A bird in the hand

The sentiment paradox.

Not investment advice.

Last week, I said the point of mining and structuring sentiment and positioning data was to build a longitudinal record. This is the first week there are two points, and there’s a story to tell. But first, I want to talk about one of the only shorts initiated in the prior week, as claimed, by a futures trader who front-ran the commentary crowd. The finding reveals value emerges from interrogating the data, not from the data itself. Which is why I have more late nights writing about it than sourcing it.

Back to the short.

A few hours after the Nasdaq rallied on Tuesday post-soft CPI, the author of this Chinese-language Substack began shorting the futures (NQ), into the early hours of Wednesday. He had waited to see whether long-end real rates would confirm the disinflation story. They did not. Despite the fact that it was the sharpest monthly CPI decline since April 2020, long bonds broke out higher, pricing term premium instead of cooling inflation and so breaking the reaction function “weak data → lower rates → tech rallies”. So he shorted the asset most dependent on the broken link: NQ. The first batch at 30,060, its prior high. Then at 30,040.

“Part of the market formed a benign expectation off new data, and prices started to rise — but the market’s real price-setters did not endorse that expectation, and so the price eventually dived.” — 本杰明乌萨奇 (translated)

His nerve broke on Wednesday’s PPI which produced the last bounce at 29,990, and he covered one batch. Then re-shorted at 29,950.