How to Repay $33 Trillion? Bonds Signaling a Problem
Yesterday was, “sell RTY, Buy the NQ”
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Our View
There is always some type of rotation and yesterday’s game was buying the Russell and selling the Nasdaq. I told the MTS chat room that I like these types of markets. These are some of the best environments if you like trading the gaps and trading the rip and the dips.
I want to be honest — I’m not sure if the ES is going up or down. What I can say is, I think we see a pop higher then I start looking at the TLT/bonds and to tell the truth it scares the shit out of me.
I don’t watch much TV, but the PitBull said Rick Santelli was on CNBC yesterday and he said rates are going to 13%. How is the US government going to pay back $33 trillion? They can’t and the higher rates go, the more turbulence it will create. It’s going to set off a domino effect of the likes we have never seen. To me, it’s not “if,” it’s “when.”
Going into today, the Dow (YM) is down 9 of the last 12 sessions, while two of the three so-called “up days” were gains of 0.02% and 0.12%, respectively. In that stretch alone, we’ve seen a peak-to-trough decline of almost 2,000 points.
Our Lean
The bond market is front and center for investors these days, with JPMorgan warning of a “financial accident” if yields keep going up, driving prices lower. The bonds (ZB) are under 112 and are making new lows. This is going to apply more selling pressure on the ES and NQ. The ES just traded 4301 as it leans on this key area.
One of these days, the ES will open lower and not look back. Mortgage rates were 3% (or lower) and are now 8%; we are $33 trillion in debt and there is no way to pay it back. 4290 is a critical level with mega stops just below. Warning lights are flashing. The DAX has sold off 420 points from Friday’s high and is making a new low on the move as we speak.
Look at it like that story I told about a black guy I got off the street — Mike —who worked for me and is still a good buddy today. I bought a house in what most people thought was a bad neighborhood in downtown Chicago after a bunch of garages were broken into. Mike said, you know they are going to get your garage too right? I looked at him and said, “Mike I know they are coming I just don’t know when.”
Our Lean: I still say this is a “sell the early rips and buy the dips” type of market. Yesterday the early imbalance was $300 million to buy then it flipped to $1.136 billion to sell and we ripped higher — to me it feels oversold. That said, if the ES takes out 4290, I think we could see an acceleration to the downside. On the flip side, a close above 4370 and I think we see 4430. Trade the levels.
From HandelStats:
Upside: An hourly close above 4304.25 targets 4313.75, then 4323.25, then Settlement at 4326. Trade above settlement targets 4334.50. An hourly close above there targets 4349, then 4352. Above there and 1sd at 4361.39 is next.
Downside: An hourly close below 4304.25 targets -1 sd at 4290.61. An hourly close below there targets 4279.84. Hourly close below there targets 4270.25, then 4262, then -2 sd at 4255.22.
MiM and Daily Recap
ES Recap 15-min
The ES traded up to 4355, then dropped down to 4309.25 at 9:11 a.m. and opened Monday’s regular session at 4317.25. After the open, the ES traded 4313.50, rallied up to 4328.75 at 9:40, made a new low at 4312.75, back-and-filled a bit, made a 4332.25 I at 11:05, rallied up to 4321 and then traded down to 4310 at 10:44. From there, the ES rallied up to 4321.25 at 10:53, sold back off to a higher low at 4311 and railed up to 4326.25 at 11:04. After the pop, the ES pulled back to another higher low at 4316.25 and then ripped up to 4337.75 at 11:30 and then traded down to a new low at 4300.50 at 12:11, rallied up to 4311.75 and then dropped down to 4295.50 at 12:51.
The ES ripped up to 4319 at 2:15 and then dropped right back down to 4296.25 at 2:41 to a double bottom and then traded back down to 4307.50 as the early MIM showed $53 million to buy. The ES started pushing higher and traded 4316.25 at 3:47 and traded 4311.00 as the final 3:50 cash imbalance flipped to $1.136 billion to sell, traded up to 4329.25 and traded 4324.75 on the 4:00 cash close. After 4:00, the ES traded in a 3 to 4-point range and settled at 4326, up 0.50 points or +0.01% on the day.
In the end, the wild swings carried through right into Monday’s trade. In terms of the ES’s overall tone, breadth was terrible (see below) but the S&P eked out a gain. In terms of the ES’s overall trade, volume was way higher than I thought it would be for a Monday: 340k traded on Globex and 1.558 million traded on the day session for a total of 1.898 million contracts traded.
Technical Edge
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NYSE Breadth: 15% Upside Volume (!)
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Nasdaq Breadth: 45% Upside Volume
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Advance/Decline: 18% Advance
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VIX: ~$18.50
ES
The ES couldn’t take out of 4350 and now we’re sitting on key support as bonds remain under pressure.
ES Daily
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Upside Levels: 4350-70 is big (and was resistance yesterday)
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Downside levels: 4290-4300, 4275-77
Bonds — /ZB
When will the buyers step in? TLT, ZB and other bonds remain under pressure as rates continue to soar. The 10-year yield is hovering near 4.75% and has traders thinking about a potential move to
ZB Monthly
Open Positions
Bold are the trades with recent updates.
Italics show means the trade is closed.
Any positions that get down to ¼ or less (AKA runners) are removed from the list below and left up to you to manage. My only suggestion would be break-even (B/E) or better stops.
** = previously mentioned trade setup we are stalking.
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JPM — Many are long from $143-145. This is a longer term swing. Trimmed $153s, then $157.50+ on 7/24.
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Down to ½ position vs. Break-even stop. Can make small, ~10% position trim if we see $160+
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If worried about a larger correction, can sell/trim north of $150. Below entry and no need to stick around in JPM.
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Economic Calendar
Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.
Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!
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