,”But the market still viewed it as a positive signal—which also shows that people believe The conclusion of any agreement at least means that the policy path is becoming more certain...

This is still a game played by 1 and 0.

More importantly, the U.S.–China trade talks scheduled for this weekend, The market is always hoping to detect signs of further de-escalation, and that expectation is what has driven, The trade climate began to improve at the margin, alongside a sustained decline in volatility on the technical side, increasingly crowded positioning, and bearish sentiment—all of which together drove the U.S. equity rebound to continue.

Although this rebound can be called “the least participated in recent years,” the momentum in price action is still reinforcing risk appetite, and The data do indeed show that, before the trade talks, institutions reduced their long positions in safe-haven assets:

UBS’s FX Flow Monitor data show, Some hedge funds reduced their long positions in safe-haven assets such as gold and the yen ahead of the U.S.–China trade talks this weekend The reasoning behind this may be that the market is betting that talks between U.S. Treasury Secretary Scott Bessent and H could lead to substantial tariff cuts.

However, looking back at 2018, it is clear that this expectation was highly unrealistic.The brutal reality is that trade negotiations often involve a long and repeated back-and-forth before they produce fully formed “structural outcomes.” Trade talks are more like part of a complex game than a simple game of tariff numbers.

Some newer researchers may have just entered the field at the time and may not know exactly what happened, so let’s go through it again together here:That year’s meeting was much like this year’s; it took place on 5 4 (about a week earlier than this year). At the time, everyone had the same expectations as today, and the outcome of the meeting can tell you too...

“Frank and constructive dialogue”

We can wait and see how many words differ this time, although I think that a few days from now, these words might still sound familiar.

Afterward(meaning after the “frank and constructive” dialogue)The two sides then went through multiple rounds of reciprocal tariffs, until a breakthrough was reached when Ping met again in G20 on 12 1.