KOSPI panic and the MXN blowoff, now it’s time to reassess/wait

Stocks

It is tempting to play for the end of the selloff in stocks as bitcoin looks well-supported, KOSPI has collapsed, and U.S. equity markets remain rangebound. Any visibility on the end of the war in Iran will certainly lead to a rip-roaring rally, but for now I am neutral. I don’t think we have the makings of a return to new all-time highs as long as this rally in crude oil continues. Don’t forget we were already in the midst of an AI rethink pre-Iran War. The NASDAQ is unchanged over the past six months. We were not really in a full-on bull market, even before this potential adverse shock.

In case you missed it, the KOSPI bubblette has now burst. I covered my short KORU overnight as the target was reached, and I think the short Korea trade is over. All the signs of retail debauchery were there, and now it has popped.

I have no urge to flip long Korea, but I don’t think there is any point in rushing to sell a rally, either. When bubbles like this pop, you usually get a long period of consolidation and there are better things to trade. Similar to what we’ve seen post the pop of the retail silver bubble. If you have a way to sell KOSPI vol with limited downside, that is probably the trade. I might look to sell EWY strangles when the market opens.

The FX markets are confirming that the worst of the initial panic on the oil move is done. USDMXN rallied right into the major resistance zone at 17.83/17.86 outlined yesterday and has now calmed. 17.8770 was the high, so my TP got done on the long trade and again, I am in no rush to reload or fade. 17.86 is the old support from early January, 17.83 is the last high before the dump, and the top of the daily cloud is 17.88, which was exactly yesterday’s high. 17.83/88 is confirmed as a huge zone. Dip buyers have quickly emerged at the bottom of the cloud (17.57) and we are probably in consolidation mode in USDMXN too.

It’s a boring view, but I think G10 FX also consolidates from here. EURUSD flipped from max overbought after the Trump USD down comments to max oversold on the Iran story yesterday and now we are something close to equilibrium.

Bitcoin

The relative strength in crypto is interesting as we got a full position washout over the past two days in everything from KOSPI, GBPUSD, MXN, gold, silver, etc. and bitcoin remained well bid at 65k-66k. That’s a pretty clear indication that crypto positioning is clean and all the leveraged longs are out. I am not sure that means we need to go substantially higher; it probably argues for selling straddles there too. Given the gigantic divergence that has opened up between BTC and NQ over the past few months, it’s hard to tell what is noise at this point.

Looking at a normal bitcoin chart, you can see that there was a prolonged period of equilibrium 53000/74000 until the U.S. election triggered a breakout. The new zone was 74000/125000 and now we might be back in the old zone and therefore I would watch 74,000 as major resistance from here.

The crypto-friendly government trade didn’t work and it would make sense to me that 53000/74000 defines the price action for a while as volatility and levels of interest remain low.

Final thoughts

1. To be clear on my views here: I think we are in a consolidation mode. I do not think we are going to just rip back to all time highs in all risky assets. As long as oil sticks around here, we range trade. Oil above $100 is probably the panic point for risky assets.
2. TTWO traded very well through the Citrini and the Iran War selloffs.
3. AVGO earnings tonight will be interesting. NVDA beat and dropped. The price action relative to the release is more interesting to me than the earnings release itself.
4. It’s OK to be flat sometimes.