Is This It? Is This The Green Light?

On Oct 18th, we wrote an article titled, "The Path Forward Is Uncertain, But You Need To Be Prepared." We said:

We are now approaching an inflection point in the market. Market participants remain concerned about the broader economy and the general direction of the markets. Some are in the camp that the broader market indices tank into year-end and some expect it to rally. The scenarios appear rather binary given the macro bearishness.

As this pertains to your portfolio, the decision tree is rather straightforward.

In the event copper prices break down, USD continues to strengthen, and oil does not hold the trendline, you need to reduce your long positions and increase cash. Again, while you may fundamentally believe that oil prices will go higher, your job is to react, and if the market is telling you something vastly different, pay attention.

Now if the opposite occurs, copper prices break out, USD drops, and oil holds its trendline, then you should consider deploying not only your leftover cash into energy stocks, but you should consider adding upside leverage. You can do this in the form of call spreads to reduce your risk. Please feel free to contact us to discuss the trade ideas you had in mind.

Again, the scenarios are binary, in our view. Either the bears are absolutely spot on that the global economy is going to hell, or they are not, and everything starts to improve. Price action is our guide, not our ego. Let's see what the market has to say, and now that you are emotionally and psychologically prepared, you will know what to do when the moment arises.

Since then, we've maintained our cautiously optimistic view as explained in our OMF this week, but the market is starting to paint the picture for us. The outlook is no longer as uncertain as it was a month or even a week ago. We've had an important price action catalyst that happened this week. Copper prices broke out while the US Dollar is starting to really drop.