Thinking about this for the 26th:
1) Treasuries up on equities fear.
2) Oil up to 140.
3) Equities seem in a capitulative mood (note I'm not calling a bottom ... just that the negativity is running extremely high).
4) VIX still low.
The best conclusion I can come up as a responsive trade going into next week is to buy some 10 yr treasury ZN puts. My logic is this:
1) with futures edging up and lack of substantial data tommorow, will the yield fear trade have enough juice to continue if oil keeps up with its technical ascent? I say no. The inflationary tendencies are impossible to ignore, and yields either break OR -crude- breaks. Selling pressure on ZN.
2) If crude fails the 140 line and recedes on Thursday's EIA' bearish fundamentals rather than Libya talk-up (its pulling back right now), the market rallies and the fear trade (long treasuries) is off too. ZN down.
3) I am wrong if the S&P market crashes tommorow - but when in the world does the market crash when everyone is expecting it? The negativity was extreme.
I read this and it turned me off from being bearish stocks:
http://blogs.wsj.com/marketbeat/
(being such the contrarian I tend to be)
4) We'll see about follow thru, but VIX is not being aggressively bid. I think the equities is much less levered than earlier in the year and that explains this. Everyone and their mother is already short.
So buying ZN puts is a proxy to getting long the equities market, but has potential even if the market falls lower as today's fear recedes. Oil continuing the ascent is good for bond shorts on a long term historical precedent (yields in the Volcker days serve as example), and oil falling is good for bond shorts on a recent market behavior precedent.
It just makes sense. I like short bonds here and am not interested in my earlier in the year long bond bias anymore as we are already so far into the this 'crisis'.
Any thoughts?
1) Treasuries up on equities fear.
2) Oil up to 140.
3) Equities seem in a capitulative mood (note I'm not calling a bottom ... just that the negativity is running extremely high).
4) VIX still low.
The best conclusion I can come up as a responsive trade going into next week is to buy some 10 yr treasury ZN puts. My logic is this:
1) with futures edging up and lack of substantial data tommorow, will the yield fear trade have enough juice to continue if oil keeps up with its technical ascent? I say no. The inflationary tendencies are impossible to ignore, and yields either break OR -crude- breaks. Selling pressure on ZN.
2) If crude fails the 140 line and recedes on Thursday's EIA' bearish fundamentals rather than Libya talk-up (its pulling back right now), the market rallies and the fear trade (long treasuries) is off too. ZN down.
3) I am wrong if the S&P market crashes tommorow - but when in the world does the market crash when everyone is expecting it? The negativity was extreme.
I read this and it turned me off from being bearish stocks:
http://blogs.wsj.com/marketbeat/
(being such the contrarian I tend to be)
4) We'll see about follow thru, but VIX is not being aggressively bid. I think the equities is much less levered than earlier in the year and that explains this. Everyone and their mother is already short.
So buying ZN puts is a proxy to getting long the equities market, but has potential even if the market falls lower as today's fear recedes. Oil continuing the ascent is good for bond shorts on a long term historical precedent (yields in the Volcker days serve as example), and oil falling is good for bond shorts on a recent market behavior precedent.
It just makes sense. I like short bonds here and am not interested in my earlier in the year long bond bias anymore as we are already so far into the this 'crisis'.
Any thoughts?