A Greek Gift

Greeks have given those who hold cash a gift overnight.  A BTFD opportunity.  The market was set up for this as derisking had taken place already over the past two weeks on the Greek drama, and the uncertainty put a lid on any rallies in the SPX.  Now that we finally got the long awaited Greece panic (likely default, not that it matters if they do or don't), those who held cash waiting for this panic to buy are finally rewarded with a buying opportunity.  The only thing left to do is to take advantage of it and ignore the fear mongering and the chicken littles screaming "Lehman moment", "contagion", etc.

I have bought S&P futures overnight at levels where there is a very good risk reward, and I will hold it till the fear dies down, it could be quite a short squeezing rally when the bears realize that their number one bear catalyst could only take down the S&P 1%, and with European indices aggressively rallying off the Greece fear gap down.  This is the bear's worst nightmare.  Their number one catalyst not even able to keep the market down.  There is really just one thing to do here:  Buy stocks.

No One Wants Bonds

The price action in bonds this week has been extremely bearish.  You had the S&P weak the last few days and the bonds are still selling off.  Every bad Greece headline has caused a small spike that has immediately been sold off in bonds.  And today, Bunds are leading the charge, and taking Treasuries down with the ship.  Apparently no one wants to be be long ahead of a Greece deal announcement, which seems like an inevitability now.  Plus you have nonfarm payrolls coming up next Friday, which I am sure bond traders will not want to be long in front of.  So you have the start of another bond panic, this time it looks to be more sustainable and could take yields up to 2.60%, which would be an exquisite buying opportunity IMO.  But before we get there, the market has to panic some more.  It could get ugly next week if we breakout above 2.50% 10 yr yields.

Neutral on stocks here, but will entertain a dip buy if we can have one more down day.

No Edge

The S&P is trading in a way that I can define no edge at the moment.  It doesn't mean that money can't be made, but it is not easy.  I am neither bull nor bear, but if I had to choose, I would go with the bull side as we will be getting more seasonal favorable conditions at the beginning of July, and we'll get the Greece is saved scarecrows coming back to buy after the deal is done.

It is difficult to just sit on hands when sitting in front of the computer but that is probably the best course of action until there is a trading opportunity.  If we get another down day tomorrow, I will consider a long in the S&P, if we can get to SPX 2090.  Treasuries look quite weak considering the S&P weakness, but with month end coming soon, and likely strength, there is no imminent trade here.

Government Bubbles

Over the weekend, with a moment to relax and step back from the day to day battles, I wondered how much longer this bull market will keep going.  I read parts of a book by Ed Seykota called Govopoly in the 39th Day.  It got me to thinking that there has been a massive fundamental shift from a free market economy to one that is more centrally managed and meddled with by the Federal Reserve and the other major central banks over the past 30 years.  As soon as Greenspan became Fed chair, you had the Fed actively involved in providing a put for the market, by pumping money and lowering rates when the stock market got weak.  It just went into QE hyperdrive since 2008 because of the enormous pressure to keep the government dominated system going due to the weak economy.

As a result, you are getting bubbles in the stock market, and even in the bond market, although it is less egregious.  These are not natural markets.  The massive amounts of liquidity make bubbles a rule, not the exception.  You cannot compare pre-2008 with what we have now.  The global economy is dependent on central bank liquidity to keep the charade going, otherwise the bubble pops and you have a massive bear market.  The Fed can't turn back the clock, it is stuck now.  It cannot normalize rates, and that is why you keep getting the can kicked and delay after delay after delay, regardless of the jobs numbers.  The nonfarm payrolls number is irrelevant.  The Fed will find an excuse to NOT raise rates, and then at the first sign of weakness, they will go to their trusty playbook, QE.  This bubble can last for quite a while, because it is still not unstable enough to pop on its own.  And there is no way the Fed will pop its own bubbles.

The global economy is dependent on inflated asset prices to spur the real economy.  The alternative, which would be to print money and have an expansive fiscal policy would bring about an inflationary tidal wave that they don't want to mess with.  The easy thing to do is to just print money, make the rich people richer, and get enough trickle down effect to keep the masses from revolting.

In this new paradigm, you have to be long financial assets.  Making money shorting stocks or bonds over any considerable period of time will be nearly impossible.  If you are bearish, you are much better off buying bonds than shorting stocks.  If you are bullish, obviously long stocks.  The end game will be when you get unstable markets to overly inflated prices, and also rising inflation, and money printing contributes to the problem, rather than solving it.

I thought the Greeks were going for the hard line and waiting for the EU to blink first.  The Greeks blinked, and gave in to make a deal.  I would have gotten long ES if I had the confidence that the Greeks were bluffing again, but they tricked me.  I underestimated the can kickers, they will keep kicking the can, as long as the market reacts to headlines.  The moment the market stops giving a sh*t, the EU will probably tell Greece to go take a hike and then we'll get the Greece default, and not any sooner.  If the market still cares about Greece, the EU will keep kicking the can.

No real opportunity, waiting for the trade to come to me.  Nothing imminent here.

Fed and EU Can Kickers

The EU is notorious for kicking the can on Greece and giving them bailouts, extensions, etc.  Well, they might stop the can kicking before the Fed stops their can kicking.  Yes, the Fed is even more notorious for their can kicking of rate normalization.  The Fed keeps projecting rate hikes in the future, and when the future date gets closer, they kick the can to a further out date.  And yet the media buys it up, believing their forecasts and projections for rate hikes.  The market doesn't buy it.  And the market has been right.

The yield curve steepened massively yesterday after the Fed announcement, as the market gave up on any hope for a timely rate hike, and the 5 yr Treasury note shot out of a cannon, while the 30 year lagged badly, although both rallied.  The market clearly doesn't believe the Fed will raise in September, and is even giving a rate increase by December about a 50/50 chance of happening.

If it hasn't been clear for the last 8 years, the Fed is screaming:  we are market whores, and will not raise rates when equities are falling, even if they are just European equities!  Those who are long term dollar bulls are living in a fantasy world where the Fed actually raises rates actively.

I am waiting patiently for a dip to buy, and only a Greece default will give it to me.  So I am hoping for a Greece default so I can buy on the cheap and ride the rip higher.

FOMC Today and Greece Tomorrow

The FOMC meetings over the past few years have been up days, with very few down days mixed in.  A lot of those up moves happen overnight and we have another pre-Fed gap up, although much small than it was a few hours ago.  I have noticed that Europe is noticeably weaker than the US so far today, looking at the futures, and it seems quite clear that investors are dumping European stocks ahead of a likely Greek default.  But the positive force of the Fed is keep the buying going after yesterday's rally.  I am inclined to lean towards a sell on the Fed announcement today, merely because the next big event should be the one that the market fears, a Greek default.  So I see upside being very limited, even though it is a Fed day, and expect to see selling after 2:00 PM ET.  I don't think the selling will be due to anything that Yellen says, because the Fed's default action is to lean dovish, which they will likely do again here today.  Even so, I don't think that is enough to lift this market much above current levels.  I am out of the ES long and waiting for a dip buying opportunity on Greek default fears in the coming days.  

Most of the action over the past few trading sessions has been to position ahead of a Greek default.  You can see it in the relative weakness of Europe, the bid in Bunds and Treasuries, and the Greek headlines.  Fund managers are selling equities, especially Europe, covering shorts in bonds, and raising cash to sidestep the Greek default event.  This makes it very likely that when we do get a Greek default, the dip will not last long, just because it isn't a fundamentally meaningful event, and most traders will have had plenty of warning to prepare for it.  

So I am sitting on my hands waiting for that dip buying opportunity on Greece default headlines.  I expect a face rip higher once the Street calms down and realizes that a big bad catalyst has been used up and didn't do any damage to their portfolios.  

Gap Down and Go

This is not common.  A gap down that continues lower from the opening bell.  We haven't seen too much of this action over the past couple of years.  It is almost textbook to see buyers coming in off a gap down, especially when it is due to European news.  But we are below the open, after 30 minutes of trading.  It is a bit of a change of character, although I am still sticking with the view that we are in a trading range, and that we are close to the lower end of that trading range at these prices.  That trading range is SPX ~ 2050 to 2130.

These Greece worries have weighed down Europe, but traders will be surprised to see how little the market actually goes down if Greece indeed finally leaves the EU.  I would venture to guess that S&P wouldn't even finish -1% on the day, much less crash like some believe.  And that would just be a set up for a tremendous buy the dip opportunity and new all time highs, as Draghi would overreact and become even more dovish.

It is probably a moot point, because odds are high that they will kick the can again and give Greece an extension or another deal, whatever it takes to placate the markets.

These are attractive levels to buy ES, and I have entered a small long position this morning, expecting a bounce soon.

Grecian Formula

Greece has never had this much power since Alexander the Great.  Greek officials, if they were trading futures, would have made a fortune just by trading off their own headlines.  I'm sure they would have made enough over the years to pay off their debt!  Really, it is puzzling to see the market so enamored over such an insignificant issue, but it is fear of the unknown.  Fear of Grexit.  I am sure the market would make a very slight dip, and rally huge after Grexit, because it would get rid of this uncertainty, and you would no longer have a cloud hanging over the market.  I don't buy the contagion argument, because the bond markets in Spain, Italy, Portugal, and Ireland are telling you that there is no contagion risk.  Spain and Italy 10 yr yields are trading below US Treasuries.

This range bound trade in the S&P really makes it hard to trade the index, and the commodity bear market is making it boring to trade most commodities, which are stuck in tight range bear markets.  So that leaves the bond market, which is giving more action than the conservative fixed income investors want.  There are cries about lack of bond liquidity.  It seems pretty orderly to me, the only time it was disorderly was when Treasury yields spiked lower on October 15, and I am sure the Fed doesn't mind lower rates.  I doubt you have the kinetic energy in this bond market to cause a spike higher in Treasury yields, especially considering the large number of speculator shorts in the market right now.  Remember, the spike lower in Treasury yields on October 15 happened because the bond market was still leaning short at that time.

The best trading is in the bond market right now, which is fine with me.  I have transitioned away from the dull S&P futures a long time ago.

I am thinking that the Treasuries have found a bottom, and we should carve out a range over the rest of the month, between 2.30% and 2.48%.  My plan is to trade that range, the only fly in the ointment is the Fed meeting next week, where I am reluctant to be long into because it seems like with this positive economic data, Yellen will lean hawkish, which could surprise and scare some fixed income fund managers into panicking.  I think we will maintain this higher yield range for at least another month, until we get enough weak hands out of this bond market and the sellers dry out.

Open is Everything in Equities

Today has been a very slow day for trading so-called daytrader stocks.  The active stocks with big volume that are up big or down big.  On a slow day, the first 30 minutes of the trading day, from 9:30 AM ET to 10:00 AM ET become even more critical than usual.  This is especially true for a short seller who will find his best short entries on spikes higher in the first 15 minutes or even right at the opening bell.

If I had to rate the importance of the open on a scale of 1 to 10, it would be a 10.  The lunch time hour would be a 3, and the close would be a 5.  The pre-market/after hours trade I would put at a 7.  Yes, the pre-market/afterhours is more important than the close!  That is when all of the PRs and earnings news comes out, and that is the main driver for most daytrader plays.  That is why you can't just be ready by 9:30 AM and say you are completely ready.  You need to be there for pre-market, so it is preferable to start from 8:00 AM.

If all I did was trade equities, I would put all my energy into being totally prepared and focused for that 9:30 to 10:00 trade.  That means having your watch lists already prepared, game plan for each stock on that watch list, and price levels to sell or buy.

If you are a short seller, most of your entries should be during this 9:30 to 10:00 time period.  If you are a long only trader, most your exits should be during this time period.  Which means that it is much more critical for longs to take on positions overnight, especially if they are trading active stocks.

The trading day is like a microcosm for a trading year.  90% of the opportunities come during 10% of the time.  The open is the key for profitably trading equities.

Bond Pressure

They are shooting at the bondholders.  The sharks are out in the water, looking for anyone long government bonds, it doesn't matter the country.  We are in the heart of the bond panic.  Yes, it can get worse, but most of the damage has been done.  The weakness in the Bunds, where yields got up as high as 106 bps and the coming supply of the 10-yr and 30-yr auctions today and tomorrow are building in a concession quickly before the auctions.

In bond land, the weak hands are out, the medium hands are half in/half out, and the strong hands remain in bonds.  It is a process that happens over a couple of months, you get a big rise in bond yields, and then the market stabilizes at a higher yield level, and waits for the next move, which is usually back to the long term trend, which is down for bond yields.  I am bullish on bonds at these levels, as 2.47% 10 yr yield is an area of support, with 2.50% and 2.58% acting as more minor support.  After the auctions dust settles, we should see lower yields.

The S&P and the global equity markets are trading separately, as Europe continues to underperform the US.  As I said in the past, the hot money flows, currency hedged (shorting euros and buying European equities), are acting as a double whammy as European equities go down while the euro gets stronger, the worst of both worlds for the currency hedged European equity buyer.  I expect to see European underperformance continue, because the investor community is still overweight Europe despite better fundamentals and supply demand dynamics in the US.

Can't Catch Them All

You will sometimes miss opportunities.  If you cannot accept that and always need to try to catch every move, what ends up happening is that you end up compromising your entry points and chasing.


For example, let's say that you were waiting to buy 10 year Treasuries at 2.45% yield on Friday, and it got to 2.44% yield, so you missed it.  Then you see the bonds bouncing from the reflexive selloff and you decide you need to get this move that you've waited 3 weeks for and chase to buy when Treasuries are at 2.41%.

So by missing your original target entry point by .01%, you get in at .04% higher than originally wanted just to try to catch that bounce move.  This ruins profitability.  If you can just stick to your setups and not let it bother you when you just barely miss your entry points, you are more than half way there.  Sure, a big part of trading is recognizing what is likely to happen with a stock or bond or commodity, but an equally big part of trading is maintaining psychological discipline and not get caught up in things like fear of missing out (FOMO) chasing, revenge trading, and trading bigger/averaging down to make your money back quicker.

An underrated aspect of trading is learning to accept being imperfect.  Part of being imperfect is missing opportunities that slip between your fingers, selling or buying a bit too early, missing the bottom by a day or two, or selling for a quick loss right after you get in because the stock just doesn't feel or act right. Sure you feel like a idiot, selling 10 minutes after you got in for a quick loss, but if the original buy was a mistake, there is no need to compound that mistake by holding and hoping it goes in your favor.

 If you always strive to be perfect, you end up falling into overtrading traps:  microtrading, trying to catch every wiggle, or just flat out chasing when you missed your entry and the price gets away from you.  

I have been sucked in to those pitfalls many times in the past, and it is a part of being a human trader.  Sure, if you can computerize everything, you get rid of many of the psychological hurdles, but you also eliminate a huge part of trading, which is predicting the future based on hard to quantify intuition and experience.  That is why I continue to just trade discretionary because this intuition and experience is a big part of my edge, something I cannot program into a system.

It is a rather uneventful Monday morning, the Treasuries are slightly higher from Friday's close, while Bunds are a little bit lower.  Unlike the last spike in Bund yields in May, this bounce off the bottom is much weaker, and the yields have been staying above 85 bps for most of today's trade.  It seems like yields want to go higher again this week, to test the longs one more time before we get a lasting bounce.  I am looking for another run higher in German Bund yields this week, which should pressure Treasuries.  Still waiting for 2.47% 10 yr.

Strong Nonfarm Payrolls

I want to buy the dip in Treasuries.  But I know that based on the trading since May, a change of sentiment has occurred, where bond investors are now risk averse and will be less willing to bid for Treasuries on down days.  You saw that earlier this week.  It doesn't make me bearish, but you have to be selective now when going in to buy weakness in the bond market.  It isn't like the dips that you saw last year or even earlier this year.

Unlike stock investors, bond investors are much more risk averse.  When downward volatility picks up, the fixed income managers become turtles.  They shell up.  Play defensive.  And they don't get out of that shell right away.  It takes time for the tide to shift.  As early as a week ago, I saw a lot of complacency from bond managers, saying the economic data was weak so Fed would be sidelined.  What I interpreted from the price action over the past month in Treasuries was weakness in the face of economic weakness.  That is not common.

In the stock market, you see a lot of V bottoms, not so in bonds.  That is partly due to the risk seeking behavior of stock investors, who fear missing out on the next rally.  Bond investors fear losing more money.

Bonds are not where people go to for outsized returns, it is for those looking for steady income.  That is why you see fixed income managers get so defensive and sell all at once and don't buy back for a while when returns become negative.  It is due to their natural caution towards higher rates.

The Treasury market is slaven to German Bunds, and has been for over a year.  The German Bund has been the driver for lower yields, and now that has clearly reversed.  Eventually the Fed will become a more important factor, but now most of the focus is squarely on the Bunds and how much weaker it will get.  I do see it getting weaker, but not beyond 1.10%.  So it should be safe to buy dips going forward, but you have to be selective.

I have no opinion on the S&P, it looks stuck in a tight range and is neutral to me.  Too neutral for me to trade.

Liquidity Vacuum

The German Bund market is trading like a penny stock.  There are giant moves down and then just as massive reversals higher.  We got another V bottom today in the German Bunds, after taking the yield to 99 bps, obviously someone was buying with both hands at 1.00% support.  From high to low, Bunds moved 16 bps, closing at 83 bps.  That is a hammer if I ever saw one, not that technical analysis means anything.  All it proves is that predatory HFTs can take a supposedly liquid market to extremes by pushing losing hands into their stop out levels on the way down, and then go the other way, buying and buying until short selling faders puke out their positions on the other side of the V.  This is a paradise for predatory HFTs that wait for real money trades, the piece of meat dangling in front of algo driven sharks.

We finally got a selloff here in the S&P, as we continue to trade sideways, continuing a mind numbing dull trade.  You cannot pay me to trade the S&P here.  I will not touch this action, it is completely devoid of emotion and edge.  I am sure the HFTs are the majority of the volume here, as no human in their right mind except degenerate gamblers and hedgers would trade this dreck.

It is getting very close to the point where you can get long Treasuries and Bunds for a long term hold.  2.47% 10 yr yields and 1.08% 10 yr Bunds are attractive levels to buy for the long term.  Perhaps a strong nonfarm payrolls report and a more hawkish Fed in June will be the catalyst to get to those levels.

The Bund Storm

The Bund dropped another 17 bps today.  That is a 34 bps move in 2 days, going from 54 to 88 bps on the 10 yr Bund.  These are mythic moves.  This is wrecking the global fixed income world, with 10 yr yields testing the YTD highs of 2.36% today.  It looks tempting to buy the dip because it worked so well in May, but the problem here is that there is a nonfarm payrolls report coming out on Friday, and I have a feeling that we will get a strong number considering the low jobless claims numbers in May.  Trimtabs is predicting a 273K nonfarm payrolls number for Friday.  They have been wrong often, but they get the general trend correct, and it still shows strong jobs gains despite slowing GDP.  You can thank McJobs for that.

Despite the big selloff in bonds, the action the past few months show how tough it is being a bond bear.  You get paid on a long term short position maybe for two months out of the year.   And it usually happens all at once, so if you aren't on the bear train, or jump on midway (tough to do in fast moves), you miss it for that year.  And then it is Chinese water torture for the next 10 months as yields drip lower and also have to pay carry to hold the position.

It is almost time to put on a long term position in Treasuries, I am waiting till after the nonfarm payrolls number and would like to get in closer to 2.45-2.50% 10 year yields.  These are interesting times in the bond space, quite the contrary to the dull trading in S&Ps.

Bond Panic Part 2

Looks like we are setting up for another bond panic here.  The 10 year yield refuses to drop below 2% and the German Bund got destroyed today, going up 16 bps to 0.71%.  The volatility in the Bunds are extraordinary.  It is not common for bonds to move more than 7-8 bps in a single day, but those long Bunds have been panicking when things go downhill.

It looks like we could test 2.40% sometime this month, as the Fed rate hike fears and Bund weakness combine to cause a risk off scenario for fixed income investors.  I am not going to short to try to capture that move, as the short bond trade is a little too crowded for me.  If we do get that bond panic, it should set up a great long term buying opportunity for bonds.

S&P remains untradeable, and seems like there are still too many bears for my liking to take a shot on the shorts.

Small Cap Speculation

This market definitely is making traders work for everything they can get in the futures space.  While the excess speculation is providing many more opportunities in small cap stocks.  Bull markets in stocks and bear markets in commodities are the worst times to be a futures trader.  But those bull markets in stocks are great times to be trading speculative small cap stocks.  A lot of newbie traders come in during those times and cause excessive moves in the flavor of the month.  The flavor of the month is biotech.  I have never seen so many questionable biotechs running higher as I've seen over the past month.

Interestingly, you are not seeing much speculation in larger cap speculative stocks, like a TSLA, or a SCTY.  It seems like those stocks already had their day and are too high to get traders to pump even more.

Seems like we have Greece monkeying the market around overnight.  The latest is that there are rumors of a deal.  Seems like a slow news day when Greece is at the forefront with their deal/no deal rumors.  Nothing to do here.