Buzz on the Street: Investors Prepare for Fed Announcement After Volatile Week
A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.
Get your FOMC statement here.... read all about it!! That would have been your first reaction to the Hilsenrath article yesterday that said the Fed was unlikely to make the moves the market was implying at next Wednesday's FOMC meeting, especially given the recent data trends. The Fed may be looking to taper or talk down markets, but it's not due to data, that's for sure.
If there's one thing you can take away from the last three weeks of activity in the Treasury market... the flow of purchases from the Fed has absolutely zero effect on the movement of rates both up and down. All about expectations.
TIPS doing great this morning across all points on the curve. This is a major point that should be made. The whole way down TIPS led the selloff, which is the inverse of what you'd normally expect. If that logic, which took over for the past three weeks, is any guide, these should be a tailwind for Treasuries if they head higher, rather than in normal times where they would underperform. We irrationally sold off, erasing all of the inflation expectations built in from QE3 and QE2, and now we'll probably irrationally revert back to the old area. Just saying. I'm not playing this trade, but a 1.5x TIP long vs TLT short would be a good trade to take advantage of this widening in breakeven rates over the next two weeks.
With Tuesday's trend ending day in Treasuries looking solid (as Prof Zucchi and I both pointed out, Prof Cooper also offered the "other side" of that move with the possible reversal of a reversal) it's looking like we see higher prices from here. I prefer 5's 7's or 10's on the way up (FV or TY future, IEF ETF) and think 30's will underperform (US or WN future, TLT ETF) so a bullish steepener with 2.5x/1 or 3x/1 positioning could be in order. Though, I'm sure I'm not the only person on the planet thinking about that kind of trade so keep that in mind.
Given the now confirmation of positively trending PPI data from the month of May, this should translate into better CPI figures in June. Additionally, I think manufacturing will turn up in June and should be a drag on any Treasury rallies as growth expectations improve.
I've been beating the negative repo horse a lot, and to prove that I'm not crazy, repo fails to deliver for the 10-year in the week ending June 5th rose to $33.5b from $468m the week prior. The thinking was that the $21b re-opening of 10-years on Wednesday would help the supply issue, but at the best unless we see shorts cover or more longs added, it's not going to be until next month that it works itself out. Also, if you are short UST's, be wary of a Fed/Treasury notice to large holders to report position sizes now that they've seen the market disruptions, and it should cause a covering rally.
On the equity side, be aware that the S&P e-mini (ES) contract started rolling yesterday from the June to September contract. And it kind of seems like the irrationality of bonds and stocks going up together has returned.
Closed end bond funds doing better again today and I added and brought my credit position to full (along with a full muni position). Not looking so much for beta gains here, but discounts of 5%-8% to NAV and 4%-6% vs historical NAV is appetizing for me. My time horizon for these investments is three months and then I will reassess.
T-Rex In The Ointment
Bullishly, the S&P left an outside up day on Thursday as, remarkably, the index carved out the FIRST turndown in the 3-Day Chart in 2013.
In other words, yesterday was the first time the S&P showed 3 consecutive lower intraday lows this year.
When the index went 'into the position' early Thursday morning, it didn't stay there long -- the ensuing rally left an outside up day.
All systems go, right?
The T-Rex in the ointment may be that now the S&P has carved out the first Minus One/Plus Two sell setup in 2013.
This is because the 3-day chart is pointing down and the index has 2 consecutive higher daily highs (the + 2 part of the strategy).This occurred because yesterday two-plotted, meaning the outside day up was the first higher daily high (following the turn down on the 3-Day Chart in the morning) and this morning shows a higher intraday high than Thursday.
In addition, the Minus One/Plus Two sell pattern is a potential Holy Grail sell as it is occurring on a test of the overhead 20-day moving average.
Click to enlarge
Eyes of the World
I was supposed to hit PT today at 1 p.m. -- their last appointment on a Friday -- but I blew that off to ride the tide with ye faithful through the end of the week. And by "blew that off," I mean that I'll do solo PT after the market closes today; as I've said in the past, I'm "on the program," which means PT every day, without fail.
Some top-line observations:
As go the piggies, so goes the poke; the banks were my catalyst to add to my short SPY position this morning and they've led the tape lower (KBW Bank Index (INDEXDJX:BKX) -1.6% vs. S&P -.6%).
Market breadth on the big board is 16:13 (negative) while the Nazz is 2:1 negative.
Does anyone else find it nuts that we're already bumping up against the 4th of July?
I'm offering another 5% of my SPY December put position out there, as a function of discipline. (I'm currently at 65%, after adding 25% this morning and peeling out of 10% into the slippage, not including this current offer). Aaannd just got lifted on that offer.
Remember "The Fed only only has so many bullets and the last one will be pointed inward?" I wonder what will happen if Big Ben is dovish next week and the market doesn't care? I have no edge here; just thinking out loud. I think it's safe to assume Mr. Bernanke will be a dove.
Those trend channels are nutty, eh? Through objective eyes, competing patterns typically resolve in the direction of the larger pattern (in this case, higher) but I'll trade 'em in the band until they stop working.
Goldman Sachs Group Inc (NYSE:GS). LOD (Low of Day)
In a perfect world, I'll be IN-N-OUT on my intraday exposure as I trade around my defined risk core. The world is far from perfect, so we'll trade 'em as a function of time and price.
Thank you; seriously. That goes to the team (Michael, Michael & the squad), and those of you who spend your sessions with us. What a long strange trip it's been!
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