The opinions expressed in this report are those of Inspirante Trading Solutions Pte Ltd (“ITS”) and are considered market commentary. They are not intended to act as investment recommendations. Full disclaimers are available at the end of this report.

Executive Summary

In the 2024 January 17 report, Inspirante Trading Solutions underscores the necessity of open-mindedness and disciplined risk management in a climate of ambiguity, exploring the opportunities presented by relative value trades.

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Upcoming economic events (Singapore Local Time):






China GDP (Q4) and Retail Sales (Dec)



U.S. Retail Sales (Dec)



U.S. Michigan Consumer Sentiment Index (Jan)



BoJ Interest Rate Decision



ECB Interest Rate Decision



Japan Tokyo CPI (Jan)



U.S. Core PCE (Dec)


Investors continue to pay attention to the Bank of Japan (BoJ) to gauge if and when BOJ will make policy adjustments in 2024.

Markets in focus

Figure 1: E-mini Nasdaq futures vs. liquidity measure

A key indicator of market liquidity is the Federal Reserve's balance sheet adjusted for the Treasury General Account (TGA) and the Reverse Repo Facility (RRP). Since late 2020, the U.S. equity market, notably the Nasdaq-100 Index, has been closely aligned with these liquidity metrics. However, the Nasdaq-100 has recently shown a notable divergence from the underlying liquidity trends.

Figure 2: Nasdaq / Russell 2000 Index ratio (Monthly)

The recent surge in the Nasdaq-100 Index has propelled it to unprecedented highs and established a historic outperformance relative to small-cap stocks, as exemplified by the Russell 2000 Index. This margin of outperformance now eclipses the peaks observed during the dot-com era, when the ratio went to as high as 8.3.

Figure 3: E-mini Russell 2000 Index futures

In contrast to large-cap indices, the Russell 2000 Index has been oscillating within a horizontal range since 2022. Recently, it has shown tentative signs of a breakout, though this potential shift remains to be conclusively validated.

Figure 4: Henry Hub Natural Gas futures

Natural Gas has experienced a significant rally, surging over 50% from its December 2023 low. This movement suggests the culmination of a twelve-month bottoming process, signaling a potential reversal in its longer-term trajectory.

Figure 5: Heating Oil futures

Heating Oil has displayed a three-month consolidation pattern, identifiable as a bull flag formation. The recent breakout from this pattern warrants close observation, particularly as it aligns with reversal patterns observed across the broader energy sector.

Our market views

As we concluded 2023, we underscored the necessity of an open-minded approach, bracing for a broad spectrum of outcomes. This philosophy, indeed, will be a recurring motif throughout 2024. The financial markets are expected to present a kaleidoscope of signals, occasionally polarizing. In such a climate of ambiguity, we believe, lies the cradle of significant opportunities. These are ripe for the taking by those who possess a combination of open-mindedness, humility, and disciplined risk management. As the adage wisely suggests, "Strong opinions, weakly held."

Inflation remains a central concern regardless of one's overarching perspective for 2024. It continues to be the fulcrum of economic dynamics, particularly as central bank policies hinge on the inflation trajectory. Should data indicate its persistence, or unforeseen events disrupt global supply chains again, we might witness a swift re-pricing of rate cut expectations. The Federal Reserve, with the inflationary episodes of the 1960s to 1980s still echoing, is keen to forestall a resurgence of inflation, potentially more tenacious than its predecessor.

Adding to this intricate landscape is the fact that 2024 marks a U.S. election year, historically characterized by noticeable effects on equity markets. The incumbent party will naturally strive for low inflation and unemployment. It's plausible that a recession will be averted, at least until the election concludes. The U.S. equity market, particularly the "Magnificent Seven" tech giants, appears overstretched by liquidity measures. Instead of trying to outright short the equity market, we prefer relative value trades between indices or sectors, which offer a more balanced and attractive risk-reward profile. Interestingly, when constructed correctly, such trades can be effective under vastly different scenarios. For instance, expressing a view on the convergence between major tech companies and small caps could materialize in two ways: a "nice" scenario where an economic goldilocks situation prevails and growth re-accelerates, resulting in the small caps catching up with the big caps, or a "nasty" scenario involving a severe recession or inflation resurgence that pressures the broader market, causing the tech darlings to "catch down" with the small caps.

We are keeping a close eye on the commodity market, especially energy, the other side of the inflation story. From a technical perspective, despite a lackluster performance since late 2022, key energy commodities like crude oil, gasoline, heating oil and natural gas have all held their long-term support levels, hinting at potential reversals. A changing geopolitical situation in the Middle East may incline some investors towards an energy position designed to hedge both exogenous shocks and a possible resurgence of inflation.

How do we express our views?

We consider expressing our views via the following hypothetical trades1:

Case study 1: Short Nasdaq/Russell 2000 Index ratio spread

We would consider taking a hypothetical short position on the Nasdaq/Russell 2000 Index ratio by selling 1 Micro E-mini Nasdaq 100 Index futures contract (MNQH4) at the current level of 16970, and buying 3 Micro E-mini Russell 2000 Index futures contracts (M2KH4) at the current level of 1964, with a ratio of 8.64 (=16970 / 1964). We would place the stop-loss above 9.64 for a maximum potential loss of 1 point. Each point move in the micro E-mini Nasdaq 100 futures contract is 2 USD, and each point move in the micro E-mini Russell 2000 Index futures contract is 5 USD. Both legs have similar notional values (Nasdaq:16970 x 2 x 1 = 33940 USD; Russell: 1964 x 5 x 3 = 29460 USD). We can look at two hypothetical scenarios to understand the approximate dollar amount of a point move in the ratio. Assuming the Russell 2000 Index stays unchanged, and the Nasdaq 100 Index drops to 15000, the ratio becomes 15000 / 1964 = 7.64. The overall profit, which only comes from the Nasdaq position in this case, is (16970 – 15000) x 2 = 3940 USD. Assuming the Nasdaq 100 Index stays unchanged, and the Russell 2000 Index rallies to 2200, the ratio becomes 16970 / 2200 = 7.71. The overall profit, which comes from the Russell position in this case, is (2200 – 1964) x 5 x 3 = 3540 USD. There is margin offset for Nasdaq/Russell 2000 Index ratio spreads.

Case study 2: Long heating oil futures

We would consider taking a short position on the N.Y. Harbour ULSD Heating Oil futures contract (HOH4) at the current level of 2.62, with a stop-loss below 2.50, which could bring us a hypothetical maximum loss of 2.62 – 2.50 = 0.12 points. Looking at Figure 5, if the breakout is confirmed, Heating Oil has the potential to climb to 3.00, a hypothetical gain of 3.00 – 2.62 = 0.38 points. Each Heating Oil futures contract represents 42000 gallons, and each point move is 42000 USD.

1 Examples cited above are for illustration only and shall not be construed as investment recommendations or advice. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Please refer to full disclaimers at the end of the commentary.


The opinions and statements contained in the commentary on this page do not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs. This content has been produced by Inspirante Trading Solutions Pte Ltd (“ITS”). CME Group has not had any input into the content and neither CME Group nor its affiliates shall be responsible or liable for the same.



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