Awesome the fact you are committed not a single call on that port. Conviction seems to be key to successfully trading and your conviction has certainly paid off over last several months you were ahead of the game and stuck too it. Have no doubts many of these will work out the same. Congrats man!
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Crude oil is looks to be continuing its decline this morning. If we have seen oil peak (still unconfirmed) this will undoubtedly be referred to as the start of a recession. We also get first Q2 GDP estimates today which could point to a technical recession if GDP comes in negative again.
Q2 Earnings start going full swing here in only 3-4 weeks. As mentioned throughout this thread, we are anticipating weaker financials due to lower demand for most goods and higher costs of labor and other expenses. Should be reflected in earnings as well as Q3-Q4 guidance.
UNLESS we get any indication from the fed that they will be reversing tightening, IMO there is no reason to be bullish for the foreseeable future. The circus is in town again this morning, lets see what J Pow and his friends have to say.
Update:
Treasury yields are swinging down this morning. Quick moves down like this can be an indicator of risk off trading.
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Since Memorial Day weekend, it has been the most crowded in NYC commuting in (trains have been packed). Local restaurants, deli’s, etc. all have had pretty close to normal lines, if not longer somedays. I suspect a short term relief from retail this summer as more and more companies bring back to office a new “norm”-ish again. I can’t tell you how many “workers” are pumped to come back and have been scheduling their company happy hour celebrations left and right. Not enough to support an economy, just a thought on a potentially unexpected relief valve to certain businesses that could lead into some plays here as a short-term “anti”-recession play.
(Apologies if this isn’t the best thread for this post)
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Well, I got my asshole ripped open today. Broke multiple “House” rules that I have spent most of the year working on. I was getting heavy signals in the morning that didn’t realize and over traded. Little disheartening knowing if I would have literally done nothing and trusted my thesis I would have ended the day close to even or even slightly green.
Risk management / Capital preservation is half the battle here, and today I most definitely lost that battle.
Im going to pinpoint the errors I made, learn from them and then move on.
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Powell has been as hawkish as it gets these past few days:
FED’S POWELL: WE HAVEN’T HAD A TEST LIKE THE CURRENT INFLATION SITUATION, THIS REINFORCES OUR DESIRE TO MOVE EXPEDITIOUSLY ON RAISING INTEREST RATES.
FED’S POWELL: I WOULD BE RELUCTANT TO CUT RATES.
FED’S POWELL: WE HAVE UNCONDITIONAL COMMITMENT TO FIGHTING INFLATION.
FED’S POWELL: THE US HAS A VERY STRONG AND WELL RECOVERED ECONOMY.
FED’S POWELL: THE FED WILL TAKE WHATEVER STEPS ARE NECESSARY TO RESTORE PRICE STABILITY.
FED’S POWELL: WE MAY WELL NEED TO SELL MBS AT SOME FUTURE DATE.
(!!!)
You get the point, theres much more.
But….
For the first time in a while, the bond market is rallying instead of accenting Powell’s hawkishness, as it’s done before. Like we’ve talked about before in the thread, Eurodollar curve and interest rate swaps are pricing in a Fed Pivot and now Treasury assets are calling Powell’s bluff. Going to hike till something breaks and then money printer go brrr
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“Rate-hike expectations edged down as investors priced in a higher probability of softer Fed moves in the months ahead. Markets now expect a rate cut in the second half of next year.”
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Interesting article on Bloomberg talking about the lack of “fear” with this current market.
Some interesting snippits:
“Not enough investors have been panicking and buying short-term protection puts, which would drive the VIX index much higher,” said Edmund Shing, BNP Paribas Wealth Management’s chief investment officer.
In fact, this year the VIX hasn’t broken the key level of 40, which many experts see as peak fear signal. It jumped to twice that level early in the pandemic and during the credit crisis of 2008.
The current market more closely resembles the one that followed the dot-com collapse, another period when stock valuations slid from what many considered unsustainable highs. The VIX currently implies a 2% daily move in the S&P 500, according to Talal Dehbi, senior sales and quantitative strategist at PrismFP.
Providing a 3rd party archive site since Bloomberg has a paywall.
or
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Gotta give props to Walter Bloomberg on this one for this coming weeks data releases. Seems pretty solid in my opinion
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“Not enough investors have been panicking and buying short-term protection puts, which would drive the VIX index much higher,” said Edmund Shing, BNP Paribas Wealth Management’s chief investment officer.
On this idea I saw some Twitter chatter that suggested that ‘smart money’ is hedging by being cash heavy, rather than buying puts, to explain the lack of VIX spike. It’s Twitter so take that with a grain of salt but it checks out if true.
For example all the big banks with their “SPX 3600” “SPX 3300” etc. price targets. If they have these price targets they should be hedging with puts, right? Seemingly not. Then it must be cash… Idk
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Could also be playing long-end treasuries while SPX bottoms out as a curve inversion/recession play in the meantime. Treasuries have been rallying all this week due to recession fears
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So I did a thing…
Using data from here to get EPS:
From here for Dividend yield:
And from here to get BBB corporate yields:
I did some nerd API thingies and made a google sheet:
https://docs.google.com/spreadsheets/d/1Gyona9-39nARBmy7ol2gB0E0muU8UME6KQGJoqO3x_g/edit#gid=0
Hopefully I did everything right and the data should update (I have no idea what I’m doing but let’s see lol). The only live data on Sheet 1 is the current implied price of SPX which is in the first row, then all the data (in order, Dividend yield, BBB corporate yield, and EPS) in Sheet 2 should be live. Fingers crossed nothing breaks lol.
Basing off of this:
https://twitter.com/mrblonde_macro/status/1536539866795630592
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There’s a convexity element to VIX that I think explains why we haven’t seen big spikes and movement, or in general like we did earlier in the year. The current bear trend that we are in has been a choppy slow decline. The convexity element comes from the IV behind the option contracts. For a big spike in VIX (40+) you need a big move in shorter duration, but work your way back and its always at play to some extent. I still watch VIX daily as an indicator, but this is why I stopped playing VIX options.
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https://www.reuters.com/markets/us/dollar-stumbles-rate-path-fuels-recession-worries-2022-06-24/
Forex starting to price in recession
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I know it has been talked about on TF and silimilar charts have been shared but I thought this was a cool visual showing bear market rallies and how historically they are pretty common and usually pretty violent.
The biggest challenge is getting out of the way of these things. Im personally working on being more patient and letting a reversal confirm fully. If that happens Im thinking of playing scalps (on quick decline days) and 4 month+ strikes on spy only and leave the swing trades to individual names as these has been my highest win rate trades this year. I think this will help if we see a slow bleed out again. I noticed my worst trades this year have been from playing short swings on spy.
Cash is going to be my friend heading into this week. Planning on just hibernating on green days and focus fully on the opportunities where I have the best probability of success, again, waiting for a reversal to show some confidence first. Lots of data coming out this week so paying close attention to potential catalysts.
Hope everyone has a great week.
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https://twitter.com/goldstocktrades/status/1541015457494437888
Hopefully, this gets factored into the CPI in the coming months.
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Thanks @Haplo, will be watching if commodities recover from last week’s sell off. As MacroAlf mentioned on his podcast yesterday, if commodities continue to sell off with no real change on the supply side, it will point to demand destruction. Appreciate your posts my dude.
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I’ve been wondering about the record amount of cash banks have sitting in repo - my understanding (grain of salt here) is that banks essentially had to hold this cash to pass the stress test.
So I think their decision on what to do with that cash is a big ? - dividends/share purchases if they don’t fear recession, but if they do think recession is base case I guess it either stays in repo or gets spread among short positions.
Not very sure of the details here but this was one of the theories I saw for a potential melt up after FOMC, and might also help explain an overall lack of hedging thus far.
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Problem is I’m not entirely sure they can. They have regulatory restrictions that prevent them from moving their reserves into any assets that don’t qualify under Basel 3 (they can, however, participate in repo market with their reserves):
And it’s not like bank reserves are at an all time high, they’ve been steadily declining since October/November, and will continue to decline through QT as the Fed slowly unloads their assets, which would bring down their liabilities (reserves) as well:
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