Key To Taking Some Profits From PAM's All-In Short Positioning Is Where The 10Yr Yield Finds Firmer Support, In The Short Term

DECEMBER 20, 2021

EUROPE SESSION BRIEF:

KEY TO TAKING SOME PROFITS FROM PAM'S ALL-IN SHORT POSITIONING IS WHERE THE 10YR YIELD DECLINE WILL FIND FIRMER SUPPORT, SHORT-TERM

We have always said that the 10Yr Yield changes are key to understanding the subsequent behavior of equities and equity futures/ETFs. And it is now the case that the TNH2 futures are fast approaching the 148-12 technical resistance provided by the recent top (see chart below).

That TN futures top is approximately the bottom of the 10Yr Yield at 1.3350 level.

This is where we buyback some the massive short hedges and overhedges we have put in place, to protect whatever little long positiniong that we have on the upside. These are minuscle compared to the massive short position that we have in currently in place, at a ratio of 1 to 5.

We positoned big to the downside, following our analysis early Friday, last week, that breach of the 10Yr yield support at 1.41 wil be followed by waterfall-like decline in the Yield down to 1.3350 area.

Given the information provided above, it make sense to cover or buy back our massive short positioning. This is not the end of the Yield decline, by any means, but we can always reset the short positioning in an expected small recovery.

The 10Yr Yield still has some ways to go, on the downside, if our liquidity models are correct. So far, these have models have performed superbly, enabling us tremendous outperfomance in the equity futures trades.

This forward looking construct, in which we modeled the behavior of global central banks' purchases of US securities, and the response of the Primary Dealers to that behavior. Even as early first week of November, it has already been pointing to a year end trough for the 10Yr Yield.

However, given the information provided above by our high-frequency real time analysis, it makes sense to cover or buy back our massive short positioning. This is not the end of the Yield decline, by any means, but we can always reset the short positioning in an expected small recovery.

HERE IS HOW THE PAM GURUS LOOK AT THE MARKET TODAY:

BRIAN WALTON @b.dubya

RAFA K @RM13

PETER FURLONG @peter.furlong

INFINITY LOOP @infinity.loop

BEAM @lowerlightbebeaming

HOZ @capitalHZ

It looks like we could see the 1.3350 Yield level late in the NY day, or possibly in Asian trade Tuesday.

We will continue the updates, as the market makes notable progress.

We will now look to buy back this heroic YM stranded short hedge (Accountant attributes more than $15million hedge and overhedge profits arising from its use). We are sorry to see it go, but if we see breakeven, we buy it back.

The Yield and Gold has gone back into a good negative covariance -- hence Gold falls while the yield is rising. If the Yield falls further as we expect, then there might be a good basis for thinking that Gold should resume its rally.

GCG2 has gravitated lower and reaches 50 pct retracement at circa 1785. The next GC rally may start there. We will offload GC shorts which are showing some green.

Bank Reserves grow when the the Fed increases monetization relative to Treasury Debt Issuance growth, vice versa. In turn, Gold price generally rise when Bank Reserves grow faster than the growth of the Treasury General Account, after a few weeks lag.

It is becoming apparent (to me at least) that ES and the rest of the market are probably doing wave 4s, and the series completes with one final sell-off, and a trough tomorrow, Tuesday.

See you all in Asian trade Tuesday.