(Feb 27 - Mar 2, 2021, Final): Took Profits From Long Equity Scalpers, Waiting For Yields To Fall Further; PAM Resets Longs Equities If 1.3950 Yield Support Gives Way
Summary
- Market-based measures of future inflation (5-year outlook) already rolled over three weeks ago, in line with Core CPI. Be prepared for further roll over of the 10yr yield very soon.
- The algo computes what the market accepts as swap compensation for 5yr inflation equivalent of CPI for 5 years. The compensation rate has declined sharply. Market's Inflation Mania ends soon.
- China has embarked on a massive deficit spending to kickstart/maintain economic momentum. CNY will weaken massively very soon, that's when Chinese citizens will look for alternatives to storing their wealth.
- We are at crucial junction for yields. We need to see further declines, and completion of a five wave sequence to provide some basis for believing that we have seen a critical yield top. If we see new declines below 1.3850, that could be the proof. Another back up higher and new breach of 1.46 suggests yields have not peaked yet.
- There is another issue that we are looking at closely, and that is whether or not the current negative covariance between yields and equities will continue for longer. This is important to know ahead, if we have means to getting that info. So far, equities seem to be happy to see declining yields, but that could change in a heartbeat. We will be on watch for this changes in covariance.
WEEKEND MUSINGS FEBRUARY 27, 2021
robert.p.balanModeratorLeaderOwnerFeb 27, 2021 11:54 AM
The 10Yr Yield has peaked. Earlier, short term rates have already fallen, frontrunning the sharp decline of the TCB to come.
TCB will fall to less than $500 billion by end of June -- that will lead to significantly lower yields and equities.
TCB High-Frequency changes tend to lead changes in Treasury Bill Rates and Yields by about a week.
bumble.beeFeb 27, 2021 5:32 PM
robert.p.balan how do you see the next stimulus package playing out and meshing with low seasonal liquidity?
robert.p.balanFeb 28, 2021 10:22 AM
Bee -- the just approved 1.9T stimmy bill should give equities a short in the arm early next week -- but this is the last fiscal infusion for a long while. It will not last. It should push up equities Monday, and yields as well, but that rally maybe fleeting.
findependenceFeb 27, 2021 6:06 PM
robert.p.balan Thank you Robert for everything you do. Is it time then to switch to TN longs?
robert.p.balanFeb 28, 2021 10:23 AM
FI -- wait for the effect of the 1.9T stimmy bill to wear off. Then we look for levels to go long TNs.
robert.p.balanModeratorLeaderOwnerFeb 28, 2021 10:27 AM
*US Inflation Swap Forward and TIPs 5yr/5yr compensation the Fed's favored inflation gauge), Headline and Core CPI, 10yr yield*
Market-based measures of future inflation (5-year outlook) already rolled over in February 2021, in line with Core CPI
Be prepared for a sharp rolling over of the 10yr yield very soon
Fed's 5y5y Inflation Forward Compensation Rate, Breakeven Inflation Rate, Headline and Core CPI
The soaring Breakeven Inflation rate will roll over very soon, and put the market's Inflation Mania to rest.
By the way, I reverse-engineered the Fed 5y/5y inflation forward compensation rate algo, and used it to compute the TIP's 5yr forward inflation compensation rate. Both leads the breakeven inflation rate and 10yry yield by 2 weeks, see chart below.
The algo computes what the market will accept as swap compensation for 5yr inflation equivalent of CPI for 5 years. The TIPs are also a form of swap trade, but no one talks about it.
Yes -- so gold should have an up day tomorrow. I am putting this covariance chart of the yield, DXY and gold at the Analytics channel.
QuaziFeb 28, 2021 9:44 PM
Thanx robert.p.balan ... Gold moved slightly downward on 2/27. What is your call for Gold on 2/28? With the breakeven inflation rate rolling over (falling?) won't that challenge gold even further. Many thanx ...
robert.p.balanModeratorLeaderOwnerFeb 28, 2021 9:50 PM
Can't call the market day to day Mr. Q. If breakeven inflation rolls over, then inflation expectation should fall and rates would fall -- good for gold -- or at least not bad.
flytightMar 1, 2021 3:49 AM
robert.p.balan Hi RB can you help us out in the PM section? Can you explain for everyone, the role of the Chinese currency vs the US dollar and why watching it is important for gold traders? Thank you so much RB.
robert.p.balanModeratorLeaderOwnerMar 1, 2021 10:02 AM
flytight
To see the link between the CNY currency and Gold, we have to go back to first principles.
robert.p.balanModeratorLeaderOwnerMar 1, 2021 10:14 AM
The domestic currency CNY is a creation of China's government deficit spending. China has embarked on a massive deficit spending to kickstart/maintain economic momentum.
USD/CNY vs China Gov't Deficit/Surplus.
The CNY will weaken massively very soon -- that is when Chinese citizens will look for alternatives to storing the value of their wealth -- and that is gold or cryptos.
That deficit spending powers China Total Social Spending.
It is the lagged effect of China Total Social Financing allocations which powers Quasi Money Supply.
It is the growth of China Quasi Money Supply (funding China's Shadow Banking) which powers cryptos and Gold
Bitcoin and Gold: China Quasi Money Supply, Total Social Financing
(Sorry, chart is for PAM members only)
flytightMar 1, 2021 10:41 AM
robert.p.balan Wow, that is a great chart Mate. Thank you so much for this piece of education. It is just perfect. Just look at how powerful the correlation between Bitcoin, Gold and China's Social Financing, all with a one week lag. Amazing! PAM gold traders will love this.
robert.p.balanMar 1, 2021 10:43 AM
China's deficit spending has a three month lead over the the CNY/USD and Gold/Bitcoin, mate.
flytightMar 1, 2021 10:45 AM
Ok, I will digest this accordingly.
We may well spend more time this year focusing on China's economy as they continue to dominate the global economy going forward. You agree RB?
robert.p.balanMar 1, 2021 10:52 AM
At this point, the global markets have nothing to do with global or domestic economies -- only the fiscal and monetary stimuli matter to risk assets. That may change, but probably not this year and next.
robert.p.balanMar 1, 2021 10:52 AM
At this point, the global markets have nothing to do with global or domestic economies -- only the fiscal and monetary stimuli matter to risk assets. That may change, but probably not this year and next.
MARCH 1, 2021
GOOD MORNING EUROPE / GOOD EVENING WEST COAST
stephane.cMar 1, 2021 10:58 AM
Hi Robert, read somewhere that the 1.9Tr USD stimulus will find its way to M2 Money Supply. Do you concur?
robert.p.balanModeratorLeaderOwnerMar 1, 2021 11:11 AM
I have shown that relationship years ago, SC. Total Debt issuance is monetized by the Fed via SOMA Transactions a process which creates bank reserves. Part of those bank reserves go into bank loan issuance, which turns into deposits. Those deposits become part of the Money Supply.
Part of those bank reserves go into bank loan issuance, which turns into deposits. Those deposits become part of the Money Supply. That, by the way, is how banks create new money thru bank loans.
stephane.cMar 1, 2021 11:26 AM
Thanks a lot
robert.p.balanModeratorLeaderOwnerMar 1, 2021 11:26 AM
Of course, some of the stimmy money will also be deposited in bank accounts, and that will also add to the expansion of M2 money Supply.
stephane.cMar 1, 2021 11:26 AM
Makes a lot of sense, dilutation of money pushing market participants into holding assets
robert.p.balanModeratorLeaderOwnerMar 1, 2021 11:30 AM
Two possible routes for a Wave 2 correction.(1) Purple line goes on to make wave 5, then corrects higher for Wave 2. Then Wave 3 is actuated.(2) Wave 2 extends from here up to and above the recent minor top at 1,52. Then Wave 2 completes, and Wave 3 develops.
Equities may like the purple route better -- but you will never know. If yields and equities rise together due to the stimmy bill, then the covariance between the two major assets have become positive again. If not, then no.
stephane.cMar 1, 2021 11:57 AM
Another question Robert. China Stock Exchange (A50) has declined 10% in the last 10 days. Some say that China might want to staircase its market to much lower levels to justify a devaluation of the RMB. This would have adverse impacts on global markets. Would you be in that camp or do you think their fiscal expansion is enough to do the job? I agree the RMB will go down but I wonder if it is interesting to go long A50 at this juncture. Thank you
robert.p.balanModeratorLeaderOwnerMar 1, 2021 12:00 PM
"China might want to staircase its market to much lower levels to justify a devaluation of the RMB." -- like most conspiracy theories -- this one is as stupid as stupid can get.
stephane.cMar 1, 2021 12:02 PM
Got it, then this has no basis.
robert.p.balanModeratorLeaderOwnerMar 1, 2021 12:03 PM
The CNY will devalue, big time, over the next quarter, possibly two -- secure your CNY wealth in something alternative.
Since stock investments are still denominated in CNY, take it out and put it in, say, gold, silver, or cryptos.
stephane.cMar 1, 2021 12:05 PM
Got it. This will have tremendous impacts
On gold, Barrick is extremely oversold and attractive
Triple.F.FredMar 1, 2021 2:08 PM
Yes, stephane.c , I agree and added some GOLD on Friday
robert.p.balanModeratorLeaderOwnerMar 1, 2021 3:45 PM
OK yields coming down and equities rising
The equity rally is still predicated on lower yields.
robert.p.balanModeratorLeaderOwnerMar 1, 2021 3:55 PM
PAM SELLS 144 CONTRACTS YMH1 LONG SCALPERS AT 31,300 (BREAKEVEN), GTC
*This order was filled.*
*YMH1 -- DONE AT 31,300 SOLD AND EXITED 14 CONTRACTS YMH1 FOR ALL FUNDS. INCL TRACKER. EIGER*
Triple.F.FredMar 1, 2021 2:08 PM
Barrick
foleoMar 1, 2021 4:02 PM
I started buying KL based on its low AISC and asset base
robert.p.balanModeratorLeaderOwnerMar 1, 2021 5:53 PM
If the yield pushes above 1.46 again, the stock market rally is likely to falter.
We now have enough daylight to put a trail stop to the long RTY position.
robert.p.balanModeratorLeaderOwnerMar 1, 2021 6:00 P
all PAM SELLS 144 CONTRACTS RTYH1 TO EXIT LONG RTY SCALPERS AT BREACH OF 2245, GTC -- FOR ALL FUNDS, INCL TRACKER, EIGER
robert.p.balanModeratorLeaderOwnerMar 1, 2021 6:02 PM
robert.p.balanModeratorLeaderOwnerMar 1, 2021 6:04 PM
all PAM SELLS 144 CONTRACTS NQH1 TO EXIT LONG NQ SCALPERS AT BREACH OF 13,052 (BREAKEVEN) GTC -- FOR ALL FUNDS, INCL TRACKER, EIGER
Let's first see where yields are going before adding to risk in equities.
andrewsrMar 1, 2021 6:24 PM
Robert, great work, thanks so much for your guidance! Regarding the NQ and ES short hedges, will you be progressively moving those up as well?
robert.p.balanModeratorLeaderOwnerMar 1, 2021 6:26 PM
Yes, certainly andrew -- let me just get a sense of where the yield is going and then we will relocate the short hedges.
andrewsrMar 1, 2021 6:29 PM
Ok thanks!
robert.p.balanModeratorLeaderOwnerMar 1, 2021 6:38 PM
all PAM CANCELS ALL PREVIOUS NQ HEDGE ORDERS, AND PUT A SHORT HEDGE AT BREACH OF 12,850 WHERE WE SELL 144 CONTRACTS NQH1 TO HEDGE NQ LONGS (BOT AT 13,702), GTC -- ALL FUNDS
all PAM CANCELS ALL PREVIOUS RTY HEDGE ORDERS, AND PUT A SHORT HEDGE AT BREACH OF 2210 WHERE WE SELL 144 CONTRACTS RTYH1 TO HEDGE NQ LONGS (BOT AT 2301.7), GTC -- ALL FUNDS
gdflondonMar 1, 2021 6:41 PM
Robert, would appreciate your thoughts on where gold may find a bottom, thanks.
robert.p.balanMar 1, 2021 6:43 PM
It really depends on whether we have seen the top in yields or not Mr. London. I believe we had, but we will know that in a day or two.
RM13Mar 1, 2021 6:57 PM
Robert, would you put GC shorts/GLD puts to protect against rising yields?
robert.p.balanModeratorLeaderOwnerMar 1, 2021 6:58 PM
We have orders for GC short hedge at 1690 GCM1 Rafa.
RM13Mar 1, 2021 6:59 PM
Thank you, didn't see that..
robert.p.balanModeratorLeaderOwnerMar 1, 2021 7:14 PM
PAM SELLS 144 CONTRACTS RTYH1 TO EXIT LONG RTY SCALPERS AT BREACH OF 2245, GTC
all Modify the trail stop level to breach of 2252 -- all funds
PAM SELLS 144 CONTRACTS NQH1 TO EXIT LONG NQ SCALPERS AT BREACH OF 13,052 (BREAKEVEN) GTC
all Modify the trail level to breach of 13,150 -- all funds
robert.p.balanModeratorLeaderOwnerMar 1, 2021 9:48 PM
PAM SELLS 144 CONTRACTS RTYH1 TO EXIT LONG RTY SCALPERS AT BREACH OF 2245, GTC
all Modify the trail stop level to breach of 2260 (from 2252) -- all funds - 2nd revision
PAM SELLS 144 CONTRACTS NQH1 TO EXIT LONG NQ SCALPERS AT BREACH OF 13,052 (BREAKEVEN) GTC
all Modify the trail level to breach of 13,200 (from 13,150) -- all funds -- 2nd revision
MARCH 2, 2021
GOOD MORNING EUROPE / GOOD EVENING WEST COAST
robert.p.balanModeratorLeaderOwnerMar 2, 2021 8:03 AM
An order was filled.
Modify the RTYH1 trail stop level to breach of 2260 (from 2252) -- all funds - 2nd revision.
*This order was filled.*
*RTYH1 -- DONE AT 2259.80 SOLD 144 CONTRACTS TO EXIT LONG RTYH1 SCALPERS, FOR ALL FUND, INCL TRACKER, EIGER*
It is very tempting to reset the long equity scalpers (two tranches) but we are at crucial junction for yields. We need to see further declines, and completion of a five wave sequence to provide some basis for believing that we have seen a critical yield top. If we see new declines below 1.3850, then that could be the proof. However, another back up higher and new breach of 1.46 suggests yields have not peaked yet.
As we showed earlier, our tools show that yields have likely made an important top, but we are finetuning the picture as even a day of premature assumption can be painful.
There is another issue that we are looking at closely, and that is whether or not the current negative covariance between yields and equities will continue for longer. This is important to know ahead, if we have means to getting that info. So far, equities seem to be happy to see declining yields, but that could change in a heartbeat. We will be on watch for this changes in covariance.
For now, this seems the appropriate EWP schemata for NQ. So we will not fiddle with the trail stop for NQ long scalpers. Note that this could change with the actual performance in yields.
*Watch the yield support at 1.3950.*
Gold is under pressure due to resilency in DXY, but this rally has gone too far without significant pullback -- I expect one very soon,, and Gold should get some relief.
Modify the NQ trail level to breach of 13,200 (from 13,150) -- all funds -- 2nd revision
*This order was filled. *
*NQH1 -- DONE AT 13,199 SOLD 144 CONTRACTS TO EXIT LONG NQH1 SCALPERS, FOR ALL FUND, INCL TRACKER, EIGER*
QuaziMar 3, 2021 1:53 AM
Great direction robert.p.balan ... that is the kind of advice we came here for ...
Brent.ChavezMar 3, 2021 2:58 AM
Quazi you got that right!!
robert.p.balanModeratorLeaderOwnerMar 2, 2021 9:42 AM
PAM CANCELS ALL PREVIOUS NQ HEDGE ORDERS, AND PUT A SHORT HEDGE AT BREACH OF 12,850 WHERE WE SELL 144 CONTRACTS NQH1 TO HEDGE NQ LONGS (BOT AT 13,702), GTC -- ALL FUNDS
all Modify to 288 contracts (from 144) to hedge NGH1 longs bot at 13,702 and 13,601.75 -- all funds
robert.p.balanModeratorLeaderOwnerMar 2, 2021 4:28 PM
Yields are falling but we don't see any reaction from equities. Equities seems to be even lower on the margin.
Keep a watch on possible switch back to positive covariance between yields and equities.
Brent.ChavezMar 2, 2021 5:01 PM
TY rpb.
robert.p.balanModeratorLeaderOwnerMar 2, 2021 6:50 PM
OK, we assume that the yield will fall further below the 1.3950 support, and assume further that equities will like that.We reset the long scalpers if equity index futures break to new high.
all PAM BUYS 144 ESH1 CONTRACTS AT BREACH OF 3915, FOR ALL FUNDS, INCL TRACKER, EIGER
all PAM BUYS 144 CONTRACTS YMH1 AT BREACH OF 31,650, FOR ALL FUNDS, INCL TRACKER, EIGER
robert.p.balanModeratorLeaderOwnerMar 2, 2021 10:51 PM
Looks like yield support gave way.
QuaziMar 3, 2021 8:05 AM
And what if they bounce ....
robert.p.balanMar 3, 2021 8:37 AM
Then the resistance level will give way Mr. Q.
GN. I will see you in Asian open.
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