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Inflation Proxy StablizingDoubleLine's Jeff Gundlach often refers to the copper/gold ratio as a proxy for U.S. yields. Although this is comprised of two commodities that tend to do well in rising inflation, it can be seen as a growth proxy as well, which in turn filters into where yields are moving. Market participants often allocate to copper when growth is trending higher and, conversely, gold when growth is muted. We currently have a record net-short positioning on copper which could suggest yields may move higher.
TVC:US10YEducation
by TheMacroStrategist
S&P 500 Next Week Expected Move ($45) and Gravity PointsLeaning slightly bullish due to the weight of the evidence but there are too many binary events coming up in the coming week that could throw off my thesis. Plus we rallied so strongly the last 3 weeks that I wouldn't discount the fact that the market might just consolidate while it waits for the G20 meeting. Blew through last week's expected move ($41) and had a $63 gain on the week. This next week the options market is pricing in a $45 move higher or $45 lower, nondirectional. Amazingly, for the first time in 18 months I have no Gravity Points lurking above us to target. They have served me very well and I hope they have for you. I will continue to locate Gravity Points going forward as we make them. Many significant things occurred this week. I'll list those I'm aware of: (Negative) - Economic data is now definitively weakening - shown by the Empire Manufacturing Data and several others (Positive) - The Dollar; $DXY, $UUP is on the brink of breaking down (Neutral) - Most interestingly; $GOLD, $GLD is breaking out of a 5 year base which adds to the bearish case on the USD (Neutral) - I think Small Caps $IWM might turn the corner and start leading relatively soon here, the ratio between the $IWM and the $DIA is at the low end of its historical range, however my two favorite market leading indicators the IWM and DJT weekly charts failed at the moving averages and is nowhere near all time highs which is bearish. (Positive) - Market Sentiment is very neutral, which is odd given that we are making new all time highs and a positive omen going forward (Positive) - Copper is staging a bullish reversal which is a relief for foreign equities (Positive) - OIL; $USOIL is staging a bullish reversal which is also bullish (Neutral) - Quadruple Witching occurred this week which means there's a lot of rebalancing going on (Negative) - The $VVIX and $VIX are both back to considerably low levels (Neutral) - The correlation between bonds and stocks is very high and unsustainable; typically I trust the debt market over the equity market but not this time (Positive) - Bonds; $TLT created a significant bearish divergence after rallying for nearly 20% in 6 months (Positive) - Related to the TLT, the $TNX had a capitulation low at 1.95. Now that the FOMC is out of the way, I think bonds will stop advancing in the near term. Scorecard: Bullish - 6 Neutral - 4 Bearish - 2 Last Week's Post: I'm not sure if this makes any difference for getting this post out there or not but I'm going to try it out anyways. Don't know how the system works. $SPY SPY $ES1! ES1! $SPX SPX $DIA DIA $QQQ QQQ $NDX NDX $IWM IWM $RUT RUT $IYT IYT $DJT DJT
CME_MINI:ES1!
by RHTrading
1
THE WEEK AHEAD: ORCL, GDXJ, TBT, TLT, SMH, OIHEARNINGS ORCL (50/29) releases earnings on Wednesday after market close, so look to put on a play in the waning hours of Wednesday's New York session. Pictured here is a non-standard short strangle, with the short call side doubled up in order to compensate for greater than one dollar wide strikes: 1.30 credit, break evens at 48.70/58.15, and delta/theta of -5.52/58.15. As of Friday close, the June 21st to July 19th monthly volatility contraction is from 46.6% to 29.3% or about 29.7%. Look to manage intratrade by rolling the untested side toward current price on approaching worthless with a 50% max take profit target. Generally, I don't play stuff this small that doesn't have dollar wides, since rolling intratrade can be a headache, as can rolling out, since there is limited strike availability. It's really another aspect of liquidity, which is not only about the width of markets intraexpiry, but also about the availability of expiries out in time, as well as strikes. BROAD MARKET EEM (27/20) QQQ (23/20); NDX (24/20) IWM (23/19); RUT (25/19) SPY (21/15); SPX (19/15) EFA (16/13) With 33 days to go in the July cycle and 61 to go for August, we're kind of in the "in between" for the 45 days 'til expiry sweet spot, so I would wait until August comes closer into view for either broad market or sector if you want to keep things in that 45 days 'til expiry wheelhouse. SECTOR EXCHANGE-TRADED FUNDS Top 5 By Rank: GDXJ (62/31), TBT (52/24), TLT (51/12), SMH (50/31), OIH (49/40). SINGLE NAME WITH EARNINGS IN THE REAR VIEW A lot of earnings start kicking off in the July cycle, so would wait to play these as earnings announcement volatility contraction plays instead of wading in here and getting caught in a volatility expansion. ME PERSONALLY To keep things simple, mundane, and boring throughout the summer months, I'm looking to just to play broad market for the next couple of cycles -- SPY/SPX, QQQ/NDX, and IWM/RUT. (See, e.g., RUT Sept Iron Condor below).
NYSE:ORCL
by NaughtyPines
2
Divergences of Belief and ExpectationsThis is an excerpt from MACRO BRIEF: Divergences of Belief & Expectations originally published on March 26, 2019. Trends in energy prices are likely to stick around leading into the summer, but it should be pointed out that another divergence is forming: inflation expectations and eurodollars. This particular divergence is interesting because the complete capitulation to end monetary tightening puts Powell in a tough(er) place. Although treasuries should be reacting to the rate of change in inflation, the primary cause of alpha has been the Fed's stance to end tightening, and this is going to cause problems if higher inflation expectations continue higher leading into a rebound in CPI, PPI, etc. The catch 22 is that the relaxation is the policy stance gave way to asset inflation which gives the false pretense of economic stability. It could give way to higher inflation expectations that will intimately pay off of energy prices. That will continue to pinch consumers and increase business input costs - if the trend continues. Powell has effectively taken the Fed off the playing field, so if there were a rebound in inflation it may get to the point that it begins to deter what little economic growth is left. If the Fed has to step back in, that will certainty open up the Pandora's box of volatility. Ironically, if the pragmatic Powell put wasn't enacted in December, the U.S. could have been on the verge of a credit event. (Remember, we are removed from whether it was his job to do so. People still blame Ben Bernanke for not acting to prevent the sub-prime mortgage crisis). Link to original post: bit.ly
Q
by TheMacroStrategist
Why The Yield Curve Matters To Utilities & Other Bond ProxiesThis chart of the U.S. 10s/2s curve and the SPDR S&P Utilities Sector ETF (XLU) is interesting. A few days ago, I was reading a blurb by a well-known outlet about utilities getting "smoked" during the Q4 equity route. Like above, performance is relative to time frame. Additionally,  you have to have a deeper understanding about what XLU is and what it can do. It's not enough to just assume utilities as "defensive" thus it protects you from a broad equity sell-0ff. This also coincides with some questions I get from subscribers: why advocate holding XLU and TLT? Yes, XLU is a bond proxy but it is not a bond. Its underlying is composed of equities. The TLT is composed of U.S. 7-10 year treasuries. They both perform well under low interest rate environments when yields trend lower. However, keep in mind that the XLU is still equity-based and won't protect you fully. Notice, XLU didn't blink until the 10s/2s began to steepen. It's been gung-ho since the curve flattened out. And if we went back through periods were the curve began to steepen, it effected other bond proxies much more dramatically like REITs. Flattening of the curve isn't the issue unless you're financials. It's the massive steepening caused by the Fed cutting interest rates that kill markets.
TVC:US10Y
by TheMacroStrategist