Friday, May 15, 2015

Calm after the Storm

That was a giant storm that just passed through the bond space over the past 2 weeks.  It is a once a year type move, except last year skipped the panic altogether because it was a such a bond bullish environment.  This is not going to die down quickly.  It doesn't mean I am bearish, it just means that I am not very bullish, or at all sanguine about the bond market over the next 2 months.  The ideal game plan for this environment is to buy those panicky dips, because they will happen on a regular basis, but you have to sell the short covering rips in order to have the dry powder for the next round of potential buying opportunities.

This is not a buy and hold bond market like you had last year.  You have to stick and move, jab and step.  Get your points at opportunistically and get the hell out of there.  At the same time, I am unwilling to play short on bonds because you never know when all this bond negativity reverses and we go back to normal trading.  I cannot go short bonds except for really good setups after we've already moved so far down.  Plus, I would rather short Bunds than Treasuries if I want to short bonds.  Bunds are the source of the weakness, and have been leading this downswing.

Equities are at all time highs.  It doesn't surprise, what surprises me is if we had a swoon lower.  I am rarely surprised by a show of S&P strength, especially when I see nervousness on CNBC about rising interest rates being a reason to sell equities.  That never lasts for long.  We will continue to go higher, with the corporate buybacks leading the charge.  You cannot fight that torrent of cash going towards equities.  You need to see a lot more IPOs and secondaries to justify a long term down move.  We haven't seen that yet.  When we do, that is when I will look to establish a long term short on S&P.

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