Yesterday on Talking Markets we were joined for an absolute masterclass by Michele 'Mish' Schneider, Chief Strategist at MarketGauge.com. In this current environment, we could really do with talking to her every day…
ENERGY
At MarketGauge, they’ve been long oil for some time - long before the war broke out. But what Mish actually prefers right now in terms of risk-reward in the energy sector is Nat Gas. “I’ve been in and out of that so many times, but established a new position in there today through BOIL [the leveraged ETF].”
Here’s why Mish likes natural gas:
While crude oil has made an enormous move, Nat Gas has “really just been basing out.”
While Nat Gas spiked and then retreated when the war first broke out, it’s now “clearing the 50-day moving average, so this is a really good risk-reward - better than the oil market,” Mish said.
“As we’re going through all of these gyrations, Nat Gas, which we do have a lot of here in the US, is something people will turn to,” she added, including to help with the AI data center buildout.
But given that Nat Gas is known as the Widowmaker trade, best to be very careful with your position sizing, Mish said.
TRADING COMMODITIES 101
As most people reading this probably know, trading commodities isn’t for the faint of heart because there’s such a high potential for things to mean revert.
Here’s an example of how Mish does it:
“What happened with Nat Gas [yesterday] is it opened higher. BOIL had a gap. So when there’s a gap, generally you want to look at the long side. So do you buy a 2-minute, 5-minute, or 30-minute breakout? Or do you wait for the first 30-minute low to be tested, which is what I did today? And then when it gets back through that opening range low, you buy it and you have such a tight risk. And that’s really how you have to trade commodities at this point when they’re so volatile. Options may be another way, but options are so volatile right now.
Even the smartest commodity traders that I knew on the floor got caught up in opinions and volatility and got wiped out. So you have to really respect and understand what you’re doing.”
And if you’re just dipping your toes in the commodity space, Mish said “you may want to look at things that are a little tamer, [like] DBC, and DBA. DBA is not a volatile instrument. It’s great for a beginner - that’s why ETFs are so interesting to me.“
💡“Commodities are extremely under-owned in people’s portfolios,” Mish said. “Gold and silver had to go 50% higher before you even saw a story in mainstream media. And now, of course, oil is the big buzz in mainstream media.”
MISH’S TRIFECTA OF INFLATION
Gold-Silver Ratio
The ratio is currently showing inflation signs. It had been starting to favor silver, which is why Mish went long silver after she had been in gold for so long. “Now it’s kind of in a range again, and that’s why we’re seeing consolidation in gold and silver, and it’s not really participating, but that doesn’t mean it won’t,” she said. “Right now, 56 was the recent low in that ratio, and it got up to 64. There’s your range. If it gets through 64, that probably means not only that it favors gold, but I wouldn’t necessarily be so bullish in either metal at that point. If it breaks down under 56, then I would probably wind up being a buyer of silver, and I would probably guess that silver would be over $90 an ounce.”
The Dollar:
The dollar is “kind of frustrating because it’s getting a bid,” but DXY is in another trading range, between 97 and 101, Mish said. “It’s just sitting there.” She said she’d have to see it come down below 97 before she got concerned about a commodity super cycle and the traditionally high prices it brings.
Sugar:
Mish told us back in November that sugar is her “social unrest barometer, my inflation barometer.” Back then, it was trying to bottom. But yesterday, it broke out of its 50 day moving average.
ECONOMIC MODERN FAMILY UPDATE
🪢You can subscribe to Mish’s Economic Modern Family YouTube channel here.
“Grandpa Russell”: “While SPY was making new highs, and the Qs made a new high momentarily, the Russell [IWM] made a new high and then couldn’t get back up there,” Mish said.
Granny Retail [XRT] “made the biggest signal because it hasn’t even been able to get up to 2021 highs, even though it took out the 2026 highs for a minute.”
Transportation (IYT) “sent a signal because it made new all-time highs and then immediately failed.”
Regional banks (KRE) “are going to be really sensitive to all the stories we’re seeing now about private credit, which is concerning. People are poo-pooing it as no big deal but it is a big deal.”
The signals from the Economic Modern Family were “my first clue that it was time to be really cautious about equities,” Mish said. “I have very few equities.” She added that if QQQ gives it up, “we’re going to have a big sell-off.”
Amongst other things, Mish is currently:
Long DBA
Long soybeans
Long silver
MarketGauge’s quant models “have been long a lot of the memory stocks, like Micron, ASML, Intel, but I wouldn’t be buying them now,” Mish said.
3 KEY THINGS
Mish wrapped up the session with 3 key things she’s following outside of the commodity space:
She flagged that Vinay Prasad has exited the FDA’s Center for Biologics Evaluation and Research. “He was blocking every single patent with all the new stuff they’re doing with antibodies,” Mish said. “Replimune being one, ADCT being another. All of those biotech stocks shot up [yesterday]. So I really feel strongly about biotech, especially biotech with companies working on antibodies.”
In crypto, she said “we’re having a major consolidation in Bitcoin and Ethereum,” adding: “We have been long BMNR.”
On solar, Mish said “it fell out of favor” with people, but she thinks it looks good - and likes Solar Edge, loves Rivian, and would like First Solar if it gets over 200.
AND FINALLY… LONG BONDS
Yes, you read that right. Long bonds has to be one of the most hated trades right now, but Mish is never afraid to stand apart from the crowd (one of the many reasons we love her).
“People are like ‘they’re going to have to raise rates and nobody wants our bonds’ and blah blah blah, but I’ve been around the block a few times to know that if the Fed is given a choice between saving the economy by trying to lower rates and stimulate borrowing, versus what they’re going to consider to be a short-lived scenario with geopolitics, they’re going to go for saving the economy,” Mish said.
The trade? Our old friend TLT:
Mish said that TLT broke down yesterday under the 50 and 200 day moving averages, but Mish thinks it’s fine unless it breaks under recent lows. “If it starts coming back and you get a monthly close over 90, that means money is finally going to be back to the safety play,” she said. “And that’s not a good sign for the market, for equities, or for the economy. But it could be a really good trade. I’m not saying run in right now, but believe me, I’m watching like a hawk.”
Thank you Michael Grynsztejn, Joseph Battelle, Marvin Gardens, Darren, Ali Von, and many others for tuning in live!
Stay tuned later today for a special edition of For the Record with Center15 Capital founder Ian Winer. And we’ll be back Talking Markets on Friday with Coach Dale.
Important Disclaimer: It is crucial to remember that this article is for informational purposes only and should not be considered investment advice. Consult with a qualified financial advisor to assess your risk tolerance, investment goals, and overall financial plan.
