(March 10 & 11, 2021): PAM Resets Long Equity Trades On Moderating Bond Yields, As Core CPI Is Set To Fall Until Late Q2 2021
Asset class modeling, Macro analyst, Bonds & Equities, Currencies & Commodities
Seeking Alpha Analyst Since 2011
Robert P. Balan runs Predictive Analytic Models, #1-rated trading unit at Seeking Alpha. PAM trades Swiss HF funds using Federal Reserve, US Treasury, and term (money) market liquidity data flows as basis for trading decisions. He is domiciled in Zurich, Switzerland.
Robert Balan has 5 decades of experience in the financial markets. Education in Mining Engineering, Computer Science & Engineering, M.S in Quantitative Finance, and training in Economics led to a commodity analysis career during the commodity boom of the early 1970s. Robert made a switch to global macro focus in the early 1980 when the commodity bull market waned, with specialization in foreign exchange. Robert wrote a very high profile daily FX analysis while Geneva-based (Lloyds Bank Int'l) in the mid-1980s (the first FX commentary with a real global readership, "most accessed" in the Reuters and Telerate networks from 1988 to 1994).
He worked for Swiss Bank Corp and Union Bank of Switzerland (precursors of today's new UBS) as head of technical research in various finance centers (London, New York, and subsequently, head of prop trading at SBC in Toronto ) from the late 1980s to mid-1990s. A stint at Bank of America as head of global technical research followed in late 1990s to the early 2000s.
Robert returned to Switzerland in 2004 as head of technical research and strategy, and FX market analyst for Swiss Life Asset Management in Zurich. Robert wrote FX analysis and capital markets commentary for Saxo Bank (Denmark) in the early 2000s. He joined Diapason Commodities Management (CH) in Lausanne in 2008 as senior market strategist, and subsequently Chief Market Strategist, utilizing fundamental macroeconomic drivers and structural/technical data in modeling asset price and sector movements.
Robert wrote a book on the Elliott Wave Principle in 1988, which has been hailed by the London Society of Technical Analysts as best ever book written on the subject. Robert is a member of the National Association for Business Economics (NABE), U.S.A.
- Headline CPI met expectations, but Core Headline was again an upside miss. Core was lower than expected. Core CPI will continue to disappoint to the upside until late Q2 2021.
- Stimulus money (some of which will float into crypto) unlikely to offset the forced-month-end-selling and 1.6T in capital gains digestion that have to be absorbed into April 15th.
- We reset our long equity scalpers on the assumption that passage of the COVID-19 stimulus bill will push equity valuations further, as well as the beneficial effect of lower yields.
- Congress passed the stimulus bill using a procedural loophole called "reconciliation" which is only allowed to happen once per year. Normally this is saved for the yearly budget but this bill is really important to Biden / Harris since they tend to get more lame as time goes on and need to get whatever they want done in the 1st 100 days.
- However, any future stimulus/funding bills may not be quite as easily passed unless they get rid of the filibuster. Many on both sides of the isle are against doing that. We'll see how long they can keep their party line voting intact.
MARCH 10, 2021
GOOD MORNING EUROPE / GOOD EVENING WEST COAST
robert.p.balanModeratorLeaderOwnerMar 10, 2021 9:36 AM
It's US CPI day today. Here is a chart which should set the tone of expectations re consumer inflation, especially Core CPI:
TOTAL NONFARM PAYROLL, CORE CPI, AND UNEMPLOYMENT RATE. GDP
_Core CPI lags GDP, and Employment by 5 quarters, which stymies any Fed effort to finetune inflation_
_*Based on historical reality, Core CPI would be bottoming sometime in late Q 2021*_
Clipboard - March 10, 2021 9:33 AM
CPI in line, correct call Robert..
U.S. consumer prices rise 0.4% in February, as expected
robert.p.balanModeratorLeaderOwnerMar 10, 2021 3:48 PM
Core CPI lower, from 1.4% to 1.3% -- Core is the only data which matters.
vm12953Mar 10, 2021 6:34 PM
RB, CPI did change some, do you expect the market goes up when COVID bill will be voted in?
vm12953 -- we should get a bounce, but that may not last. I explained the reasons in an article the yesterday. Please review it for details.
robert.p.balanModeratorLeaderOwnerMar 10, 2021 6:42 PM
The 10yr yield just broke below 1.5200 -- I should be getting a confirm on the long YMM1 and ESM1 trades in a little while.
vm12953 -- we should get a bounce, but that may not last. I explained the reasons in an article the yesterday. Please review it for details.
PAM's Tools Suggest An Equity Market Upside Correction Ends This Week; The Long Bond Yield Rally Also Peaking Just Slightly Ahead
robert.p.balanModeratorLeaderOwnerMar 10, 2021 6:59 PM
BUY 288 SCALPER CONTRACTS FOR EACH OF YMM1 AND ESM1 AT DOWNWARD BREACH OF 1.5200 IN THE 10YR YIELD, CONDITIONAL ORDER, GTC
*This order was filled.*
*YMM1 - DONE AT 32, 082 BOUGHT 288 CONTRACTS YMM1 FOR ALL FUNDS, INCL TRACKER AND EIGER*
*ESM1 -- DONE AT 3885,25 BOUGHT 288 CONTRACTS ESM1 FOR ALL FUNDS, INCL TRACKER AND EIGER*
john.derMar 10, 2021 7:01 PM
Any timing or levels for getting long TN, Robert?
robert.p.balanModeratorLeaderOwnerMar 10, 2021 7:04 PM
Trying to understand if we just got a B wave bottom or not John .. will come back on this one.
vjapnMar 10, 2021 7:22 PM
Robert, do the financials serve as a clue with yield direction? They have been rallying all day and continue to do so after yields decling.
robert.p.balanModeratorLeaderOwnerMar 10, 2021 7:31 PM
Normally, XLF and other financials are happier with rising yields, this could just be a short term anomaly.
zak.kMar 10, 2021 12:40 P
zak.kMar 10, 2021 12:40 PM
Yesterday, /ES was smacked by the upper trendline from Feb 15.
Another smack this morning. Let's see if it can rise up to beat the beast
john.derMar 10, 2021 12:54 PM
Always like reading what Gundlach has to say in these meetings:
Gundlach: "People Are Starting To Believe That Stimulus Is Permanent"
"The biggest problem is we’ve become totally addicted to these stimulus programs. I worry we can see some real need for endless stimulus.
"As a tangent, Gundlach points out something we have frequently noted, namely that buy purchasing massive amounts of TIPS, the Fed is skewing the TIPS and thus breakevens market." .... robert.p.balan showed this yesterday.
henry.riveraMar 10, 2021 1:40 PM
Treasury auctions are normally mundane affairs, but Wednesday's could make or break the stock market
TimK123Mar 10, 2021 3:23 PM
Thanks. I wondering when the auction results are known, sometime after 1PM EST I assume but wondering it is is say half an hour, 5 minutes etc. Recently there was a market reaction to one of the auctions so would be nice to know when there might be a possible equity response
sparketMar 10, 2021 2:54 PM
CPI meets expectations. Though reading into it, seems to have been driven by gasoline and electricity prices. February delivered unprecedented winter weather and could explain the spike in electricity rates. Gas continues to March to its own drum. Consumer Price Index Summary
salmixMar 10, 2021 3:04 PM
I'd guess the CPI was read as a miss
12645731Mar 10, 2021 3:12 PM
Core CPI was 0.1 under expectations of 0.2. (Forex Factory)
sparketMar 10, 2021 3:18 PM
Got it. So since core missed by .1% equities see this as break from inflation. It’ll be interesting to see how the bond auctions go today.
Scott007Mar 10, 2021 6:41 PM
RB are your contingent orders GTC at the 1.52 trigger?
matseaMar 10, 2021 6:41 PM
We're at 1.52 now.
henry.riveraMar 10, 2021 6:41 PM
Hi robert.p.balan, the yields US10Y broke 1.52. however the indices began to fall. Is it still too early to say that the covariance is now positive and no longer negative?
robert.p.balanModeratorLeaderMar 10, 2021 6:44 PM
Can't say for sure HH -- but we will take the long equity trade anyway.
gwizz1Mar 10, 2021 7:01 PM
Is bond auction now?
gwizz1Mar 10, 2021 7:07 PM
38 billion sold. Tail 1bp, B/C 2.38x
That is apparently a fine result.
user.52846056Mar 10, 2021 7:07 PM
gwizz1Mar 10, 2021 7:19 PM
B/C is the bid to cover ratio. Indicates demand for the auction. Over 2.0 is typical of a healthy auction meaning participants still like US debt and aren't as scared of inflation as the street is indicating. Blue sky from here on out?
robert.p.balanModeratorLeaderMar 10, 2021 7:17 PM
ZeroHedge: " . . . on an FX-hedged basis, the 10Y is now far more attractive than either bunds or JGBs so *pension funds* looking for FX-hedged yields will sooner or later make their way to the 10Y TSY."
As we pointed out as early last week, *the central banks* have already been buying long dateds, along with the MOTUs, even earlier than the MOTUs.
No worry until mid month IMO, but I don't think the stimi money (some of which will float into crypto) will offset the forced-month-end-selling and 1.6T in capital gains digestion that have to be absorbed into April 15th..
JPM Now Expects Wave Of Stimmy Buying To Offset Massive $316BN In Month-End Selling
flamarkMar 10, 2021 11:39 PM
Robert, great call on the recent drop in yields.. "everyone" was talking higher yields..
robert.p.balanMar 11, 2021 8:02 AM
Thanks mark. The PAM tools helped a lot.
MARCH 11, 2021
GOOD MORNING EUROPE
robert.p.balanModeratorLeaderOwnerMar 11, 2021 8:08 AM
My gut feel about an irregular wave 2 seems correct -- not a foregone conclusion yet. But realistically we should see a minimum uptick to 1.5500 again -- the CTAs are not ready to concede, and throw the towel yet. Now they see another shorting "opportunity". Tops are always messy.
This will NOT go well with the half-hearted rally in equities. You can clearly see that the positive vibes from the approval of the COVID-19 stimmy bill news has been frontran, and therefore can't be expected to push equities much higher, further.
Tim and I believe that we are now seeing the transition in the relationship between equities and yields from negative, to positive again.
It may also happen that equities will ignore an uptick in yields. If that happens, then we are truly looking at a shift back to the positive covariance.
I was promptly rebuked by the bond market. LOL.
robert.p.balanModeratorLeaderOwnerMar 11, 2021 9:54 AM
THE BOND BULL MARKET HAS RESUMED. The 10Yr Bond Yield rally is over. February 2021 Core CPI was lower January data. Expect benign Core CPI readings to fall even further, until mid-to-late Q2 2021.
RM13Mar 11, 2021 3:10 PM
SPY at 60%, QQQ at 54%, more bullish than in the past.. SPX gamma neutral at similar levels.
fourscoreMar 11, 2021 5:09 PM
SPXL? time to close out profits or more upside to go.
RM13Mar 11, 2021 6:47 PM
Delta neutral leans more bullish, I think we are now destined to hit 400 on SPY, that would get up to 2.5 SD on daily BB... Delta neutral shrugged the selloff we saw recently as a minor bump (it did so in October and February; quick recoveries); delta neutral took a defensive stance in sell off during March 2020 and September 2020, those took longer to recover...
freer7Mar 11, 2021 3:15 AM
What do you think of gold being the leading indicator for the G-V rotation at play?
bogeygolfMar 11, 2021 1:10 PM
If they passed the 1.9T COVID bill with only votes from one party, then there is nothing to stop them from doing a 2T infrastructure bill, a 2T "reform" bill . . .. I would think the bond market will pickup on this soon
12645731Mar 11, 2021 7:29 PM
They passed this using a procedural loophole called "reconciliation" which is only allowed to happen once per year. Normally this is saved for the yearly budget but this bill is really important to Biden / Harris since they tend to get more lame as time goes on and need to get whatever they want done in the 1st 100 days.
inlinescrumMar 11, 2021 8:05 PM
Any future stimulus/funding bills may not be quite as easily passed unless they get rid of the filibuster. Many on both sides of the isle are against doing that. We'll see how long they can keep their party line voting intact.
h.voiceMar 11, 2021 1:16 PM
Do we have an understanding/ indication of when the correlation between 10Yr yield and indices might change? I know Robert has the charts of historic rates and the impact on NDX etc but at the current levels we’ve seen both positive and negative correlations in the past. RTY possibly being the exception
robert.p.balanModeratorLeaderMar 11, 2021 2:52 PM
Mr. Voice -- there is no tool which can tell us that -- we just have to see what happens in real time.
TimK123Mar 11, 2021 5:55 PM
Maybe top of a wedge for NQ coming up any time now:
ptTL9Mar 11, 2021 5:59 PM
Is PAM going to get short, and will it happen this week or next?
robert.p.balanMar 11, 2021 6:33 PM
We are still very long Rita -- we will think about getting short once we are out of the long trade. When will that happen?. Looks like we are in the third wave of wave 5 to the upside.
vons52Mar 11, 2021 10:03 AM
Could you post NQ chart, please?
robert.p.balanModeratorLeaderOwnerMar 11, 2021 10:24 AM
*THE BOND BULL MARKET HAS RESUMED. Primary Dealers and foreign, global central banks are buying massive amounts of long-dated Treasuries.*
vons52 -- let it go von. NQ is riding on falling yields, and I have no idea yet where yields will find strong support. Enjoy the moment.
john.derMar 11, 2021 12:06 PM
Thinking there has been such a one way move in rates down the past few days that today might be a day where they correct up on the jobs report and 30yr auction to provide a good entry point for long TN (or ZB / UB).
robert.p.balanModeratorLeaderOwnerMar 11, 2021 12:45 PM
I was thinking along the same lines -- john.der either a wave 4 or a larger Wave 2.
john.derMar 11, 2021 12:53 PM
Robert - The primary component of the CRB index I believe is oil. This would imply that oil prices have a significant impact on 10yr bond term premium, with the lag you are showing. Do you concur?
robert.p.balanModeratorLeaderOwnerMar 11, 2021 1:03 PM
Very much so john
Almost 60 pct of CRB is oil
robert.p.balanModeratorLeaderOwnerMar 11, 2021 1:21 PM
*THE BOND BULL MARKET HAS RESUMED (2) -- The 10yr Bond Term (RISK) Premium is due to peak this week.*
_The 10Yr Yield and the Breakeven Rate are creations of the 10Yr Bond Term (RISK) Premium_
_The Bond Term (RISK) Premium and Core CPI are impacted by the (lagged) changes of the Commodity (CRB) Index_
*Factors which drive the 10Yr Bond Term Premium and 10Yr Yield: CRB Index, Core CPI, Breakevens are all peaking this week (or have already peaked, as with the Core CPI).*
vm12953Mar 11, 2021 6:26 PM
Does it mean it is a time to load on TMF?
robert.p.balanMar 11, 2021 6:31 PM
Lets see when get get to the end of this upside correction yield.
robert.p.balanModeratorLeaderOwnerMar 11, 2021 3:40 PM
Now, it is starting to look like a real irregular!
federergoatMar 11, 2021 3:42 PM
Sharpness like eagle's eyes, hope we get a pullback on equities
robert.p.balanModeratorLeaderOwnerMar 11, 2021 4:09 PM
RTY is having a great time due to rising yields -- maybe the positive covariance (at least for RTY and yields) is coming back!
That's probably the Second stimmy bill being promised by Mr. Biden.
On second thought, it is probably just the GameStop saga Episode 2.
vm12953Mar 11, 2021 6:23 PM
RB< does it change your predictions for the 3rd week of March about liquidity and equities down?
robert.p.balanMar 11, 2021 6:29 PM
No idea if we will see yields and equities lower together -- Looks like yields and equities positively covary today. Maybe we re seeing a shift back in the correlation. We will now in a little while.
robert.p.balanModeratorLeaderOwnerMar 11, 2021 8:16 PM
There is now enough daylight between our long trade levels and current market. Lets make sure we keep some of the profits, whatever happens.
all PAM PUTS INITIAL TRAIL STOPS TO EXIT 288 LONG ESM1 SCALPERS (BOT AT 3885.25), AT DOWNSIDE BREACH OF 3925, GTC -- ALL FUNDS
all PAM PUTS INITIAL TRAIL STOPS TO EXIT 288 LONG YMM1 SCALPERS (BOT AT 32,082), AT DOWNSIDE BREACH OF 32,200, GTC -- ALL FUNDS
robert.p.balanModeratorLeaderOwnerMar 11, 2021 8:32 PM
OPTIMISTIC EWP SCHEMATA
ANOTHER OPTIMISTIC (BUT CONSISTENT) EWP SCHEMA
SEEING SOME CONSISTENT OPTIMISTIC PATTERNS HERE
These constructs assume optimistic outcomes, possible only if yields will fall further. And I think yields will, tomorrow.
We may be finetuning levels to go long TN futures tomorrow as well.
Perfect levels would be between 1.58 and 1.59 in the 10yr yield.
user.52846056Mar 11, 2021 8:51 PM
robert.p.balanModeratorLeaderOwnerMar 11, 2021 8:54 PM
Just a brief explanation -- No, we are not turning bearish just because I put some trail stops. These orders are just like hedges -- they are used to keep some profits. And we will reset longs if taken out -- these are just risk/capital management moves -- nothing to do with our market outlook.
robert.p.balanModeratorLeaderOwnerMar 11, 2021 9:06 PM
all Modify the YMM1 trail stop to 32,300 (from 32,200), GTC
john.derMar 11, 2021 9:45 PM
I have a hunch that cash market will wake up tomorrow and see that equities and bonds have gone back to their traditional negative correlation.
surfinusaMar 11, 2021 9:53 PM
If I see a gap up open tomorrow (to complete some fractal 5th), then higher probability of a daily red candle.
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