These are just some preliminary thoughts about today’s session. I will make the detailed trade illustrations later tonight. The only trade I did today was a short in the S&P 500 futures in Globex, as I was not in front of the screens during regular hours. Nevertheless, I can illustrate some trades I would have taken. Both Tuesday and Wednesday were good roadmaps for today.
We held at the Weekly Expected Move low after dipping below it. But we closed under the 5-day line and right on the Algo trigger, so not quite the full recovery we have experienced the last few sessions. But nothing terrible happened either.
My concern, however, is the rip-your-face-off rally in U.S. Treasuries – e.g., the TLT (ETF Treasury Sector Fund). The TLT has blown through its WEM high for four weeks in a row. The converse of the treasury rally is lower interest rates. Contrast the TLT gains with the breakdown in Homebuilders (XHB) and Transports (IYT) – both economically sensitive and down nearly 3% today. How does that make sense? Why are treasuries rallying so hard and economically sensitive sectors breaking down? Is this just rotation? I am not so sure. All of this points to economic weakness ahead, but why? I need to get to the bottom of this.
Generally, treasuries and stocks don’t rally together for very long as they have these past few weeks. This is exactly what happened in January 2020 – right before Covid hit. Granted, the NASDAQ 100 and growth stocks have benefitted from the lower interest rates, which makes sense more than economically sensitive stocks breaking down.
But why are the FAANGMAN+T stocks carrying the market again? Is this simply a reflection of lower interest rates, or Is this a reflection of the new China Virus variant concerns? Why is *President Biden sending people door to door to check on and encourage vaccinations?
I have never seen such an obsession with vaccinating people in my lifetime – especially when the U.S. survival rate for those that get the China Virus is 99.7%. Is this just a control thing? Is it political, some kind of power grab? Is there really a nanochip in the vaccine? Or, more likely, does the government know something about this manufactured bioweapon that they are not telling us – such as it will morph into something far worse than we expect? Did you see Warren Buffett’s warning about worse pandemics to come over the weekend?
The dislocation in the Reverse Repo market is equally concerning. There are too many unused (un-loaned) “bank deposits” in the system, choking the overnight Repo market. This is very complicated stuff – but concerning nonetheless.
I know these are random thoughts, but when things don’t make sense and two markets cannot be simultaneously correct, something is amiss. At these valuation levels, there is not much room for error in the stock market.
If you have any thoughts, drop me an email at info@bluprinttrading.com.
Anyway, second-quarter earnings are just around the corner.
More later…
A.F. Thornton