Editor's note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don't have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.
Jake Behan, Head of Capital Markets at DirexionA wall of worry tape rewards traders who stay tactical. Rotations come sharp and fast, and the ones with a plan trade the move. The ones without it watch it
Inflation prints are jumping, the Fed is penned in by data, and equity leadership is narrow.
And yet, the tape keeps grinding higher.
SPX is the S&P 500 Index. One cannot invest directly in an index. Past performance is not indicative of future results
It’s a mixed bag of sentiment as yields get driven higher, and geopolitical influences kick over the apple cart again. While it seems like these headlines were ripping and pulling markets, they’re starting to only nudge and jostle.
This is the wall of worry. Markets are advancing not despite the worry but through it.
Bricks in the Wall
The concentrated leadership for equities is rooted in the semi complex right now. A handful of 10-Q's are trying to validate the entire AI capex thesis. This semi strength is shrouding the overall weakness of the rest of the market.
At the same time inflation prints from CPI/PPI* are pushing yields higher with concerns coming from energy and supply-chain risks. Each reinforcing print tightens the Fed’s path.
Headlines are coming and going, but the underlying market risks haven’t changed. Traders are getting desensitized to the constant refrains across the daily and weekly headlines. This desensitization is a signal in and of itself.
Not helping is the crowded positioning. Traders are on a profit-taking hair trigger as everyone sits on the same gains watching for potential underlying weakness.
Tactical Perspective
Narrow leadership means a single stock can snap an index. Position size considerations should reflect that a 5% jump or drop can come from a wide range of catalysts without warning.
The wall of worry tape can produce sharp two-way moves. Conviction trades stay as conviction trades, but bear and bull setups can flip-flop from day to day.
With the cadence catalyst clock always ticking, the interim can be where positioning gets loose. Traders who plan around the calendar trade the reaction. Everyone else is just trading the news.
The market climbs walls all summer. The traders who do best aren't the ones predicting which brick falls. They're the ones who already know how they'll trade either way.
* Definitions and Index Descriptions
Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by an ETF increases the risk to the ETF. The Direxion Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged, or daily inverse leveraged, investment results and intend to actively monitor and manage their investment. The Direxion Shares ETFs are not designed to track their respective underlying indices over a period of time longer than one day.
Direxion Shares Risks - An investment in the ETFs involves risk, including the possible loss of principal. The ETFs are non-diversified and include risks associated with concentration that results from an ETF’s investments in a particular industry or sector which can increase volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. The ETFs do not attempt to, and should not be expected to, provide returns which are a multiple of the return of their respective index for periods other than a single day. For other risks including leverage, correlation, daily compounding, market volatility and risks specific to an industry or sector, please read the prospectus.