Strategy Video: What Happens Should Risk Trends Collapse Next Week?
• We discussed how to identify a market-wide 'risk aversion' move yesterday
• Now we cover what the fallout in sentiment would entail given the unstable backdrop it developed on
Given the messy close for the markets this past week, it is important to discuss what a market-wide deleverage of risky positioning would entail. Raising the threat level of a break in complacency and subsequent need to unwind exposure were key technical breaks in the US equity indexes, a drive to extreme for volatility measures and other important cues. How would a shift in sentiment and positioning actually play out? Does a five-and-a-half year bull trend, record usage of leverage, multi-decade lows in participant and exposure to exceptionally risky asset types change the mechanics of a turn? And, what FX trades are better suited for the near-term reaction versus those that face deeper fundamental trends? We discuss this in the weekend Trading Video.
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