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(March 9, 2021): China Equity Markets Bottoming Out; Took Profits From Long US Equities, Awaiting The Core CPI Data Wednesday To Lower Bond Yields

Mar. 10, 2021 8:01 AM ET9 Comments
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  • There is evidence that China started supporting its equity market again, after jawboning Chinese (and US) stocks lower last week. The ploy may have something to do with CNY devaluation.
  • The PAM community took profits from long equity positions, and will reset long equity trades only if we see bond yields coming down significantly; breaking established yield support levels.
  • There are bond auctions tomorrow, March 10, which could help depress yields if successful. There's evidence that global central banks are buying L-T US govies again, leading to lower yields.
  • PAM is going for lower CPI again for February. The major components of CPI are still in swan-dives, and we don't see how that can dramatically reverse overnight. Historical (lagged) correlations with GDP and employment data (the primary movers of Core CPI) suggest that Core CPI will drift lower until Q3 2021.
  • For the first time, in many days, there is a chance of breaking this humongous rally in yields. If Core CPI again disappoints expectations of significantly higher Core CPI tomorrow, this meme of surging inflation due to (artificially) elevated breakevens should deflate. Whether that is favorable for equities is not a slam dunk, foregone conclusion, however. We will be looking for signs that he positive covariance of yields and equities has returned.

MARCH 9, 2021

vlad.4649Mar 9, 2021 2:01 AM

stephane.c your comments about CHN50 got my attention. It appears to me that CHN50 is correlated with ES (both expressed in USD) - likely similar forces move both indices, have a look:

stephane.cMar 9, 2021 2:35 PM

Thanks Vlad, interesting

vlad.4649Mar 9, 2021 2:01 AM

centexlifeMar 9, 2021 2:40 AM

PAM family. I have a question. Rates on 10 yr are now 1.568 which has had an inverse effect on MNQM21 and M2KM21 in my portfolio and an inverse (decline in asset value) effect on MY and ES. Are we to load these as long bull or short bear tickers? Asking for a friend.

Albert.FoodMar 9, 2021 2:44 AM

I understood RB's instructions as long bull on YM and ES.

centexlifeMar 9, 2021 2:46 AM

Yes. That is what I read but the rate decline has to this writing had an inverse effect. NQ, N2K, ES and MY are dropping.

That may be temporary

sparketMar 9, 2021 3:07 AM

Tex I think NQ is about to turnaround. The technicals appear to favor a rally and declining yields should provide a tailwind imo.

centexlifeMar 9, 2021 3:07 AM

Rates are now 1.568. DXY at first rallied but now has reversed. Futures appear to have reversed now upward. Was a tossed salad for a bit.

TimK123Mar 9, 2021 3:07 AM

Maybe the covariance is positive again for the time being. So the 1.578 breach order to reload long scalpers offloaded earlier is on the premise that yields should bounce here and take equities back up with them.

sparketMar 9, 2021 3:09 AM

I admittedly know very little about the China A50 index but it seems to correlate closely with what we’ve seen with tech.

freer7Mar 9, 2021 3:11 AM

China viewed as a growth theme? There seems to be an H-A shares arbitrage going on too. A shares (via Shanghai) have known to be of higher valuation than H shares (via Hong Kong).

sparketMar 9, 2021 3:16 AM

Not to get too fringy... but this smells fishy. On feb 18, the FTSE China A50 index began tracking the Shanghai Stock Exchange Star 50 Index. It was on that same day at Asia market open that the index TANKED. It’s done that every single day since. Like clockwork. It tanks while the Asia is open and the consolidates when it’s closed. This doesn’t make sense. Maybe this is some sort of arbitrage play as freer mentioned, I don’t know. But the correlation is uncanny.

TimK123Mar 9, 2021 3:36 AM

I think it was mentioned earlier that it might be a ploy so they can devalue the Yuan, I think RB suggested it from memory, mind you I might be making that up I can't quite remember the nuances, but think that was the gist of it.

sparketMar 9, 2021 3:51 AM

You’re right, RB mentioned the yuan devaluation as part of his crypto and precious metals analysis. I suppose I will follow either direction the wind blows... and then gear up for gold and commodities rallying later this year. Fun times!

freer7Mar 9, 2021 3:52 AM

The Communist Party of China will commemorate its 100th anniversary in July.

TimK123Mar 9, 2021 5:46 AM

Thanks for remembering when I couldn't sparket. Yes I guess the question is how much follow through there is onto US equities and exactly where the Chinese markets will land. China dumping probably can't be good for US indices but it won't drag them down in a 1:1 ratio I wouldn't have thought.

Maybe there is a target of 10%, 15% etc. that will allows them to do some currency devaluation if that is what is going on.

TimK123Mar 9, 2021 3:30 AM

Definitely something going on, around 2 days before the larger plunge Chinese gov't put out a PR said Western market are in a bubble (I thought that was baflfing at the time), maybe that was a primer for their people to say don't be too upset when we tank our markets any second now.

robert.p.balanModeratorLeaderMar 9, 2021 4:26 PM

Here is one good argument that Chinese equities are in a bottoming process, following the trough made by Total Social Financing two months ago. The Shanghai index tends to follow the lead of  TSF, after a two months' lag.

freer7Mar 9, 2021 4:19 AM

Surprisingly, Sox broke last Fri low.

freer7Mar 9, 2021 5:10 AM


umut.aMar 9, 2021 6:04 AM

Hoping for a wave B rally soon so I can trim long term growth funds and buy again at the bottom of C

Looks like we are in a major degree wave 4 correction.

h.voiceMar 9, 2021 12:33 PM

Correct me if I'm wrong but this looks like a diagonal on RTY

stephane.cMar 9, 2021 12:45 PM

stephane.cMar 9, 2021 12:47 PM

I encourage those waiting for a crash to look closely at this chart. As soon as the market realizes long term rates are close to a temporary top, Nasdaq will shoot up for a while imho

I am a buyer since yesterday and will add if we go down

China is now out supporting its equity market. I believe the correction has ended or is about to end with nice bargains on the shelves

stephane.cMar 9, 2021 12:53 PM

wisesunMar 9, 2021 12:56 PM

Thanks for sharing

honestly it is not easy to follow such a volatile and diverging market.

stephane.cMar 9, 2021 12:59 PM

stephane.cMar 9, 2021 1:01 PM

stephane.cMar 9, 2021 1:02 PM

The market is volatile because of the cross currents between plunging short-term real yields and increasing long-term real yields. If history is a guide, long-term real yields will resume their march downward

The dichotomy cannot last long as there is an arbitrage of borrowing ST to invest LT

john.derMar 9, 2021 1:19 PM

I think there will be an imminent answer as there are 3yr, 10yr and 30yr bond auctions this week, today, Wednesday and Thursday, respectively. These take place from 13:00-13:30 NYT. Watch the bond market during these times this week.

stephane.cMar 9, 2021 1:20 PM

Apparently Japan is now a net buyer of long treasuries

ikswo123Mar 9, 2021 1:40 PM

Agreed with your prognosis Stephane.c CNBC had David Tepper comments yesterday mentioning the Japan situation-they apparently have been net sellers for 5 years and now will become net buyers.

I have been focusing on the components of SOXL vs ARKK. There is tremendous value in semiconductors right now and many of the components of SOXX/SOXL are at or near their 200 DMA. Some of the components or ARKK are getting attractive on a fundamentals basis, although the semis are a much better value and position in the market cycle.

littletiger101Mar 9, 2021 2:45 PM

any picks from SOXL and ARKK?

RM13Mar 9, 2021 3:13 PM

I'd make the argument that semis are so volatile, I'd stick to SOXX - but demand is there, not a bad time for first tranche..

nichaMar 9, 2021 3:23 PM

RM ...why not SOXL?

ikswo123Mar 9, 2021 4:03 PM

MU, AMAT, DOCU are some that have decent fundamentals. I generally buy SOXL call options to limit risk. I'm guessing the 2 semi stocks above will double in 2 years, DOCU has competition in ADBE but there is room for both IMO

nichaMar 9, 2021 4:18 PM

2023 options pretty expensive on SOXL. would rather do straight stock.

ikswo123Mar 9, 2021 4:25 PM

Agreed on that Nicha - I use short term options for this. There tends to be 30-40% fluctuations in SOXL as a matter of course. For a 2 year position option wise I'd do a vertical call spread ex. DOCU 200/300 Jan 2023's, net about 30.

nichaMar 9, 2021 4:33 PM

I will need to find another ETF. I have previously held AMD, MU. was selling covered calls for income but now not sure that is a good idea as there is a higher chance of getting called away. I will look at leaps.

john.derMar 8, 2021 12:19 PM

This thought process around China's desire to devalue the RMB supports the simultaneous selling of PM's, bonds and equities in the US market so that the dollar gets bid. .... And, there is a dollar short position looking for a large unwind.

youcefk.shaMar 9, 2021 1:45 PM

These days China cannot and won't IMHO devaluate too much their currency. The leaders are pushing for "NEIXU" meaning internal needs ( running their economy on standalone basis). Devaluation would mean for mean faster inflation = instability for the regime

ikswo123Mar 9, 2021 1:45 PM

I was short ARKK but will be closing that ASAP this morning.

stephane.cMar 9, 2021 3:20 PM

stephane.cMar 9, 2021 3:20 PM


flytightMar 9, 2021 6:21 PM

C'est bon Stephane. Bien fait! Merci bien

Brent.ChavezMar 9, 2021 3:36 PM

stephane.c I hope you're right brother!

flamarkMar 9, 2021 3:39 PM

Stephane I have been looking at your recent correlations. In the recent correction, Biotech (XBI) has tightened correlation with NQ. However, in the up market (Low interest rates) XBI was tied closer to RTY. I'm curious where Biotechs fit in here. They had the biggest sell off (25%) and huge upside if they track NQ. However, nothing is clear to me here..

stephane.cMar 9, 2021 3:45 PM

stephane.cMar 9, 2021 3:46 PM

To provide additional confidence

flamarkMar 9, 2021 4:02 PM

RB great call on rates, and market.

flamarkMar 9, 2021 4:32 PM

Miracle or sell the rally?

flamarkMar 9, 2021 4:38 PM

RB, your recent long equities and interest rate calls were great. Your EWP for laggard NQ and similar charts on Biotechs suggests caution on this rally. Is that still your best call for those of us that are long some of these names or is the "miracle" NQ reversion still a possibility?

flytightMar 9, 2021 5:29 PM

Wow, RB's NQ chart is suggesting a potential -900 point drop. I would hate to miss that one!

kizunoMar 9, 2021 4:40 PM

NQ appears to have broken out of the triangle and is aiming for RB's target of 12850 later today/tmro, is how I read the situation....

centexlifeMar 9, 2021 4:42 PM

TN down from146'130 to 146'045 last 10 minutes

flamarkMar 9, 2021 4:50 PM

Small Cap Biotech Outperforms Again..

For Biotech investors, the XBI rel strength has turned positive vs SPX,(Bottom Chart) and positive vs (Cap weighted larger Biotechs/IBB) (Chart just above the bottom chart) for the first time in a month.

TimK123Mar 9, 2021 4:58 PM

RTY approaching the W5 target h.voice suggested:

stephane.cMar 9, 2021 4:58 PM

stephane.cMar 9, 2021 4:58 PM

NDX Automated channel detection

stephane.cMar 9, 2021 5:18 PM

and NDX finally seasonality last 9 years below

stephane.cMar 9, 2021 5:18 PM

stephane.cMar 9, 2021 5:19 PM

Still in dangerous waters for another few days

ikswo123Mar 9, 2021 7:10 PM

Agreed starting to trim and hedge this morning's positions. SPY 390 has been a ceiling, so a little prudence may be called for. Bon chance, monsieur.

henry.riveraMar 9, 2021 5:26 PM

Hi robert.p.balan

For long scalper, are you still planning to get out of the ES @ 3,900 ?

robert.p.balanModeratorLeaderMar 9, 2021 5:26 PM

Thinking about it HH -- we have contingent longs anyway if yield drop below 1.52 pct. So yes.

henry.riveraMar 9, 2021 5:29 PM

Thanks jedi master.

surfinusaMar 9, 2021 5:46 PM

Is weak TCB => weak March still on the plate ?

timothy.r.kiserMar 9, 2021 6:48 PM

Everyone should read this today.

PAM's Tools Suggest An Equity Market Upside Correction Ends This Week; The Long Bond Yield Rally Also Peaking Just Slightly Ahead

Scott007Mar 9, 2021 7:25 PM

Thank you. Always great information and insight

kizunoMar 9, 2021 7:58 PM

NQ Feb16-Mar 9 Keltner Channel

kizunoMar 9, 2021 7:59 PM

Supporting RB's 12850 near term top and LLBB's EWT sequence in that group, the last time NQ touched the 4h Keltner Channel was Mar 1, and look what happened after that.

TimK123Mar 9, 2021 7:59 PM

There's this too, wedge pattern:

john.derMar 9, 2021 9:02 PM

NQ up >4% in a day does not look like constructive price action to me. More like a b-wave bear killer.

flamarkMar 9, 2021 9:18 PM

XBI approaching 50% retracement line

TimK123Mar 9, 2021 10:05 PM

Bounce or cliff edge at the bottom of the wedge, my guess is bounce:

That is great. Covered all the bases with that one. lol. I love it.

john.derMar 9, 2021 10:58 PM

Personally, I am beginning to think CPI tomorrow could be a big mover in equities and bonds. .... Mediocre CPI means that rates have no more reason to go up AND equities have no more reason to think there will be Fed rate intervention. Long end rates then get hammered and equities go down, esp reflationary trade which probably needs a breather.

RM13Mar 9, 2021 11:30 PM

Possible, but nothing in the future market positioning suggests that, as of today. More than likely we have rotation into tech, from oversold levels, while energy is stable or sells off minimally - for another 4-7 TDs - than post Fed paradigm shift...

john.derMar 9, 2021 11:33 PM

That is possible as well, Rafa. I was bearish yesterday. Maybe too influenced by price action. Right now I have no opinion either way. I have long and short positions and am ready to cut either loose. 3yr bond auction today went well. CPI and 10yr auction tomorrow and jobs and 30yr auction on Thursday. Clarity will come soon enough.

RM13Mar 9, 2021 11:36 PM

Great explanation john. I'm seeing a relative level of bullishness in SPX future markets into 3/19 opex, after that not so much. Also gamma neutrals will elevate to above 400 on SPX after opex, while now they are in 384s range. Lots of reasons for relative calm, past 3/17-3/19, not so much.

robert.p.balanModeratorLeaderOwnerMar 9, 2021 7:56 AM

Since changes in yields lead changes in equity futures, we are tracking a likely decline in the 10yr yield to 1.52 -- at which point, the yield can either continue to fall, or bounce back and probe previous highs again.

That's why PAM went long again in YM and ES, and will add further to the long scalpers if 10yr yield if 1.52 level in the 10yr gives way.

For the first time, in many days, there is a chance of breaking this humongous rally in yields. If Core CPI again disappoints expectations of significantly higher Core CPI tomorrow, this meme of surging inflation due to (artificially) elevated breakevens should deflate.

PAM is going for lower CPI again for February. The major components of CPI are still in swan-dives, and I personally don't see how that can dramatically reverse overnight.

Furthermore, breakevens are rolling over -- this contrived inflation measure (and simplistic one at that), has been goosed up by the Fed buying TIP, and practically cornering and owning the market. You have to question the motives of the Fed in doing that. It does look like the Fed is desperate for some degree of inflation to be seen as rising -- hence, they bought 80 percent of the market. If this is the case, then this is another major clusterf*ck engineered by the Fed's hundreds of PhDs.

However, rising long end yields also push up housing mortgage rates -- and if there is something the Fed fears (or should fear) is a collapsing housing market -- a real progenitor of economic and financial market distress.

But the Fed will do something about the surging yields, probably during the FOMC meet on March 17. That is, if a sharply lower Core CPI tomorrow, March 10, does not undercut the 10yr yield uptrend first.We expect the Core CPI to fall again. Based on historical correlations of the Core CPI with GDP and Employment data, the Core CPI lags behind by 5 quarters. That means the Core CPI will be drifting lower until Q3 2021 (see chart below).

bogeygolfMar 9, 2021 4:31 PM

what do you think of this argument that the 10y forward above 3% is an overshoot of Fed long term rate expectations Fitted Instantaneous Forward Rate 10 Years Hence

Fitted Instantaneous Forward Rate 10 Years Hence

Fitted Instantaneous Forward Rate 10 Years Hence, suggesting the Fed will act by stopping the TIPs buying, or giving guidance on 3/17 to address it ?

federergoatMar 9, 2021 8:19 AM

robert.p.balan Thanks for the commentary, I am wondering whether you have any chart potentially explaining why China’s real estate market never collapse but only rising?

robert.p.balanModeratorLeaderOwnerMar 9, 2021 8:27 AM

federergoat -- I don't think that's exactly true.

robert.p.balanModeratorLeaderOwnerMar 9, 2021 8:30 AM

China house prices will be materially higher six months from now, but the price rise has been periodic and episodic over the past 10yrs that we have reliable data.

robert.p.balanModeratorLeaderOwnerMar 9, 2021 8:36 AM

Looks like the 10yr yield is indeed gearing for a 1.52 test.

robert.p.balanModeratorLeaderOwnerMar 9, 2021 8:53 AM

all PAM asked XXX to BUY 144 scalper contracts more for each of YMM1 and ESM1 at breach of 1.5200 in the 10yr yield, conditional order, GTC.

vjapnMar 9, 2021 9:04 AM

Robert, If yields continue lower, wouldn’t NQ outperform as a reversion to the mean?

robert.p.balanModeratorLeaderOwnerMar 9, 2021 9:32 AM

That's the "miracle" I was hoping for vjapn -- it should be the case. NQ is just another form of High Yield and Junk -- rising bank reserves should put it in more solid footing.

Bank reserves have risen significantly in past four weeks, but it takes a month or longer before that positive effect cascades in NDX.

spitzbubchenMar 9, 2021 1:14 PM

Robert, when you have time could you provide your EWP outlook for GC? Thx!

robert.p.balanModeratorLeaderOwnerMar 9, 2021 1:18 PM

We may have a descending wedge breakout, spitzbubchen

robert.p.balanModeratorLeaderOwnerMar 9, 2021 4:37 PM

TIP bonds purchased by the Fed rose by 300% since 2010 (relative to percentage purchases of nominal bonds) -- now owning 80 pct of the TIPs market, Why? The Treasury has limited TIPS issuance (to force buyers to the nominals), but the Fed has gobbled up the market, increasing its holdings dramatically, on the other hand. Why? This is totally nonsensical --

The Fed's large buying in a limited, illiquid market forced TIP prices rise. For TIPS and other bonds, rising prices mean lower yields, which currently are negative for TIPS. Since the breakeven inflation indicator is the regular bond yield less the TIPS yield, the Fed’s buying of TIPS has driven down TIPS yields and drove up the breakeven measure of inflation expectations aggressively, which have risen in line with the Fed’s aggressive buying, as the chart below shows.

That has, in turn, driven long bond yields aggressively higher, as market participants moronically ignored the reason why breakevens are rising so aggressively.

The scale of the Fed’s TIPS purchases gives rise to our speculation that the large purchases is a reflection of the special importance that the Fed attaches to their financial-market inflation expectations -- which has consistently (for the past 15 years) undershot reality. Is the Fed now goosing up inflation expectations to be on the right track (forecast-wise), for once?

Or is it to conjure situations which will force actual inflation to meet their long sought "2%" target for the past 20 years? Perplexing Fed behavior, this one, especially in the light of historical fact that never in its 107 years of history has the Fed shown the ability to move inflation up or down in a carefully gradated way as it proposes to do with its breakeven “make-up” strategy.

Another reality is the historical fact that Core CPI Core CPI lags GDP, and Employment by 5 quarters, which stymies any Fed effort to finetune inflation -- the lag time is so long that monetary policy initiatives addressed at inflation often clash with initiatives which deal with financial and growth issues (see chart below).

robert.p.balanModeratorLeaderOwnerMar 9, 2021 6:46 PM


*Put a trail stop: *



*Put a trail stop: *


robert.p.balanModeratorLeaderOwnerMar 9, 2021 7:28 PM

PAM asked DCC to BUY 144 scalper contracts more for each of YMM1 and ESM1 at breach of 1.5200 in the 10yr yield, conditional order, GTC.


robert.p.balanModeratorLeaderOwnerMar 9, 2021 10:01 PM


*This order was filled. *



*This order was filled. *


See you all in late Asia Wednesday, March 10.


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Here is the current status of the PAM flagship Swing Fund, which includes open and closed trades.

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