Despite the fact that it's now widely acknowledged that the Trump reflation trade is as dead as a doornail, complacency and fake optimism remains elevated near all time highs.
Which poses some significant "risks"...
First, on Thursday, the S&P 500 and all of the other major U.S. indices closed below their 50 day moving averages for the first time since the election. In addition, weekly cash Rydex cash balances are at a new all time low:
Rydex bearish assets
And despite banks getting massacred last week, asset exposure to financials remains elevated going into the coming week:
Active asset managers who had been de-risking, decided to buy the dip this past week:
Bond shorts got shellacked last week, although the latest data as to their positioning is as of April 4th:
Having been slow to acknowledge the change in trend, the short volatility trade is unwinding with vertical "alacrity"...
As of April 14th data, Crude oil speculators have started building back up their speculative positions. Oil being the only part of the reflation trade that is still somewhat reflated...
As of April 14th, Yen gamblers are still net short, hence slow to acknowledge the global risk reversal.
Which is going to be very painful this coming week since USDJPY traded lower on Friday due to the weak U.S. economic data:
The high momentum/high beta trade also closed below its 50 day moving average this week:
But the biggest risk faced by casino gamblers has been the mad rush into "passive" stock market ETFs. Why? Because trailing stop losses amid illiquid markets can cause large gaps in price between the ETF and the underlying stocks. That can fuel additional selling, and cascading stop losses cycling back and forth between the ETFs and the underlying.
But, we've only seen this movie twice before, so how would we know?
