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Marking Time Until FOMC Decision; The 10Yr Yield Still Call The Shots In Equities; Sideways To Lower Trend In The Indexes: Looking For Levels To Reset Short Positioning

Jan. 25, 2022 12:51 PM ET
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We are probably looking at the limits of the Wave 4 correction in ES. This EWP illustration eas sent to me by Mr. TK on Saturday.

This is how ES looks now, after Monday's late seeion humongous rally . So my feeling is that ES should consolidate in terms of time from here, meaning it could go sideways to lower until it is ready complete the process by doing Wave 5 -- and that final move may happen after the FOMC.

I have been asked if this sell-off will deter the Fed/Jay Powell from QT or raising rates. The old bromide of a Fed "put" does not apply anymore -- in November, when Mr. Powell laid out the outlines of the tapering and QT process, I said that the Fed basically told the markets -- "you are on your own".

I have not seen any indications that the Fed or Mr. Powell may backtrack from that stance. Especially so now that the Biden administration is looking for a future scape goat for a bad performance during the November election -- and that is to blame the Fed/Powell for massive rise in inflation. My conclusion -- the Fed will stay on track on tapering and tightening. They will provide soothing words to market participants but they will hold the course that they have outlined dueing the November and December FOMC meetings. That will disappoint the markets.

JANUARY 25, 2022

EUROPEAN SESSION BRIEF:

THE 10YR YIELD DICTATES EQUITY MARKET DIRECTION -- WATCH THE YIELD CLOSELY; MARKING TIME UNTIL THE FOMC DECISION, BUT WE MAY HAVE SEEN THE UPPER LIMITS OF THE WAVE 4 CORRECTION; WATCHING THE YIELD CLOSELY TO TIME ITS REVERSAL LOWER, WITH EQUITY FUTURES ALONGSIDE

The 10Yr yield is the master of the markets -- the Yield dictataes market direction and pace. So watch it closely.

It looks like we finally got this 10Yr yield outlook posted early yesterday.

The 10Yr yield is at just about the optimal levels for a wave 2 bounce.

We may see another uptick in rates before finally going lower again -- but note that if rates fall decisively, even during these two days going into the FOMC decision, equities will likely fall as well.

So we have to watch this early tendency for the ES to fall to 4300. If there is a reversal to the upside, likely in response to a final uptick in Yield, then we have to reset the very short term outlook. We are doing this to look for levels to reset our short positioning. If ESH2 falls below 4300, then we can wait for a possible retest of the lows.

But I doubt if we see new lows in equity futures until the Yield moves significantly lower. That is probably the case BEFORE the FOMC meeting. Unless of course a war in Ukraine and/or Taiwan breaks out.

Here is how our models are looking like.

This heroic model flagged the rally waiting in the wings yesterday, that's why we exited and bought back short equity positions, basically at the lows.

This is how this model looks now, flagging further equity gains ahead of the FOMC decisions-

Gold is going crazy --

-- and 10Yr yield is plunging -- any news out there?

Negative reaction from equity futures starting . . .

PAMers point out that this could be the trigger for these moves . .

IMF Slashes Global GDP Growth To 4.4% In 2022, Warns On Aggressive Fed Tightening

"Markets’ reactions to (actual or perceived) changes in Federal Reserve policies will govern how less-accommodative policy in the United States spills over to other countries, particularly emerging markets and frontier economies."

If it is, this is just adjusting to reality -- TimK, Alan Longbon, and I knew about these paltry growth a while back, using my Synthetic DM model as proxy for Global growth -- it leads MSCI-World as well -- and its bad news.

I have been accused by Mr. TK of seeing an irregular in every indecipherable fluctuation od market prices and yields -- and I do see one now, in the 10yr yield . . .

. . . and in the Dow (et al) -- a final dip complete a very iregular Irregular, then another large upmove -- the top of which we will use to reset our short equity scalpers, FOMC or not.

We need to hedge the YM short hedge, if the market goes up ahead of FONC.

We decided to exit some of the short hedges, and stay only partially hedged. We exit the 576 contract RTY and YM hedges.

We will continue updates as market changes require.

We will try to exit the rest of the short positioning during late Asia.Europe session.

Here is how that Irregular correction may play out. Complete the current downswing at circa 4260/50, then rise again. We sell at the top of that rising Wave C -- reset all the short trades we have exited yesterday,

That means the 10Yr yield may still rise during late Asian-European sessions, before keeling over.

Even the liquidity models now suggest a possible two-day sideways move (NY close basis).

We may get to do something on the short side during late Asia-early Europe. I wll see you all there.

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ONE-CONTRACT PORTFOLIO_2022

SWING PORTFOLIO_2022

Here is the status of PAM's 2021 flagship Swing Fund, which includes all trades during the year.

During 2021, PAM delivered phenomenal real-dollar Hedge Fund trading performance, the best at Seeking Alpha:

PAM's flagship Swing Portfolio, year-to-date (December 31, 2021) delivered $348,462,088.52 net profit on $11,172,813 margin capital.

2021 Annual performance: 2971.16%.

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