Bounce Hard. Now The Test.
Bounce Hard. Now The Test.
My philosophy coming into this week:
Friday post to clients: "At inflection point: Bounce Hard or Trounce Hard.
Bullish bent: VIX crush on Mondays. VIX crush into FOMC. That's usual and customary. Then let's see.
FOMC: No surprise expected. I still expect PAUSE (since March 12th) not higher for longer + that includes Dec 13th mtg.
QRA: No idea if Yellen kicks the can or not. She did. Also said market wouldn't rocket without intervention. Kicking can was intervention rocket fuel.
Earnings Peaked. As for AAPL EPS: no edge, but options expect $180 so #STR as baseline bet has been/is still that mega cap tech/semis rollover into 2024.
November OpEx: Option Flows + Treasury Liquidity matter more than fundamentals or macro but with diminishing returns. Likely retest lows by YE.
Bonds: Still a big bond bear big picture, but moving focus to (rising) Credit Stress and (falling) $DXY.
Inflation: entrenched. Wages: rising. Economic Growth: slowing. Earnings: deteriorating.
Still TREND long, SWING short, CHASE long. Not much has changed!!
Macro EDGE Roundup was released today for EDGE clients.Was Wednesday's Treasury announcement really the bottom for longer-term bonds?
Depends on your timeframe... Craig and I discussed all of this along with how we are trading around the market's reaction.I also posted my thought last night for clients under #macro-to-micro-support: https://laductrading.slack.com/archives/C01GND28N5B/p1698886017292649
With Craig's analysis today: https://laductrading.slack.com/archives/C01GND28N5B/p1698957778529329?thread_ts=1698886017.292649&cid=C01GND28N5B
My Bond Short Timeframe (reposting from yday for emphasis)
As you know, I am A LONG TIME BOND BEAR (over 3 yrs) and think this is but a bounce and nothing but a bounce on Treasury issuance 'relief', bullish projected flows and seasonality, as well as a strong technical consolidation/bounce after 50% drawdown from August 2020 highs.
We've already had a nice rally off key technical support Friday for +3.4% in SPX - right back into the 200D - as well as a softening in 10Y bond yield back below 4.8% (from a high of 5%), but really BOTH THE 10Y AND SPY ARE AT THE SAME EXACT LEVEL AS ONE MONTH AGO.So has anything really changed?
Technically, bouncing into the 200D for SPY is not the hard part. I fully expected to snake around the 200D for a few weeks!
The hard part is getting and staying above the 200D and moving to conviction SWING LONG.
I am not there yet.As with bonds: I still see TLT falling in time into $81 area and see no reason to change that view. (Truthfully, I don't even see why $81 will hold but it's where I have planted my flag for this most recent short from $100 and where I still expect to see it land.)In short my view is that this is a market - for both equities and bonds - to #STR (short the rip).
We are not at capitulation lows yet in my book, where market TREND REVERSES so we then can safely #BTD (buy the dip) for more than a trade.On equities and bonds, they are both still "Guilty until proven Innocent" in my book!
I would add this context offered up by Lawrence McDonald:
(Jeff) Gundlach*, (Bill) Gross, and (Stan) Druck - are all on the same page, hmmm
*RATES SHOULD FALL AS THE US MOVES INTO RECESSION.
I can see that, which is why I am on the lookout for credit stress.
And honestly, that's probably what Yellen tried to avoid doing today by issuing so many Tbills instead of bonds. One adds liquidity. The other doesn't.
We were ready to fall hard if EQUITY AND BOND BULLS DIDN'T DEFEND FRIDAY'S LOWS.
So, we did get intervention Wednesday - hence the "Bounce Hard" propelling us from technically oversold to almost overbought in 4 sessions!!
But yields still need to get/stay below 4.68% on the weekly, and DXY below $105.77, before we can really get excited about chasing the open SPX gap fill on the hourly at $4576!
MOST likely, we back and fill awhile and that means lots to chase long and short from my trading room - like NVDA bounce off $394.50 for $40 or QQQ above $352 for $10 or ROKU this morning for 10%. I would expect SPX $4380 to cap the recent chase advance - likely after the NFP print tomorrow.
But bigger picture, jobless claims are starting to rise - CPI is certainly rising - while weakness in my intermarket tell USD/10Y means we head back to negative real yields soon unwinding much of Powell's work!
And bigger question, is whether this pushing out of treasury issuance will really be equity bullish: "Yeah, loose financial conditions and more liquidity!"
OR 1974-style equity bearish. "Oh no, rising inflation, prices, wages, term premia ... pulling forward recession and job cuts with fewer buyers of Treasury issuance as fiscal deficits rise."
For now, color me skeptical.
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