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Weekly probability maps for future stock returns are accessible for premium members and updated every Monday.

The Meta Strategy ETF Portfolio monthly newsletter for basic and premium members.

Strategy rules are accessible for basic and premium members – several basic strategies are open to everyone.

Recent Reports

Probability Map August 15

Meta Strategy Derivatives Portfolio – Probability Map Update.

Relentless Rally

The stock market advance continues towards its long-term downtrend.

I turn to the big question on everyone’s mind today: How can we distinguish whether what we see is still a bear-market rally, or whether the difficult FED goal of a “soft landing” can be achieved and lead straight to a new bull market?

We can never be certain about the future path, but we can observe how different data points shift probabilities and position ourselves accordingly.

Current data still points to a bear-market rally setup.

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The Meta Strategy ETF Portfolio Newsletter – 08 2022

Our leading fundamental indicators have now triggered a red recession warning in August. All economic indicators (except for the unemployment rate) have either already triggered a red warning signal or are approaching the threshold at a rate of change that points to an imminent signal. 

Such a confluence of signals tilts probabilities strongly in favor of a deep recession, and with it a recessionary bear market.

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Probability Map August 8

Meta Strategy Derivatives Portfolio – Probability Map Update.

A Confluence of Time and Price

A compelling opportunity on the short side is approaching.

The key idea, that a V-shaped bear-market bottom a la 2020 is very unlikely, has been cemented further by Friday’s strong unemployment numbers, which make the necessary dovish FED pivot almost impossible due to its dual mandate.

The current confluence

A look at recent OpEx cycles shows consistent weakness in the 5 – 10 trading days before monthly options expire.

This often happened in combination with a consolidation period in the beginning of the month that fails to overcome a significant resistance area.

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Probability Map August 1

Meta Strategy Derivatives Portfolio – Probability Map Update.

A Change is in the Air

Can you feel how investor sentiment is brightening by the day?

“Nothing like price to change sentiment”, but this is exactly what defines a proper bear-market rally for me: A reset of sentiment and positioning that creates fresh potential sellers in the market.

The current rally is beginning to set up an under-hedged market vulnerable to a steep sell-off.

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Probability Map July 25

Meta Strategy Derivatives Portfolio – Probability Map Update.

Second Leg Down Theory

The current relief rally is awakening expectations of a lasting stock market bottom.

But not so fast! I explore why extreme sentiment and positioning make bear-market rallies a necessity.

They often set the market up for another drop, especially if long-volatility hedges have disappointed so far.

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Probability Map July 18

Meta Strategy Derivatives Portfolio – Probability Map Update.

The boring part of a bear market

Is it still a bear-market rally, if the market doesn’t … rally?

Lacking any kind of decisive directional move, it is useful to look at the length of time the S&P spends above its current bear market low.

Extremely pessimistic sentiment is slowly beginning to normalize, but it still has plenty of room to go, until bearish investors are lulled into complacency.

Meanwhile, fundamental data continues to quickly deteriorate, and the decisive phase of this bear market is still to come.

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Probability Map July 11

Meta Strategy Derivatives Portfolio – Probability Map Update.

Slow and Steady

Three steps forward, two and a half steps back — that’s what a classic bear-market rally looks like.

Rather than seeing a deep, recessionary bear market as the only path, I prefer to keep an open mind for a wide variation of possible outcomes in the current, unpredictable situation.

On the next leg down, I will monitor closely in which direction the probabilities between our three main scenarios are shifting.

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The Meta Strategy ETF Portfolio Newsletter – 07 2022

The time has come to introduce a new, diversifying strategy to this newsletter.

The Alternative ETF Relative Strength Rotation Strategy aims to fulfill several criteria:

* It outperforms the stock market over the long term.
* It provides the diversifying opportunity to access outperforming assets systematically, at the right time, and with controlled risk.
* It is uncorrelated to equities.
* Its implementation is easily achievable at low cost for any retail investor.

In essence it is a trendfollowing strategy that concentrates exposure in assets with high relative momentum and is simplified to be suitable for DIY investors by using exchange traded funds (ETFs).

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Active Investment Strategies

This post details essential background information on currently active investment strategies.

These are implemented via ETFs in my monthly subscription newsletter:

Meta Strategy (since 2019)

Alternative ETF Relative Strength Rotation Strategy (since mid-2022)

Free registration required.

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Probability Map July 4

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Update Tuesday; Leading economic indicators have triggered a yellow recession warning in July —

Bull vs Bear

The nascent recovery rally ran into trouble at the lower end of my minimum long target last week, which led to a tug-of-war between bulls and bears with no decisive winner.

Friday’s close above the key level at 3800 makes the washout below look like a classic bear trap that cleaned out all the stops, only to reverse back above.

Last week’s scenario layout still looks solid and is supported by a vast majority of the data: The current rally should last longer and go further than previous bounces until extreme pessimism normalizes — a classic bear-market rally.

After that we will likely see a decline of several hundred S&P points, even in an optimistic scenario.

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Probability Map June 27

Meta Strategy Derivatives Portfolio – Probability Map Update.

Like a Charm

Last week’s OpEx long setup worked like a charm.

We are now facing a set of diverse scenarios for the near future.

Because these share key features (a lengthy, strong recovery followed by significant downside), a flexible trading plan has a high chance for success.

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Probability Map June 20

Meta Strategy Derivatives Portfolio – Probability Map Update.

A detailed look at gaining a significant behavioral advantage during bear markets by using a tactical investment model.

It can save us from the human tendency to make bad investment decisions at the worst of times.

With the S&P trading 17% below the long-term trend and extremely oversold breadth numbers after one of the worst bouts of selling in its history, we are once again close to an intermediate bottom.

The current setup is remarkably similar to the situation in mid-May, when stocks bottomed on monthly OpEx Friday and rallied 10%.

This pattern of a sell-off cascade that is mechanically stopped by a significant options expiration date, because the reflexive, negative feedback-loop of dealer hedging resets, is a powerful edge that remains in this otherwise highly unpredictable market environment.

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Probability Map June 13

Meta Strategy Derivatives Portfolio – Probability Map Update.

High Failure Rate

Friday’s high CPI print derailed another promising setup, as bad news instantly turned a contrarian take on sentiment into a self-fulfilling prophecy instead.

The remaining traders with long positioning all stampeded for the exit at once, and a low liquidity environment and negative gamma exposure did the rest.

The stock market is now likely to quickly retest its recent lows with the potential to trigger a dangerous liquidity cascade down to much lower levels, which would be driven by a negative put-gamma squeeze into quarterly OpEx.

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The Meta Strategy ETF Portfolio Newsletter – 06 2022

Return of the great stagflation?

With high anticipation, I took a close look at the Meta Strategy model’s leading fundamental economic indicators to check for any deterioration matching the decline in stock prices.

The result brings us another step closer to answering the big, open question:

Are we experiencing a mid-cycle slowdown or will the economy go into a to a full-blown recession?

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Probability Map June 6

Meta Strategy Derivatives Portfolio – Probability Map Update.

Waning Momentum at Resistance

A massive bounce in the S&P was followed by a consolidation phase last week.

This is much more constructive than the immediate sell-offs we saw during the previous feeble rally attempts.

The area from 4150 to 4200 contains very strong resistance, as March and May bottoms were clustered here.

As most traders and investors expect imminent further lows, I think that a move above this level has a higher probability.

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Probability Map May 30

Meta Strategy Derivatives Portfolio – Probability Map Update.

Constructive Bottom

Despite some whipsaws, the S&P 500 managed to stop its downward cascade with a classic bear trap and closed the week significantly higher to form what could be a solid intermediate bottom.

By now, a majority of investors has become convinced that we are at the mere beginning of a long, recessionary bear market period.

What better time to start a strong rally to make everyone doubt their newfound bearish conviction?

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Probability Map May 23

Meta Strategy Derivatives Portfolio – Probability Map Update.

Whipsaw Market

Last week’s wild price action was a case in point for the wisdom of using a systematic “easy versus difficult“ market filter.

Difficult markets are filled with traps, whipsaws, failed setups, and so on.

The Monday after a crash into monthly OpEx has a very decent probability to form a short-term bottom, as options positions that exacerbated the downward spiral have now expired.

However, the demand in the current environment is not reliable, and the chance for failure remains high.

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Probability Map May 16

Meta Strategy Derivatives Portfolio – Probability Map Update.

Market Playbook Reassessment and Lessons Learned

The S&P 500 has broken through key support and simultaneously the Meta Strategy model’s stop loss was triggered.

The trajectory of the real economy will now define the course of the stock market.

So far, nearly all of my model’s leading economic indicators remain solidly green.

Will inflation, the FED rate hike cycle, geopolitical trouble, China’s supply chain chaos, and so on topple economic growth or will the economy prove to be resilient?

This will determine whether we are in a non-recessionary bear market (or correction) that tends to be shallow and short, or whether we will tip into a recession, when bear markets are usually long and deep.

I also pose the question: What type of trader am I, and how can I use this insight to improve?

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Probability Map May 9

Meta Strategy Derivatives Portfolio – Probability Map Update.

— May 10 Update: Position Alert —

Data Deterioration

The anticipated vol-crush rally around last week’s FOMC meeting came out of the gate strong, but failed to see any follow-through.

While we may still be looking at a potential double bottom, this was not the productive price action I would have liked to see.

An increasingly bleak picture is painted by current market studies, as well as the systematic warning signals in my market model, and I see a rising chance of an unravel into May OpEx once the S&P closes below 4100.

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The Meta Strategy ETF Portfolio Newsletter – 05 2022

All eyes on the FED

Unfortunately, choppiness persists and the current correction in stocks continues.

After a strong stock market recovery in March, the performance in April has been abysmal, which triggered new technical warning signals for the Meta Strategy model.

At yesterday’s FOMC announcement of the first 50 bps rate hike since 2000, Mr. Powell managed to calm extremely hawkish market expectations.

The clarity of the communication about the FED’s future path may even be the basis for a solid bottom of an entirely normal bull market correction, if the economy proves to be resilient — in any case it would be short-sighted to simply assume that we necessarily face further stock market deterioration.

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Probability Map May 2

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Update Wednesday —

Teetering on the Edge

After a strong bounce during the middle of last week, stocks gave back all of their gains on Friday to end the month right at this year’s low.

This cliff edge around 4100 for the S&P500 has served as support multiple times this year, and traders are eyeing the abyss below with some of the worst sentiment expectations in 30 years.

This week’s FOMC turnaround setup is the last chance to save stocks from falling to the next level down, and it has a decent chance to succeed.

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Probability Map April 25

Meta Strategy Derivatives Portfolio – Probability Map Update.

Buying Opportunity or Unravel?

Last Thursday’s to Friday’s mini-crash, which was caused by an increasing barrage of FED hawkishness, has revealed cracks in our positive setup.

We are back at a junction that we last faced in February: Is this the buyable washout that routinely scares weak hands out of the market after a correction bottom, or is it the beginning of a deeper decline — much like we saw at the end of 2018?

Because FED policy looks to be the main culprit for recent market weakness, I fall back to a time-tested setup for my actual positioning in a difficult market environment.

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Probability Map April 18

Meta Strategy Derivatives Portfolio – Probability Map Update.

Choppy OpEx Week

The holiday-shortened trading week displayed a typical OpEx pin to a key support area.

The majority of market studies point to a high likelihood that this dip will resolve higher after building a higher low.

This is also part of a typical correction pattern: a deep scare-out after the initial rally from a correction bottom.

Despite some deterioration in market breadth, the overall picture remains constructive.

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Probability Map April 11

Meta Strategy Derivatives Portfolio – Probability Map Update.

Spring Break

Many people are taking a break around Easter, and this gives the market a good opportunity to quietly put in a higher low as the highest probability scenario in the current environment.

Despite the many doom and gloom predictions, there will still be plenty of time to adjust our positioning in case of an incoming recession.

Meanwhile, there is a confluence of positive market studies, favorable seasonality, and easing geopolitical tensions, and it is time to be long over the next couple of weeks.

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The Meta Strategy ETF Portfolio Newsletter – 04 2022

Recession Predictions

All of my model’s warning signs have turned green again, which signals a switch back to the strategy’s default stock allocation after only one month of reduced risk.

Why then are so many pundits convinced that a recession by 2023 at the latest is virtually guaranteed, and talk about yield-curve inversions is all the rage?

I discuss all this in today’s newsletter.

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Probability Map April 4

Meta Strategy Derivatives Portfolio – Probability Map Update.

April is no one’s fool

There is a confluence of positive market studies, favorable seasonality, and easing geopolitical tensions, and it is time to start scaling into long positions.

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Probability Map March 28

Meta Strategy Derivatives Portfolio – Probability Map Update.

The constructive picture continues with many new studies supporting the scenario of a new bull market leg in April as being the most likely.

But, beware of rebalancing flows during the first days of the month — the current bond sell-off is highly unusual and will trigger stock-selling and bond-buying to bring institutional portfolio asset allocations back to target.

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Probability Map March 21

Meta Strategy Derivatives Portfolio – Probability Map Update.

Looking for a Higher Low

A strong and constructive rally last week has a high chance of marking a decisive turning point in the current correction through a powerful breadth thrust.

The most healthy scenario going forward would be that the stock market puts in a higher low retesting a recent breakout area.

Short squeeze dynamics should now fade away and enable a pullback to a higher low supported by genuine demand.

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Probability Map March 14

Meta Strategy Derivatives Portfolio – Probability Map Update.

Bull / Bear Watershed

For the first time in a long while, we are facing a watershed moment, teetering at the edge of a regime change from a Bull Market to a Bear Market.

Looking out over the next week, the most likely time for stock markets to fall apart is now, as option-based tailwinds for the S&P are fading.

Virtually all weeks going into monthly OpEx have shown very weak returns over the last year, and the big quarterly March expiration has often marked a decisive market extreme in the past.

It is time for me to move to the sidelines and wait for the next opportunity after OpEx week has passed.

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The Meta Strategy ETF Portfolio Newsletter – 03 2022

The terrible geopolitical situation has created a perilous situation, and all asset classes are now pricing in highly uncertain knock-on effects of the worsening conflict and stricter-than-expected sanctions against Russia for the world financial system, energy markets and agricultural commodities.

With such dire outlooks, as portrayed by the daily news flow, it is easy to underestimate the resilience and adaptability of markets.

History shows that it is exceedingly rare for equities to fall into a recessionary bear market without an advance warning from leading fundamental indicators.

An exogenous shock is usually absorbed relatively quickly, but current risk remains elevated.

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Probability Map March 7

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Updated targets tables Wednesday —

— Update Monday: Target for position reduction adjusted for market open —

Risk-Off Dominates

While the S&P 500 showed strong resilience last week, risk-off behavior continues to dominate across assets.

All asset classes are now pricing in highly uncertain knock-on effects of the worsening conflict and stricter-than-expected sanctions against Russia for the world financial system, energy markets and agricultural commodities. In oil, wheat, gold, bonds, European equities, and others this has already led to large panic spikes, which could exacerbate problems down the line.

It is an overall perilous situation, but because major shifts are already anticipated by investors my expectation is to see short-term mean-reversion from current price extremes (falling oil, wheat, etc. and rising stocks), followed by more volatility as the trajectory and unexpected consequences of how these shifts actually play out become clearer over time.

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Probability Map February 28

Meta Strategy Derivatives Portfolio – Probability Map Update.

Invasion Bottom

Any big event that is perceived to carry large risks, paired with high uncertainty about the outcome, also presents a great opportunity, which unfolds in patterns that are often quite predictable.

With defined maximum risk, I don’t consider it reckless to buy into a panic spike to the downside, while allowing for a flexible price path that is driven by randomly unfolding events.

For the coming week or two a positive feedback loop provides structural market support, as falling volatility and passing time push the market up into a large quarterly OpEx in March.

The biggest window for potential weakness will begin mid-March going into an OpEx week and a major FOMC meeting.

We are likely to see strong setbacks on the way up.

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Probability Map February 21

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Thursday Update —

Peak FED — Peak Inflation — Peak Geopolitics

The stock market doesn’t really care anymore. These negative factors have largely been disseminated by the volatile market action since the beginning of the year.

In the meantime, dark pool data shows aggressive smart-money buying activity.

All of this speaks to the distinct possibility that stocks are currently building a second, final bottom in this correction. While peak volume, fear and capitulation were visible in late January, the market is now digesting the remaining geopolitical and central bank policy uncertainty much more quietly.

Should Russia invade Ukraine we may still see a final panic spike to the downside over the very short-term. But I would expect this to reverse very quickly and be a great buying opportunity.

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Probability Map February 14

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Thursday Positioning Update —

Correction or Worse?

Triggered by fears of an extremely hawkish FED pivot after a surprisingly high US inflation number, followed by heightened Russia / Ukraine tensions, the way has now opened up for the low retest our model portfolio is positioned for.

The big question, however, is: What comes next?

Precisely because they are so extremely emotional, strong corrections are exceptional opportunities for long positions during a bull market, but buying into a crashing market is difficult and dangerous.

My main scenario is a volatile bottom followed by a strong market recovery.

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The Meta Strategy ETF Portfolio Newsletter – 02 2022

The waters have been getting noticeably rougher for equity markets in the beginning of 2022. Central banks are forced to react to inflationary pressures by rising interest rates and tightening liquidity conditions. Stocks, bonds, and other assets react fearfully to a change of uncertain magnitude in monetary policy.

After almost two years of a rally with below-average volatility a correction of 10% to 20% is entirely normal. In case stocks continue to move down, we may see a signal for a gradual reduction of risk in our portfolios over the coming weeks.

We will likely have to endure choppy waters for some time to come during the first quarter of 2022, before stocks recover to new highs.

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Probability Map February 7

Meta Strategy Derivatives Portfolio – Probability Map Update.

I usually don’t lend much weight to any one technical chart pattern, but the emotional rollercoaster ride of a sudden correction is an exception.

The market’s turning point last week was anticipated by the correction pattern setup with an uncommon level of accuracy.

But now the S&P 500 is stuck in the middle between strong support and overhead resistance.

At the same time additional market data is largely supportive over the long term, but probabilities are all over the place over the short term.

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Probability Map January 31

Meta Strategy Derivatives Portfolio – Probability Map Update.

Wednesday Update — Preview of next week’s market outlook

— Tuesday Update —

Volatility Clusters

Even when expected, a lightning quick change in market regimes still always surprises, and it takes some time to adjust to a new environment.

Last week’s bout of volatility has forced the VIX futures term structure to invert over several days, which is one of my key indications that a significant change in the market environment has taken place.

In combination with the pronounced characteristic of financial markets to display a clustering of volatility, my expectation is that larger market swings are here to stay for the foreseeable future.

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Probability Map January 24

Meta Strategy Derivatives Portfolio – Probability Map Update.

Tuesday Update

Where is the Bottom?

That is the question that everyone who actively trades equities is currently asking. The unfortunate answer is:

Nobody knows!

The good news is that getting the big picture right is more than sufficient, and there is no need to pick an exact low.

I analyze a variety of structural and technical patterns in today’s report to get to the bottom of the current market:

OpEx Unravel
Vol-Crush Rally Setup
Sell-off indicators and sentiment extremes
Correction pattern systematic trade setup
and more…

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Probability Map January 17

Meta Strategy Derivatives Portfolio – Probability Map Update.

Update Wednesday pre-market

Why is it different this time?

The wide-range day last Monday spurred a short-term bounce, which I used to switch my trading portfolio exposure from long to short.

Until we have moved past OpEx next Friday, I will remain cautious before buying into weakness.

Several things are different from previous pullbacks with immediate relief rallies, and an unravel, though not necessarily expected, would be most likely to begin now.

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Probability Map January 10

Meta Strategy Derivatives Portfolio – Probability Map Update.

Tuesday Update — New Trade Setup

News drives price against flows

A flurry of positive studies and signals just before the release of the FOMC minutes last Wednesday, which shocked the market into a pullback, leads me to regard this as a temporary, news-driven price decline.

But the upward potential looks to be capped as well, and short-term momentum is losing its drive as each new high is being sold off more quickly than before.

We may be witnessing a transition into a choppy sideways market phase (positive and negative influences are in a tug-of-war) that can easily lead to a deeper correction in the coming months.

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The Meta Strategy ETF Portfolio Newsletter – 01 2022

Another blockbuster year for the stock market is in the bag. That makes for threes consecutive years of double digit returns — a rare streak in the history of the S&P 500.

Going forward, I expect things to become more difficult, as we are more likely to see the long-term drawdown average (-14% in any given year) materialize at some point in 2022 than a repeat of an extremely calm year.

Higher stock market volatility with a correction of 10%-20% would be entirely normal — this is not a prediction, but would merely be a return to average conditions.

The main battleground is the fight of extraordinarily strong momentum against a reduction of return-driving liquidity.

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Probability Map January 3

Meta Strategy Derivatives Portfolio – Probability Map Update.

Seasonality

As suspected, the traditional Santa Claus Rally had largely been front-run a few days earlier — nonetheless a juicy performance last Monday was sufficient to keep the positive return pattern over the period intact for now.

That flexible market participants pull forward widely expected returns is no wonder, considering just how much publicity this statistical phenomenon gets every single year!

Seasonality is best compared to a natural ebb and flow of the stock market over the calendar year, which causes a background current.

The way of least resistance is along broadly defined directional flows, but specific circumstances can easily overwhelm this soft drift.

As seasonal tendencies were an excellent guide throughout 2021, I continue to trust that ominous news (Omicron, FED tightening, etc.) are still weaker than the positive drift into mid-January.

After that we may be due for a bit of spring cleaning!

I wish you all the best and an excellent new Trading Year!

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Probability Map December 27

Meta Strategy Derivatives Portfolio – Probability Map Update.

Santa’s Fake-out

For several days, it looked like Santa was planning to stay away from the stock market this year, but then the year-end rally took off with a vengeance late last Monday.

This caught many market participants, who had already written off the current positive seasonality, by surprise.

The size of this rally may have front-run the majority of year-end gains already, but the thinly traded holiday week is traditionally skewed towards positive returns.

Barring price-moving news the natural course is up, albeit at a more sustainable pace.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map December 20

Meta Strategy Derivatives Portfolio – Probability Map Update.

Choppy Waters

OpEx week, which is often erratic, was particularly choppy this time around.

To me, the main culprits are two divergent forces that drove prices in opposite directions: yet another Vol-Crush Rally after the FOMC announcement and the pronounced tendency throughout 2021 to sell off into monthly options expirations.

However, with a new all-time high, many professional investors are now forced to dress-up their books for the year-end.

The most “natural” way this expresses itself is through a slow and steady grind-up of the stock market.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map December 13

Meta Strategy Derivatives Portfolio – Probability Map Update.

Thrusts, Thrusts, Thrusts

In a déjà-vu of late October, up-thrust signals triggered across the board last week.

It seems to have become typical for the current environment to see such swings from risk-off to risk-on — and back again — in a short period of time.

In conjunction with deterioration in long-term market breadth and the looming specter of liquidity withdrawal, these jitters look to me to be symptomatic for the beginning of a prolonged regime change.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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The Meta Strategy ETF Portfolio Newsletter – 12 2021

We saw a stock market at crossroads last week, as many indications began to point to increased risks and fragility. We had reached a point in a quick, volatile pullback where equities either tended to bottom out, or devolve into a downward spiral.

So far, with typical 2021 aplomb, the S&P 500 rebounded swiftly to near its all-time high. Underneath the surface, however, more and more cracks are starting to appear. Despite the new danger of an economic slowdown triggered by a new Coronavirus variant, Central Banks are increasingly forced by rising inflation to start closing their wide-open liquidity spigots. If this morphs into a double whammy for equities, it may cause the market regime to change over the coming months.

Strong year-end dynamics have a good chance to keep markets levitating for another couple of weeks, before we transition away from the unrelentingly strong rally since the March 2020 low — I am prepared for more volatility and deeper corrections in the beginning of next year.

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Probability Map December 6

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Tuesday update: adjusted position sizes —

Markets at Crossroads

Last week’s whipsaws were mainly caused by FED Chair Powell’s hawkish comments, which went contrary to widespread expectations that increased coronavirus concerns would lead to a softening of the FED’s tightening rhetoric.

The increased indecisiveness and fragility of the market is visible in a plethora of new studies that show that risks for a downward spiral have increased. But currently we are still holding above key support levels, and volatility may just as easily express itself to the upside.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map November 29

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Thursday update: New trade setup levels —

— Wednesday update: New trading setup active —

Liquidity Panic

A sharp sell-off during the low-liquidity environment of Black Friday led to one of the sharpest VIX spikes in history.

Analyzing the catalysts, I come to the conclusion that we may soon see a post-panic volatility crush that sets up a year-end rally.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map November 22

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Tuesday Update: New Gamma Dip levels for long re-entry —

Clouds in the Sky

Last week’s seesaw price action in the S&P caused some unhealthy divergences underneath the market’s surface, however an uncommonly large options expiration last Friday may provide an alternative explanation to these issues.

We might just be seeing a mechanical consequence of a gamma pin during the options expiration cycle that looks like an extremely worrisome divergence, but that was actually resolved by the expiration on Friday.

Now the way is open for a larger price move in either direction, and I analyze the main factors that influence whether we go up or down.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map November 15

Meta Strategy Derivatives Portfolio – Probability Map Update.

Rally Dynamic

I still expect positive returns through year-end into the beginning of 2022.

In fact, chances are high that we are seeing an accelerated blow-off rally dynamic developing right now.

My current orientation is based on a detailed technical picture paired with the price action we will see this week and a backdrop of quantitative market studies.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map November 8

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Thursday Update: New Gamma Dip levels for long re-entry —

— Wednesday Update: New Gamma Dip levels for long re-entry —

Breakouts Galore

The Nasdaq followed the S&P 500 to new highs; small caps broke out after 9 months of consolidation; and European stocks broke out after 6 months: all of these indices closed the week at fresh all-time highs.

There is a strong feeling of “this is too much, in too short a time — it can’t possibly continue” in the air, and I take a close look at whether the data supports that intuition.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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The Meta Strategy ETF Portfolio Newsletter – 11 2021

After the S&P 500 went through the first prolonged consolidation period in a year during the month of September, a volatile bottoming process in the beginning of October led to an exceptionally strong rally for the rest of the month: We saw an almost vertical 10% move to a new all-time high in a string of green days.

While I don’t expect stocks to rally on in a straight line, the positive dynamic can be succinctly distilled into a simple formula :

Exceptional Long-term Momentum + First Significant Consolidation + Instant Pessimism = High Probability for Positive Returns over 2 – 6 Months

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Probability Map October 25

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Wednesday Update —

The scenario of a grind higher into the year-end has become the likeliest by far, which makes the difficult art of sitting tight and doing very little the best course of action.

These time periods, when trading and investing positions are aligned, have the potential to propel our portfolio up significantly.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map October 18

Meta Strategy Derivatives Portfolio – Probability Map Update.

In week six of the first significant consolidation period since September 2020, the S&P 500 has reclaimed key resistance areas to close right at the last hurdle before its all-time high.

I look at the main scenarios of what the near future (1-4 months) may look like and how to best structure our current positioning to balance the odds for a high probability of success paired with the possibility of a high payout.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map October 11

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Friday Update —

We are entering one of those rare periods, when all quantitative studies start to align with the basic tendency for stock prices to go up.

A 5-week consolidation has flushed out the negative indications that have persisted throughout the entire year, while the news provides a plethora of worries for the market to overcome.

A perfect setup for positive returns over 2 – 6 months.

Mr. Market may take issue with this simple view, and the current consolidation period can easily stretch on for longer, or flush out weak buyers with vicious price drops to new lows.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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The Meta Strategy ETF Portfolio Newsletter – 10 2021

In September, we went through the first prolonged consolidation period in a year. It is now over a month since the S&P 500 last stood at an all-time high, but still the drawdown up to now was only around 6%.

Such a consolidation was expected for quite a while and it is entirely normal: A 10% stock market correction takes place every 11 months on average. More unusual is the exceptionally strong and uninterrupted momentum the stock market has been showing all year.

Should we be worried about the end of such a long winning streak?

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Probability Map October 4

Meta Strategy Derivatives Portfolio – Probability Map Update.

We successfully navigated the market’s rollercoaster ride of the last two weeks using systematic trade setups and specific market structures.

Now, I anticipate a volatile market bottom that presents a great medium-term opportunity on the long side.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map September 27

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Thursday Update —

The expected volatility expansion (in both directions) after the September options expiration played out neatly around a highly anticipated (and feared) FOMC meeting.

I provide a detailed analysis of “The Post-Event Vol Crush” trade setup, which I consider to be one of the most promising edges in today’s options driven market.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map September 20

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Tuesday Update —
— Monday Morning Update with additional post-FOMC volatility event assessment. —

The current pullback looks quite different compared to the last V-bottom drawdowns in the S&P.

After a big options expiration date, the way is open for faster, larger moves. Extremely negative seasonality supports the case for a volatile down-market next week.

The movement in the stock market has led to a lot of interesting new data points from many different angles, which overwhelmingly point to the same conclusion: A volatile 2 – 4 week period is likely to be followed by strength into year end.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map September 13

Meta Strategy Derivatives Portfolio – Probability Map Update.

Last week, we saw the stock market slowly deteriorate before the monthly “window of potential weakness”, which centers on options expiration.

The current level is where, in recent months, the pavlovian reaction of dip buyers would have kicked in: This has resulted in increasingly shallow drawdowns.

I remain skeptical that this simple tactic will continue to pay off.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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The Meta Strategy ETF Portfolio Newsletter – 09 2021

August was another month during which the Meta Strategy ETF Portfolios have moved in only one direction: Up.

This adds up to 10 out of the last 12 months showing solid gains — with September, one year ago, posting the last drawdown worth mentioning.

Such strong performance triggers a natural reaction in many investors: “Do I have to worry? Can this continue? Wouldn’t it be better to lock in some gains?”

This instinct can become overwhelmingly strong due to the deeply ingrained “loss aversion” bias: Only realizing a loss feels worse than giving back profits we made on paper.

Such behavioral biases are what make a systematic investment framework so valuable.

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Probability Map September 6

Meta Strategy Derivatives Portfolio – Probability Map Update.

The overall market picture is becoming increasingly muddled.

In recent weeks, the vast majority of quantitative studies and indicators, have been pointing to an increased probability for negative S&P 500 returns over the summer.

But last week, we saw several momentum indicators triggering new positive signals, in concert with improvement in market breadth. This lends increasing support to the hypothesis of a “Stealth Correction”, which rotated across sectors, while leaving the major indices largely unharmed.

However, several warning signals still persist, and I don’t think we are quite out of the woods yet…

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map August 30

Meta Strategy Derivatives Portfolio – Probability Map Update.

The Market Breadth Conundrum:

Market breadth indicators are an important tool in our toolkit for assessing the health of the stock market.
This week’s letter offers an in-depth analysis of the practical use of market breadth indicators, including what they tell us in the current market environment.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map August 23

Meta Strategy Derivatives Portfolio – Probability Map Update.

Yet Another V-Bottom?

After a sharp drop in the beginning of last week, the S&P is trading below its highs, but has reclaimed its important short-term trend on Friday.

All this is happening while an historically stretched rally meets market internals that show ever increasing weakness.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map August 16

Meta Strategy Derivatives Portfolio – Probability Map Update.

Update, Thursday August 19 pre-market

Too good to last? …Or a momentum market that extends to become the strongest trend in 100 years? …

We are now entering a vulnerable period around monthly options expiration. In the past months, while not leading to an extended correction, this time period has always coincided with the largest pullbacks.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map August 9

Meta Strategy Derivatives Portfolio – Probability Map Update.

In typical August fashion, the activity in financial markets is taking a break, as investors and traders are on holiday.

This price lethargy (rather than action) dulls the senses, and fewer and fewer participants expect any serious problems. However, there are plenty of examples where such low-liquidity summer complacency has led to sudden, extended price moves.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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The Meta Strategy ETF Portfolio Newsletter – 08 2021

It seems like nothing can stop this liquidity-driven momentum rally, despite it being carried by fewer and fewer large cap stocks. Much like in the markets of 2013/14 or 2017, every dip is shallow and immediately bounces back to new highs.

However, many underlying issues remain unresolved, and there is a steadily increasing possibility that the current, relentless rally will not be able to sustain its pace for much longer.

It would be only natural to see extended consolidation periods and price corrections in the broad market over the summer.

Probability Map August 2

Meta Strategy Derivatives Portfolio – Probability Map Update.

When the soldiers are in retreat, the entire burden to keep the market up rests on the generals’ shoulders.

The one stock that rules them all, Amazon, broke down after last Thursday’s earnings numbers.

Often weak breadth starts to matter, when leadership momentum begins to wane…

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map July 26

Meta Strategy Derivatives Portfolio – Probability Map Update.

Warning signs, for example low breadth or rising VIX / SPX correlations, still do a good job pinpointing market tops, but the downside remains constrained to 3% – 4%.

As the market failed to work through these issues, by putting in a very fast, relatively uncommon V-bottom, we are left with a dissatisfyingly unclear picture: Most indications of market fragility remain unresolved, while they are counteracted by a positive momentum burst.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map July 19

Meta Strategy Derivatives Portfolio – Probability Map Update.

Pullback Update — Tuesday & Wednesday pre-market

Could the next trading weeks really be encapsulated by this simple formula?

OpEx vulnerability + broken support + weak market internals + positioning & sentiment extremes + tapering = significant downside

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map July 12

Meta Strategy Derivatives Portfolio – Probability Map Update.

The week around monthly OpEx has increased potential to see a structural market break this month, as overstretched positioning and weak market breadth may prove to be unsustainable.

OpEx week usually sees a decreasing price range as high long gamma exposure tends to pin the market to areas of large options’ open interest. In recent months, a clear pattern of an S&P falling during the week before monthly OpEx Friday has emerged.

A “window of weakness” opens when structural liquidity flows from the options markets wane into expiration Friday.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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The Meta Strategy ETF Portfolio Newsletter – 07 2021

The first half of 2021 has seen one of the best, most consistent, and most persistent rallies year-to-date in the S&P 500’s history.

The good news is that such strong momentum tends to persist over the long term, and positive returns over the following 6-month and one-year periods, are a highly probable outcome.

On the other hand, the S&P 500 and Nasdaq have reached lofty heights, and these advances are carried by fewer and fewer stocks. Signs of a fragile market are increasing at a time that is seasonally weak for the market.

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Probability Map July 5

Meta Strategy Derivatives Portfolio – Probability Map Update.

The last six months have seen one of the strongest rallies year-to-date in the S&P 500’s history.

It would be naively recency-biased to expect this to continue indefinitely. But, on the other hand, long-term momentum effects have shown a very convincing tendency to persist in the past. Thus, a shake-up, but not the end of this bull market, is the most likely trajectory for this summer.

Right now, however, we are facing a very specific short-term market dynamic that started to develop last week.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map June 28

Meta Strategy Derivatives Portfolio – Probability Map Update.

A handful of signs lead me to believe that the seismic FED tremor two weeks ago may portend further trouble ahead.

Declining market breadth and a slowdown of central bank liquidity are the main factors that may increasingly matter, if the relatively few stocks that hold the market up start to stumble.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map June 21

Meta Strategy Derivatives Portfolio – Probability Map Update.

Tuesday Update: Short entry targets were reached.

The market’s reaction to a surprisingly hawkish tone in the recent FED meeting shows just how sensitive all asset classes are to changes in liquidity conditions. “Do not fight the FED.”

Friday’s big quarterly OpEx finally managed to dislodge the stock market, and prices fell below key support levels.

The picture has changed significantly: a feature of a market pinned by high levels of gamma exposure is that, when the ball finally starts rolling, it can quickly turn into an avalanche.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map June 14

Meta Strategy Derivatives Portfolio – Probability Map Update.

Falling summer volumes in combination with options dealers’ high long gamma exposure make it hard for any directional move to gather momentum.

Next Wednesday marks the beginning of a more interesting period in the market cycle, as VIX futures expiration coincides with the June FED meeting and is closely followed by OpEx on Friday.

Barring a significant FED surprise, a post-event volatility crush, paired with an unpinning of the market, has the potential to add temporary fuel to the market rally.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map June 7

Meta Strategy Derivatives Portfolio – Probability Map Update.

The typical summer slowdown is often followed by the Summer Doldrums, which usually appear out of the blue in a low liquidity vacation period. As a sudden melt-up is as common as a melt-down, I mentally prepare and keep an eye out for either scenario.

The combination of inflation surprises and tightening FED liquidity remains the greatest current threat to equity markets.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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The Meta Strategy ETF Portfolio Newsletter – 06 2021

The stock market advanced solidly during a quiet month. The steady pace since the beginning of the year is especially beneficial for the Meta Strategy Aggressive ETF Portfolio (up by over 20% in 2021). A much expected consolidation period proved to be mild, when the S&P 500 temporarily pulled back by 5% in the beginning of May.

Nonetheless, this had the effect that recent, unhealthy extremes in market breadth, sentiment, and positioning have now normalized. While these indicators have plenty of room to swing further into the opposite direction, they are not an outright obstacle to rising prices anymore.

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Probability Map May 31

Meta Strategy Derivatives Portfolio – Probability Map Update.

All eyes are on inflation, and the path of a strengthening FED taper narrative will likely be the main influence for stock prices over the next months. As long as liquidity flows unimpeded, the buy-the-dip mentality will probably prevail. But, conversely, the slightest sign of tightening conditions should see strongly negative reactions in equity markets.

Rising inflation now leads to negative real earnings yields for the S&P 500, which makes stocks an inherently unattractive investment for the long term.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map May 24

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Updated May 25, pre-market —

The S&P 500 hovers indecisively around a key short-term inflection area.

With the monthly OpEx price pin behind us, the way is now open for a larger directional move.

Recent extremes in breadth, sentiment, and positioning, which had caused several warning signals to flash red, have now normalized.

While these indicators have plenty of room to swing further into the opposite direction, they are not an outright obstacle to rising prices anymore.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map May 17

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Updated May 20, pre-market —

Last week we saw a fast 5,2% drop from all-time highs, followed by an equally quick 3,7% recovery.

So far, this perfectly mirrors the typical pattern that is often seen in the beginning of larger pullbacks: a fast drop to an initial low is followed by a strong bounce, which then falls back to the initial low or makes a lower low.

This high probability pattern is systematized in the “Retest of Low After Retracement in Pullback” trade setup.

All eyes are on inflation, and the path of a strengthening FED taper narrative will likely be the main influence for stock prices over the next months. As long as liquidity flows unimpeded, the buy-the-dip mentality will probably prevail.

But, conversely, the slightest sign of tightening conditions should see strongly negative reactions in equity markets, and leveraged positioning will suddenly matter.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map May 10

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Updated Tables May 13, pre-market —
— Important Update May 12, pre-market —

For months now, clusters of warning signals have led to only minor pullbacks before equities resumed their relentless rally. The signs were quite effective in pinpointing short-term market tops, but liquidity driven momentum ultimately resumed its place as the stronger force very quickly.

When this changes, it likely does so very suddenly, and signs still point to a larger correction with an increased probability to occur in May/June.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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The Meta Strategy ETF Portfolio Newsletter – 05 2021

The Meta Strategy portfolios continue to advance solidly in tandem with an exceptionally strong stock market. An unprecedented amount of liquidity causes asset price inflation, which pushes all markets up. This has led to an equity rally that surpasses the strength of any bear market recovery of the past century.

The advance is well supported by strong trends, wide market breadth, a falling volatility range, and solidly improving economic fundamentals.

However, this is becoming too much of a good thing, and a cooling-off period looks to be overdue, as we enter a seasonally weaker period of the year.

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Probability Map May 3

Meta Strategy Derivatives Portfolio – Probability Map Update.

In this liquidity-driven rally, a plethora of signs tells us that a cooling-off period is overdue, but, due to the unprecedented amount of money flooding the system as well as an exuberant buy-the-dip mentality, it is hard to tell just how far the initial bull market rally can push higher.

Signs are now pointing to a larger correction with an increased probability to occur in May/June.

Traditionally, we face the highest probability for weakness around the middle of the month, but due to the uncommonly large options expiration at the end-of-month weekly OpEx, I am on the lookout for a break below initial support levels in the coming week.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map April 26

Meta Strategy Derivatives Portfolio – Probability Map Update.

Multiple red flags warning of an imminent stock market decline were quite accurate, but, despite going through a vulnerable post-OpEx time window, the pullback remains very shallow.

A strong “buy-the-dip mentality” is still the prevalent force for now. 

Last week ended where it started, and we face a handful of different scenarios for the market’s short-term development.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map April 19

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Updated Tables April 21, pre-market —

The S&P 500 rally is now extremely over-stretched by any measure, while plenty of warning signals are flashing.

In addition to reaching strong technical resistance levels and highly overbought measures, we see extremes in sentiment, equity positioning, and low levels of hedging, as well as reliable indications of trouble beneath the surface (volatility correlations & gamma exposure).

This leads me to expect short-term weakness, within the context of a positive environment for stocks over the longer term.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Red Flags are Popping Up

Current data causes me to expect significant stock market weakness over the next weeks or months, and to hedge accordingly.

The beginning of a new bear market, however, is less likely, as all long-term indications remain positive.

Probability Map April 12

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Updated Tables April 15, pre-market —

The current rally is accelerating, and several red flags are popping up in an overbought market.

These conditions will probably lead to weakness within the next two weeks, and the key area to watch is the first strong support level around the zero gamma / 20 dma.

This area could very well hold through April and is more prone to breaking down in May. 

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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The Meta Strategy ETF Portfolio Newsletter – 04 2021

The Meta Strategy portfolios are looking very well, with stock markets trading at all-time highs.

All fundamental indicators have moved further into the green zone, as the post-pandemic recovery is gathering steam under an accelerating immunization effort.

Most of this is priced into the stock market already, however, and we should expect the strong recovery rally to transition to a more moderate pace, interspersed by corrective consolidation periods.

The economy will have to prove itself, when the constant flow of stimulus lessens.

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Probability Map April 5

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Updated April 6, pre-market —

My main upside target area was reached last week and half of the derivatives position was closed at a healthy profit.

The S&P 500 has run up into positive gamma territory, which dampens volatility and makes a mean-reverting consolidation increasingly likely. 

Current market studies add up to a largely neutral picture, and the default expectation is a continuation of the current slow grind up with frequent pullbacks.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map March 29

Meta Strategy Derivatives Portfolio – Probability Map Update.

While market fragility still remains elevated, the current correction is slowly releasing some of the pressure stemming from speculative extremes, as it is rotating through different areas of the market.

The essential short-term message is that we have passed through the main window of increased vulnerability unscathed, and now have the seasonally strong month of April ahead of us, supported by a volatility regime that is shifting lower.

I am introducing a new section containing alternative strategies and special opportunities to the report, starting today with the “Vanna Nights” strategy.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map March 22

Meta Strategy Derivatives Portfolio – Probability Map Update.

Several positive market studies tilt probabilities towards the scenario that we may get through next week’s window of weakness unscathed.

In case of further bullish momentum, I plan to take profits on my long positions fairly quickly.

In general, market fragility remains elevated, because the recent pullback has failed to reset signs of speculative excess and sentiment extremes.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map March 15

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Updated March 18, pre-market —
— Updated March 16, pre-market —

Stimulus money is now arriving in bank accounts, and this influx may succeed to push the S&P 500 to significant new highs.

I will take this as a sign that a benevolent feedback loop may overcome the potential post-OpEx weakness.

If we should stall below 3960 this week instead, I will make the opposite assumption.

In general, market fragility remains elevated, because the recent pullback has failed to reset signs of speculative excess and sentiment extremes.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map March 8

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Updated March 12, pre-market —
— Updated March 9, pre-market —

The ongoing corrective stock market move continues to take stair steps down. Last week, this pattern accelerated to the downside, while the amplitude of each swing increased — fast drops were followed by massive reversals.

A further normalization of excessive speculation and sentiment is the highest probability scenario going forward, as rising bond yields put increasing pressure on the stock market.

The passing of the US stimulus bill over the weekend may catapult the market into a blow-off rally, however, as more liquidity flushes into the market. I remain skeptical of that scenario, as a sell-the-news outcome looks to be equally likely, especially given the enthusiastic expectations.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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The Meta Strategy ETF Portfolio Newsletter – 03 2021

There is a major position change in the Meta Strategy ETF Portfolios this month.

The stock market is currently working on normalizing speculation and sentiment extremes, which have been building up over the last months.

As this will not happen overnight, I wouldn’t be surprised to see the current correction continuing for some time yet. This would be quite normal in light of the 73% rally we have seen since the lows in March of 2020 (one of the strongest bear market recoveries in history).

The underlying market environment is healthy and sound, which points to a correction as being temporary, even if it should be steep.

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Probability Map March 1

Meta Strategy Derivatives Portfolio – Probability Map Update.

A normalization of excessive speculation and sentiment is the highest probability scenario going forward, as a changing narrative (rising bond yields matter) puts increasing pressure on the stock market.

To be able to flush out the excess, we would need to see a prolonged correction or sideways consolidation over the next month or two.

As corrections often follow similar patterns, I lay out a detailed trading plan in this week’s report.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map February 22

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Updated February 26, pre-market —
— Updated February 25, pre-market —
— Updated February 24, pre-market —
— Updated February 23, pre-market —

This week, I provide an overview of how traders can take advantage of liquidity flows in equity markets that are being driven by the price-insensitive buying and selling of options market makers.

As 35% of SPX gamma exposure expired on Friday, this opens a window of potential weakness beginning this week. I tilted my portfolio exposure short in anticipation of a higher probability for a break of key support.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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Probability Map February 15

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Updated February 17, pre-market —

Short-term probabilities are beginning to tilt in favor of negative returns, because extreme sentiment and excessive speculation continue to build up market fragility. This has been the case for several months now, but last week saw several new indicators flash a warning signal.

A strong correction in the beginning of 2021 is still my highest probability scenario.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

Probability Map February 8

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Updated February 11 (position change) —
— Updated February 10, pre-market —

Mixed signals are the defining feature of the current market. Despite a substantial pullback, signs of excessive speculation have not normalized in the slightest. Quite to the contrary, many sentiment indicators reached fresh extremes even while the market dropped, pointing to a continuation of the excesses that are endangering a long-term recovery.

On the other hand, momentum returned with a vengeance last week, pushing equity indices to fresh all-time highs — such strength carries a message that mustn’t be ignored.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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