Weekly Macro Note: What's Next on K2?, Riding the Shinkansen, Hunting the Signals in Inflation Data

In this Weekly Macro Note, our team crafts Part 2 of the 'K2' series in 'What's Next on K2?', discussing an update on valuations, internals, technicals, and much more. #MacroEdge

What's Next on K2?, Riding the Shinkansen (@DonMiami3, MacroEdge Chief Economist)

Good Sunday evening MacroEdge readers and community, 

This evening we’ll follow-up to our February article ‘Standing on K2’ with - ‘What’s Next on K2’ - looking into valuations, internals, and technicals in a similar manner that we did then. While markets have shifted sharply in just the 45 day period from that article, zooming out and taking a level view of the current playing field that stands before us today is the purpose of this weekly macro note - that we’re titling ‘Riding the Shinkansen’. In the overnight America hours - Japan triggered circuit breakers on both its TOPIX and Nikkei 225 indices - and Wall St. and banker panic is starting to grow as speculators realize that their ‘bull market blowoff magic’ was simply just pixie dust - rather than genius. The same goes for the FinTwit ‘experts’ that have popped up and gone viral over the past few years for everything from selling calls, to buying calls, to posting their gambling gains, and much more. That party is winding down to a close. While this post provides both the short-term view as well as our longer term view of equities, I think that flexibility after a drop of this magnitude is the best suit that fits us for the second quarter. 

In our original ‘K2’ series article - we noted the dangerous risks as what we quantified as K2 - including from a technical, valuation, and internal standpoint — many of those risks have materialized since then, but even more have not (including with any dent or impact to the upper K in the economy not yet been realized).

I also want to say a quick thank you to our team, clients, and community as we jumped to #35 on the Substack trending list this week:

(K2 x Japan, a new reality for Americans?)

Markets that hit a circuit breaker this evening: 

China

Taiwan

Japan

Russell Futures

Australia

Singapore

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Quite an evening for markets. I will note that the last time an event like this occurred did mark the bottom of the July Yen Carry Trade blowup - and it warrants caution as shorts ‘short the hole’ into potential fiscal and monetary intervention.

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Trident 
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What’s Next on K2?

Commentary 

In February when we stepped back and took a look at negative market technicals, rampant speculation and outright gambling, persistent fraud in areas like cryptocurrencies, and noted speculation bleeding into ‘tow truck drivers’ and ‘cosmetologists’ – it still baffles me that the retail investor will to continue to want to push the gas on risk with a 2023 and 2024 mindset. We’re in a very different backdrop now - with technicals having broken down, short-term technicals moving to extreme oversold levels, and broader long-term technical, internal, and valuation metrics rolling over. If anything - it’s the okay macro backdrop for Q2 and non-guidance related EPS that allows us to bounce in the short term. Let’s discuss below. 

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