At the end of the day, trading is nothing more than a hypothesis overlayed on randomness that may or may not play out. Even more fun, when a trade fails to play out, your lizard brain blocks all access to your cerebral cortex and higher thinking, almost guaranteeing a loss. If that wasn’t challenging enough, it seems we always have a “soup de jour” of sorts that traders hang on every month. Call it the “issue du jour” – or classic groupthink. 

Right now, the issue is interest rates. But it changes. I remember when we hung on every monthly trade deficit. Then there was the budget deficit. If those issues were so important in the 90s, what the hell does anyone think now? 

And so it goes with interest rates. They have not yet even reached pre-China Virus levels. Anyway, to be successful at this, you have to have perspective and see the game for what it is – a game. You have to play the game better than most other traders.

Of course, there is pressure on rates. But will it be the end of the world if they go to 2%? Really? Ensure the person you are listening to is not a Hedge Fund manager on CNBC who is short and trying to talk the market down. 

History does not bear out that higher rates kill the market, but here we are in the game – so let’s play it. Right now, it is a contest between financials and tech stocks. To make it interesting, we have the cyclicals moving around the periphery. Rates go up, financials – particularly banks – perform well. Rates go down; tech stocks perform well.

Looking at it another way, the NASDAQ 100 rises when rate scares abate; the Dow rises on cyclical prospects, and the Russell 2000 / S&P 500 benefit from the financials. Actually, the S&P 500 gets yanked in every direction.

So we are 50/50 Nasdaq 100 and S&P 500 to work all ends toward the middle, giving an edge to reverse rotation back into tech, at least for the short-term. Then, as the 18-month cycle peaks, we will go back into full correlation again – and we will head for the hills. 

Based in Italy and one of the foremost experts on Hurst Cycles, David Hickson put out a great video on Saturday reviewing the current position of the cycles and the coming 18-month peak. It is a bit technical but worth reviewing for the bigger picture.

Meanwhile, back at the ranch, our latest mix and signals appear to be working well this morning, now that quadruple witching is over. By the way, here is some European humor for you: