I didn’t plan on going to 100% cash. But the signals don’t care about my plans.
Gold.. the last position standing, flipped risk-off today. By close if that confirms (99% chance as of this writing), I’ll be fully out. Equities were already gone. Bitcoin teased a long at $76K and dumped back to the high $60s. The FOMC came in hawkish.. and not just “no cuts” hawkish.
Rate hikes are now showing up on the board at 12.5% probability.
Read that again.
Rate hikes are now showing up on the board at 12.5% probability.
Meanwhile, I spent the last week locked in this room rebuilding my entire portfolio strategy from scratch. New allocation. New overlay system. New backtests. Everything confirmed by the numbers.
Let’s get into it.
Situation Report: What You Need to Know
Macro Regime Engine remains firmly Risk Off. Bullish votes down to 16 vs 23 bearish. Nearly zero bullish signals across the internal asset panels..
Gold flipped risk-off as of today. I’m closing my gold and GDX positions by end of day and moving to 100% cash (USFR).
Bitcoin teased a long signal at $76K before dumping back to the high $60s. Still making higher lows. The 8th Rule oscillator was close to turning green.. it won’t take much for a confirmed entry if price action cooperates.
FOMC was clearly hawkish. No cut. Dot plots revised upward. Rate hikes now showing 12.5% probability for next meeting. By June, a 50bp hike is on the board at 0.8%. By December, 50/50 odds rates don’t move at all.
PPI blew out expectations month-over-month. Inflation is back on the table.
Portfolio YTD: Down ~3% (300 bps). GDX got crushed.. down 25% from my $106 entry. Capital preservation mode activated.
Major strategy change: Switching from 60/20/20 to 50/25/25 (equities/BTC/gold) with a vol-targeted 1.5x margin overlay on the equity sleeve. Backtested. Verified. Better Calmar ratio by a significant margin.
I’ll be releasing an entirely separate deep dive on this, all the backtests, reasoning & results early next week.
The Signal: Still Risk Off.. And Now Everything Is Red
The Macro Regime Engine isn’t budging. 16 bullish votes. 23 bearish. And when I pulled up the internals this week, the individual asset panels that feed into the engine.. it was grim.
Out of eight assets on the panel, there are literally no bullish votes. The only exception is the MOVE Index still technically giving one Goldilocks signal, and even that feels generous given bond vol is elevated and trending the wrong direction.
This is what the engine sees under the hood. This is why it’s giving the signal it’s giving. The rot isn’t just in equities (NKY for example is still technically in a bullish uptrend).. it’s in the deeper macro layer: inflation expectations, commodities, oil, the Dollar breakout, bond volatility, VIX sustained above 26.
The stress dashboard confirms it. SOFR/Fed Funds spread is back in negative territory (good.. liquidity plumbing is okay), but VIX is sustaining over 20, the Dollar has broken out bullish, and the MOVE Index is back above 80.
And then there’s gold. The last position I was holding. The indicator has gone clearly risk-off. Unless we get an insane rally today (unlikely), I’m closing out gold and GDX by end of day and sitting in 100% cash.
It is what it is. We follow the signals. If gold continues to $3,500, I don’t want to be sitting long into that trend.
Bitcoin Trend: Bearish, But Higher Lows Are Building
Bitcoin faked me out this week. When price pushed up to $76K, the 8th Rule oscillator was just about to turn green. I was preparing for a 25% entry position.
Then we dumped. Back down into the high $60s.
But here’s the positive note: we’re continually making higher lows. The structure underneath is solidifying. It won’t take much for the oscillator to flip if we put in another higher low here. If and when it does, Substack subscribers will get the signal immediately.
For now: no position. Cash. Waiting.
The Data: Inflation Returns and the Fed Goes Full Hawk
This was the week inflation came back from the dead.
PPI month-over-month blew out expectations. That was the headline. The theme all week was inflation re-acceleration.. exactly the kind of environment where the engine’s deeper macro inputs would flip bearish.
The only mild positives: unemployment claims came in higher (labor softening), and Philly Fed ticked up. Empire State manufacturing was a big miss, but those regional surveys are noisy enough that I don’t put much weight on them.
The main event was the FOMC. Clearly hawkish. No rate cut, which was expected. But the dot plots were revised upward across the board. And when you pull up the FedWatch tool, the picture is startling:
Next meeting: 87% chance of no change.. but a 12.4% chance of a rate HIKE. Not a cut. A hike.
June: 1% probability of a 50bp hike. The fact that this is even registering should get your attention.
December: Roughly 50/50 odds that rates don’t move at all for the rest of the year.
The macro regime engine flagged all of this before FOMC. More than a week & a half before, actually. That’s the system working as intended.
TGA: Nothing notable. Still elevated at roughly the same level. Tax refund season approaching, which will keep it sitting there.
On-chain data:
The most interesting development this week was the long-term holder / short-term holder divergence. Short-term holders peaked their accumulation at $90K, thinking we were going back to $100-120K. We did the exact opposite. Now they’re puking at the lows while long-term holders are quietly picking up coins at these prices.
That’s textbook. Smart money accumulating, weak hands capitulating. Retail demand still in the dumps. Adjusted MVRV approaching cycle bottom levels but not there yet.
Tweets worth noting:
QuantData21 flagged that good things happen for Bitcoin when DXY is below 100.. I agree with the thesis, but DXY has actually broken out bullish at this point, so take it with a grain of salt until that reverses.
Frank posted the STH MVRV 155-day MA rejection, which has been playing out cleanly since we topped at $126K. Another data point confirming the bearish trend.
The Rebuild: From 60/20/20 to 50/25/25
This is what I spent the last week building. No sleep. Just code, backtests, and optimization runs.
The problem: I’ve been running a 60/20/20 portfolio (60% equities, 20% Bitcoin, 20% gold) with a 3-5% options sleeve. When I ran the full portfolio backtest, this allocation had the lowest Calmar ratio by a significant margin.
The solution: I built a new Python-based VATS engine (v2 with adaptive weighting) that can run independently outside of TradingView. When overlaid on the Macro Regime Engine as a position-sizing and trend gate for the equity sleeve, it significantly improved results going back to 2004. Calmar ratio of 0.53 on the SPX sleeve alone.
Then I ran the full portfolio optimization across multiple allocation scenarios. The clear winner: 50/25/25 with the options sleeve included.
Yes, there’s a portfolio with higher raw annual returns (the yellow line). But it also has the most significant drawdowns, which goes directly against the thesis. I’m optimizing for Calmar.. return per unit of pain, not raw return.
The margin component: The 50% equity sleeve assumes 1.5x leverage (borrowing half the position on margin via my broker). Backtests confirm 1.5x is the optimal max that keeps drawdown in line. If you don’t have margin availability, running 50/25/25 at 1x is totally fine, nearly identical returns, just slightly lower annual percentage.
Sleeve attribution for the optimal portfolio:
Equities: Hard-gated VATS overlay on MRE signals
Bitcoin: The 8th Rule (raw indicator trades)
Gold: GVTS signals
Options: Modeled using historical VIX data and Black-Scholes pricing
The timing is perfect. By end of day, I’ll be sitting in 100% cash. When risk-on returns, the new allocation deploys immediately at 50/25/25.
I’m also working on adding this to the members area of DurdenBTC.com. It’s not live yet.. for now, signal changes will come via Python chart output shared on Substack.
Final Thoughts
I’m sitting in 100% cash for the first time since launching this channel. Down 3% on the year. Not great, not catastrophic.
The FOMC went full hawk. Rate hikes are back on the board. Gold broke. Equities are still sliding. Bitcoin teased and faded. Every signal I track is red except one lagging MOVE vote that probably shouldn’t even count.
And I spent the last week rebuilding the portfolio engine from the ground up because I refuse to stop compounding the edge. The 60/20/20 was suboptimal. The data proved it. So I changed it. That’s the whole ethos.
I’m ready for six months of sitting in cash if that’s what happens. But I’m also watching Bitcoin closely, because the higher low structure is building and a long signal could come faster than people expect. If it fires, you’ll know before anyone.
The systems work. The discipline doesn’t waver. That’s all there is to it.
For this weeks full video breakdown:
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— Durden out.
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