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GS: downside risk to earnings

David Kostin from this weekend: "We forecast downside risks to earnings estimates for the remaining quarters in 2022. Full-year EPS estimates have actually been revised 2% higher since the start of the year and earnings growth is forecast to accelerate in coming quarters. Analysts appear reluctant to adequately trim forecasts despite the high degree of uncertainty surrounding the economic outlook. Although our 2022 top-down EPS estimate is 3% below bottom-up consensus ($221 vs. $227), we believe results from 1Q earnings season are unlikely to generate enough clarity for analyst estimates to fully converge to our forecast"

NASDAQ continues trading well offered. The 100 day crossing the 200 day we pointed out early last week is now "confirmed". Tech continues to be the relative dog, but don't forget there is a mean reversion pain in NASDAQ as well. Getting excited about any break outs (down or up) has been costly. 14k is Hartnett's big tech level, so watch it closely. Second chart shows NASDAQ's RSI. This is getting oversold...but who likes to catch falling knives?

Kolanovic taking some profits

"Markets have recovered a majority of their early-March sell-off and thus no longer look oversold, while risks remain elevated around geopolitics, policy tightening and growth. As such, we take profit on the tactical increase to our equity OW initiated last month" (Kolanovic)

Worried Wilson staying defensive

"As of Friday's close, the Equity Risk Premium made new lows at just 250bps. However the internals of the equity market have rarely traded so defensively with Utilities in particularly having one of its best absolute and relative periods of performance on record. This is an even more remarkable feat given the significant move higher in back end rates over the past few months. Meanwhile, it's the opposite for banks which tend to outperform when back end rates are rising. In short, we have another example of extreme divergence between the internals of the stock market which are strongly indicating a growth scare, while bonds and the S&P 500 are suggesting growth is not only ok, but likely to remain robust in the case of bonds. This divergence between the internals of the stock market and bonds/SPX is unsustainable.

Bottom line, we continue to recommend defensives even though they have already had a great run of performance. Perhaps the best expression of this view is the relative trade of defensives versus cyclicals which appears to still have a long way to go if we are right to be worried about growth."

Dollar - mean reversion mania

King dollar has continued to march higher and the DXY is trading at the highest levels since May 2020. What people tend to overlook is the fact that the DXY is a mean reversing asset going back to 2015. It is easy to get excited about break outs, both ways, but the huge range since 2015 has managed to stay intact, with a few over/under shootings. Second chart shows the "disturbing" negative longer term RSI divergence. Are we getting close to a dollar reversal soon?

Goldman: Broad Dollar depreciation remains our medium-term view

"We had anticipated some USD weakness last week in light of relatively "full" front-end rate pricing in the US, and with both equities and the geopolitical news somewhat steadier. The Dollar has instead continued to trade well, especially vs the Euro, which has built in additional risk premium related to the French election. The US yield curve did begin to steepen over the past week—a pattern usually associated with USD depreciation—but we may need better news on non-US growth and/or flat-to-higher equity markets for the broad Dollar to stabilize and eventually turn lower. A weaker-than-expected CPI report this week seems the most plausible near-term catalyst"

US 30 year - the break out of the Millennium?

Drawing +20 year trend lines isn't really market intelligence, but when equity sales guys start sending you the break out in the 30 year you need to "zoom out" and try to understand the psychology here. Most have been very wrong about this move, and the "narrative" is attracting a lot of "pundits" that have little experience from trading bonds. The two charts that equity sales guys are busy with sending us at the moment is the break out in the 30 year and the "huge move in MOVE bro". We at TME have been pointing out the huge move in MOVE for months now. Talking about surging bond volatility here is a late "observation". Over the weekend we sent our thematic email (premium subs only) on yields "getting there". We are getting close...

The agony among short gamma dealers having to chase everything lower and lower in order to re balance the books (sell deltas) continues. As we pointed out at recent highs (here), the short gamma crowd that had to chase deltas during the furious bounce had changed into a "sell or sell" deltas dynamic at recent highs. Why? Because the upside chasing by short gamma dealers had changed into selling deltas on the way up as they became long gamma briefly. We warned about the downside short gamma possibly restarting the Feb/March oscillations again should the market turn lower. This is exactly what has happened. Charts showing QQQ and SPY short gamma getting rather "extreme" here. Don't forget that short gamma works both ways, so if this decides changing short term direction (again) the moves could be violent to the upside as well.

Oil - the inflation play, really?

Brent vs US 10 year break evens are decoupling lately. Lot of inflation takes out there, but expressing it via long oil has been costly...

BTC’s correlation with NDX just hit a 10Y high…