Jan 15 & Jan 18, 2020: There Are Only A Few Days Left In The Current Yield And Equity Declines; We Refocus On A Possible Top 13-14 TDs From Today
Summary
- The nominal (actual) Fed balance sheet and bank reserves have gone higher again, so that means we only have a few days left in this yield and equity market correction.
- Downmoves won't be as symmetrical illustrated, but you get the idea. Maybe 5 trading days or less to the downside, then we could see higher yields and equities again.
- Gold moves will likely continue to be driven by developments in DXY (see illustrations). DXY and Gold have completely dissociated from Yield, SPX and VIX moves.
- The implicit forecasts provided by the new Fed Lending to Dealers's tool also dovetails with the information we are getting from the other modalities of the Fed's ongoing QE programs (SOMA transactions, Bank Reserves) and the US Treasury's Cash Balance at its account with the Fed Reserve. What comes out of this is for yields to do a small rise, then fall followed by a bigger rise and top out 13-14 trading days from today.
- PAM has a long ES overhedge that was widowed by our removal of the short hedge last week, so we need to look for levels to have it re-hedged. And maybe we can also do a short scalper, or two. But the long side of the trade is way to go. We will in fact reinstate the long scalpers and overhedges when/if we see the bottom of this very short-term weakness.
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PAM's flagship Swing Portfolio, year-to-date (December 31, 2020) delivered $100, 181,522.77 net profit on $11,172,813 operating capital.
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Year to date 2020 spreadsheet here.
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JANUARY 15, 2020
GOOD MORNING ASIA / GOOD EVENING EAST COAST
We have some developments in liquidity flows which can help us time, when this correction lower may end.
robert.p.balanModeratorLeaderOwnerJan 15, 2021 3:24 AM
vincciJan 15, 2021 4:24 AM
Great chart RB! Would you be able to add this to Analytics so we can reference it regularly? Or is it DCC propriety?
robert.p.balanJan 15, 2021 7:24 AM
Yes, Vincci -- I have just the authority to show images of the chart.
robert.p.balanModeratorLeaderOwnerJan 15, 2021 3:26 AM
The nominal (actual) Fed balance sheet and bank reserves have gone higher again, so that means we only have a few days left in this yield and equity market correction.
It will not be as perfect and as symmetrical as the illustration above, but you get the idea -- maybe 5 trading days or less to the downside, and we could be seeing higher yields and equities again.
That means equities will only have brief downside interlude, as illustrated below.
That's for YM below,
ES showing the same flag-like corrective stucture, below.
NQ falling further, although I doubt if NQ will fall that low.
I not sure if RTY will fall that much.
Our EWP illustrations for DXY and XAU (GOLD) yesterday are still valid (see two charts below).
Gold moves will likely continue to be driven by developments in DXY (see chart below)
DXY and Gold have completely dissociated from Yield, SPX and VIX moves.
robert.p.balanModeratorLeaderOwnerJan 15, 2021 4:08 AM
I will see u in Europe trade. GN everyone.
Ernie.YJan 15, 2021 5:38 AM
Hello RB. With the liquidity models turning lower as expected and good news seemingly priced in, I'm just curious why you no longer expect a deeper equity correction? Is the Robinhood and BTD crowd simply too strong to contend with?
robert.p.balanJan 15, 2021 7:09 AM
Ernie, Take a look at the farthest part of thre x axis on this chart, below.
dmw1688Jan 15, 2021 11:11 AM
The X-axis shows we that are at about 230D of the trading days. But 2021 just started. What calendar day is it?
robert.p.balanJan 15, 2021 11:17 AM
The x axis range is March 1, 2020 to March 30, 2021
So TD 1 in the chart is March 1, 2020.
dmw1688Jan 15, 2021 3:04 PM
OK. Thanks.
GOOD MORNING EUROPE / GOOD EVENING WEST COAST
robert.p.balanModeratorLeaderOwnerJan 15, 2021 7:14 AM
We will exit exit these orphaned short hedges at the EWP touch points.
all PAM BUYS BACK 788 CONTRACTS YMH1 TO EXIT THE ORPHANED SHORT HEDGES OF YM SCALPERS/OVERHEDGES, AT 30,650 LIMIT OR BETTER, FOR ALL FUNDS.all PAM BUYS BACK 788 CONTRACTS ESH1 TO EXIT THE ORPHANED SHORT HEDGES OF ES SCALPERS/OVERHEDGES, AT 3760 LIMIT OR BETTER, FOR ALL FUNDS.
all PAM BUYS BACK 788 CONTRACTS NQH1 TO EXIT THE ORPHANED SHORT HEDGES OF NQ SCALPERS/OVERHEDGES, AT 12,790 LIMIT OR BETTER, FOR ALL FUNDS.
robert.p.balanModeratorLeaderOwnerJan 15, 2021 7:30 AM
We will also exit the short hedge in this es overhedge pair.
all PAM BUYS BACK ANOTHER 1000 CONTRACTS ESH1 TO EXIT THE SHORT HEDGES OF ES OVERHEDGES, AT 3760 LIMIT OR BETTER, OR AT BREACH OF 3784 (BREAKEVEN), OCO, GTC -- FOR ALL FUNDS.
robert.p.balanModeratorLeaderOwnerJan 15, 2021 2:28 PM
I was asked to see what threshold NDX has relative to SPX versus the 10Yr yield. Here it is.
robert.p.balanModeratorLeaderOwnerJan 15, 2021 2:30 PM
The threshold is at 4 % versus the SPX at 5.25%.
robert.p.balanModeratorLeaderOwnerJan 15, 2021 2:36 PM
PAM BUYS BACK ANOTHER 1000 CONTRACTS ESH1 TO EXIT THE SHORT HEDGES OF ES OVERHEDGES, AT 3760 LIMIT OR BETTER, OR AT BREACH OF 3784 (BREAKEVEN), OCO, GTC.
*Pullout this order.*
all I asked DCC to pullout this order because NQ is rising despite falling yields, and ES is rising along with it. I will wait until this foolishness is resolved before reinstating this order.
PAM BUYS BACK ANOTHER 1000 CONTRACTS ESH1 TO EXIT THE SHORT HEDGES OF ES OVERHEDGES, AT 3760 LIMIT OR BETTER, OR AT BREACH OF 3784 (BREAKEVEN), OCO, GTC.
User.49362576Jan 15, 2021 2:41 PM
Could you clarify if I correctly understand that only this buy back order is temprorially cancelled?
robert.p.balanJan 15, 2021 3:55 P
Yes of course - that is only the order that has the risk of being taken out on the way up
If not stated, it is not -- to save yourself some worries.
robert.p.balanModeratorLeaderOwnerJan 15, 2021 4:23 PM
all PAM BUYS BACK ANOTHER 1000 CONTRACTS ESH1 TO EXIT THE SHORT HEDGES OF ES OVERHEDGES, AT 3750 (FROM 3760) LIMIT OR BETTER, OR AT BREACH OF 3764 (FROM 3784), OCO -- ALL FUNDS
User.49362576Jan 15, 2021 4:24 PM
Current market price is already lower. Does it mean that order would be executed at market price?
robert.p.balanModeratorLeaderOwnerJan 15, 2021 4:25 PM
DCC GOT THE ORDER LATE. WILL EXECUTE ME AT THEIR DISCRETION.. USUALLY AT MARKET PRICE WHEN THEY GOT IT.
LATENCY ISSUES
robert.p.balanModeratorLeaderOwnerJan 15, 2021 4:36 PM
PAM BUYS BACK 788 CONTRACTS YMH1 TO EXIT THE ORPHANED SHORT HEDGES OF YM SCALPERS/OVERHEDGES, AT 30,650 LIMIT OR BETTER,
*This order was filled.*
*YMHO -- DONE AT BETTER -- 30,630 BOUGHT BACK 788 CONTRACTS YMH1 TO EXIT THE ORPHANED SHORT HEDGES OF YM SCALPERS/OVERHEDGES -- FOR ALL FUNDS*
PAM BUYS BACK 788 CONTRACTS ESH1 TO EXIT THE ORPHANED SHORT HEDGES OF ES SCALPERS/OVERHEDGES, AT 3760 LIMIT OR BETTER
*This order was filled.*
*ESH1 -- DONE AT 3757 BOUGHT BACK 788 CONTRACTS ESH1 TO EXIT THE ORPHANED SHORT HEDGES OF ES SCALPERS/OVERHEDGES -- FOR ALL FUNDS*
PAM BUYS BACK 788 CONTRACTS NQH1 TO EXIT THE ORPHANED SHORT HEDGES OF NQ SCALPERS/OVERHEDGES, AT 12,790 LIMIT OR BETTER
*This order was filled.*
*NQH1 -- DONE AT 12,788.50 BOUGHT BACK 788 CONTRACTS NQH1 TO EXIT THE ORPHANED SHORT HEDGES OF ES SCALPERS/OVERHEDGES -- FOR ALL FUNDS*
PAM BUYS BACK ANOTHER 1000 CONTRACTS ESH1 TO EXIT THE SHORT HEDGES OF ES OVERHEDGES, AT 3750 (FROM 3760) LIMIT OR BETTER, OR AT BREACH OF 3764 (FROM 3784), OCO.
*This order was filled.*
*ESH1 - DONE AT 3745.75 -- BOUGHT BACK ANOTHER 1000 CONTRACTS ESH1 TO EXIT THE THE SHORT HEDGES OF ES OVERHEDGES (3821, JANUARY 8) -- ALL FUNDS.*
robert.p.balanModeratorLeaderOwnerJan 15, 2021 8:30 PM
This is an irregular -- this is the form a correction higher may take, if the sell-off is to continue (see chart above).
This is the pattern that we should be looking out for.
JANUARY 18, 2020
robert.p.balanModeratorLeaderOwnerJan 18, 2021 11:01 AM
I have just added this chart the previous weekend's Musings.
The impact of the Implicit Price Deflator (IPD) on 10yr Yield , Core PCE and the Fed Funds Rate
The Implicit Price Deflator (internal inflation of the economy) has a powerful impact and long lead on bond yields via the Core PCE. FFR
Maybe you will remember this tool that we created from the variable Securities Lent by Fed To Primary Dealers (see chart below). As we said in a previous presentation:
"Moreover, with increasing levels of QE, the Fed started to lend less securities to Primary Dealers which are now flush with cash - and buy the securities themselves, rather than borrow those securities temporarily from the Fed (see chart below)."
"It turned out that by not lending securities to Primary Dealers, the Fed has made dis-functional one tool with which to tighten liquidity. Therefore, rising bank reserves plus falling securities lending optimized the negative correlation between rising liquidity and rising bond yields (falling bond prices), and vice versa (see chart below)."
The implicit forecasts provided by the new tool above also dovetails with the information we are getting from the other modalities of the Fed's ongoing QE programs (SOMA transactions, Bank Reserves) and the US Treasury's Cash Balance at its account with the Fed Reserve (see chart below).
What comes out of this is for yields to do a small rise, then fall followed by a bigger rise and top out 13-14 trading days from today.
So if I allow my imagination to work, this may be what the tools are suggesting that the yield will do, short term. Ignore the X-axis (time axis) -- it is the topology which counts.
And its equivalent EWP illustration in ES is something like that below.
robert.p.balanModeratorLeaderOwnerJan 18, 2021 11:47 AM
PAM has a long ES overhedge that was widowed by our removal of the short hedge last week, so we need to look for levels to have it re-hedged. And maybe we can also do a short scalper, or two.
But the long side of the trade is way to go. We will in fact reinstate the long scalpers/overhedges when/if we see the bottom of this very short-term weakness.
I will have a quick lunch with the Bossman. I will be back before the NY market opens.
john.derJan 18, 2021 12:30 PM
Robert - US equity and bond cash markets are closed today for MLK Day. Futures market looks like it will close at 1pm NYT.
tradeenthusiastJan 18, 2021 3:24 PM
And futures market will open again at 6P EST?
john.derJan 18, 2021 3:49 PM
Yes
tradeenthusiastJan 18, 2021 2:54 PM
Earnings season round the corner. There is a good probability for this EWP illustration to play out I guess. Thx RB
robert.p.balanModeratorLeaderOwnerJan 18, 2021 9:06 PM
Thanks a lot John -- it made my day.
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