I started this week with short positions in CAD, Gold and the S+P. I took profits on the short CAD when it started to rally late Tuesday on news that the US was “softening” its NAFTA position on auto parts. I liquidated my gold position for a small loss on Wednesday when spot gold traded above $1325 and I remain short the S+P with a combination of option positions.

I started this week with a clean slate (I was skiing at Whistler last week and didn’t want any open positions) but I had a list of trades that I hoped to make if the opportunity presented itself.

The US stock market was a great barometer of risk appetite this week. The DJIA rallied to 3 week highs on Monday but began falling early Tuesday morning (Powell testimony) and was down nearly 1,600 points at Friday’s lows.

From the Desk of Victor Adair

Risk appetite bounced back this week but sentiment seemed to be more defensive than aggressive (S+P futures volume was less than ½ of last week’s volume.) At last week’s lows the S+P 500 was down ~12% from its January highs...it closed this week down only ~5% from those highs.

Risk Appetite had a Key Turn Date (KTD) the week of Jan 26/18 as the major American stock and commodity indices made important highs and then fell sharply while the US Dollar Index made an important low and then rallied sharply.

From the Desk of Drew Zimmerman

From the Desk of Victor Adair

The key aspect of market psychology so far this year has been a willingness to aggressively take on risk. We have seen aggressive buying of stocks and aggressive selling of bonds and the US Dollar.

Markets are in a speculative blow-off phase right now with stock markets around the world surging higher while the US Dollar has been falling like a stone. My gut instinct is to fade this price action...but my risk management override says wait...it could get even crazier!

From the Desk of Victor Adair

The Most Crowded Trade In The World

Raoul Pal posted a great essay in the December 28/17 Macro Insiders section of www.realvision.com describing the lurking danger of what he calls The Giant Implicit Put. Here’s a couple of lines from his essay: