Discover more from Investor Charts / P1 Analytics
Easy button, over. Trading bonds, stocks etc.
Well, stocks bounced. The gist of early last week was to buy dips. But what about now? Literally every single bounce over the last decade plus has been with: "we are not out of the woods yet". Wow, thanks for the ambiguity! As an asset allocator or trader, how is that even the least bit helpful? Lets stick with the facts:
We retraced 50% of the entire up move.
March Seasonality starting to come together.
Bonds look like they are starting to possibly bottom.
Nasdaq P/E back to historical averages.
Lets start with the significance of the first point. Look, I don't know everything and certainly do not know the future but I do know one thing: retracting 50 percent of a down move means the down-trend is over. Does that mean the chop is over? Absolutely not. However, last week's move in QQQ was the highest week-over-week change since the Covid rally. I still think the risk-reward is to play for the upside.
Furthermore, breadth finally started to improve in a way we have not seen so before. This is objectively a new piece of the puzzle. One of the best ways to get trapped as a permabear is to look at old regimes as a lean for staying bearish on the market. Keep it simple: are stocks going down? Well, they stopped going down.
Volatility has collapsed and I expect it to keep doing so.
I have already shared all of these charts in the last brief but here is the most important one: ARKK held long term trends.
For some long-term accounts, I have been looking at moving away from TIP and and into conventional treasuries based on the blow-off in energy. CPI prints could start to come down a bit but I still expect inflation to remain above average. It is a bold call to try and time this. Furthermore, rates should still continue to go higher in the medium term so buying bonds now? Yikes. I wasted an hour on Saturday arguing on twitter with someone who thought that buying and holding treasuries now for total return to try and time the end of the business cycle was a good idea. Cool story, bro. Rates going up.
One of my key ideas last week though was actually buying some treasury bonds on a tactical basis, especially on the long end of the curve. I think we might see some relative strength on the long end for just a little bit, based on the cheapness of the curve in the 20-year. Higher time-frame, bonds don't 180 like this and if you remember 2013, bonds based for 6 months before QE started and they went much higher.
I also think paying attention to the yen on a tactical basis would be a good idea
The yen provides a great lean for short-term tactical trading on the bonds and I'm starting to see divergences forming between the two. USDJPY made a new high while yields started to come off the highs. If the yen cannot get any weaker, look to pile into a tactical long bond trade.
I'll be back with a DeMARK update after Monday because the weekly open and TD Reference Close on Monday in most large-caps will confirm many signals. Looking forward to then.