Credit markets are truly forward looking. Equity not so much. History clearly shows credit should never be ignored. There have been three large divergences between equity and credit since the late 90′s and each time credit forced the hand of equity.
Here we are once again on the eve of a possible breakout in the entire treasury curve to new all time highs (low yields). History does have a way of repeating when it comes to the capital markets.
Below is a 15 year comparison of the 10 year yield and the SPX. Also note the orange circles outlining that
You need to be logged in to see this part of the content. Please Login to access.
No Responses
Pretty amazing what the ECB’s stealth QE has done to the short end of the bond market. Italy just got away €8.5B of 12-month bills at 2.735%, down from almost 6% at an auction in December
AK, as i said i would do, my short term indicators calling for some type of pullback, likely pretty minor one though – i will have to see how mkt acts and what levels get taken out. Could be one last push up, but this is clearly about it for now. I may be a little early, but like Livermore, I dont need to catch the proverbial last “8th.” I have already done exceedingly well. Pullback will most likely be pretty choppy, so “could” tread mostly sideways too…
I still differ from Tony, at some point in this pullback this is very likely to be a “good” buying oppty – but I will let my indicators tell me when the time to buy ‘em back is. I dont need to force my own judgements on anything. 80-90% of traders go “out of business” for obvious reasons.
so far at least the stock and currency futures have taken some pretty crappy retail and employment data in their stride which isn’t the behaviour of a market running on hyped up bulls.
I too expect some form of consolidation or minor pullback but looks pretty solid for the moment.
Brent Agreed. My short term indicators can be pretty sensitive and as I’ve said before on this board, they are often early. My intermediate term indicators still bullish though (for now), which is why I said will very likely be another buying oppty on weakness. I will let it play out first before jumping back in. I need to see what levels get “taken out”… The first important one is 1287-ish ES, so far it has held in though – so we could still see yet another push up…. We will see
Mark and Brent….I wish you 2 would go kick your indicators in the shins and teach them whose boss. Make them be nicer to the rest of us. :_)
Thank you Brent and Mark! You guys are making some good calls and we thank you for sharing your thoughts.
Brent, was the volume there though? I can’t help but feel it’s the liquidity largesse of the ECB keeping this thing afloat and each liquidity injection since QE1 has had diminishing impact. Sure, I see the sugar rush having some legs but I don’t buy the “economy’s improving/decoupling” thesis. It’s the printing which is driving this for the moment.
I just saw this right now…am not a subscriber to his service, was sent by a friend, but fits what my own indicators are saying, FWIW.
“DeMark counts on 60 mins, day, week, monthly say be careful over next 2 to five days – numerous markets… “
i agree…in the background it seems the currencies are reprogramming themselves….as painful as this is for me right now, i think today was a necessary day for the bears
just weird action though…can’t quite put a finger on it…..maybe i’m wrong – i know i haven’t been too right before…euro may squeeze more
the other thing that really doesn’t make sense to me is copper….no idea whats going on there – that looks full bull right now
Whilst I agree with the theoretical basis for the trade, the constant interference by planning authorities is causing these market dysfunctions. As ZH reports, following LTRO there was massive short covering and going into February’s LTRO, I am sure few will want to be short – and so it goes on. I wonder if the ECB will ever satiate its appetite for money printing. An insolvent central bank lends to insolvent banks which lend to insolvent sovereigns. How elegant. Each time the market “should” correct, it won’t be allowed to.
AK, I’m sort of wondering the same thing too. We have record low short interest, completely wacky sentiment levels and unusually low volume, yet the markets keep wanting to goal seek that 1300+ level. The intra-day patterns look awfully familiar where we either gap up overnight and ghost sideways during the day or we gap down in the morning and melt-up during the afternoons. Nothing seems to want to keep the beach ball down. Superficially it looks similar to the price action during QE2.
I can’t help but think that some of this liquidity is somehow ending up speculating on equities or there is some kind of sector rotation out of Europe and into the US capital markets. But what do I know.
I guess my only fear is how long these divergences can last, there don’t seem to be any reliable timing indicators out there right now.
Hi AK – I don’t buy the decoupling either………..just trading the market as I see it. I’ve mentioned several times in recent weeks I could see similarities in various markets to Sept 2010 when QE was signalled and it does have that feel. I really can’t quantify how long this will last – I just hold a trade until something says STOP!
I don’t follow short interest actively as I think it sorta shows up in other indicators anyway (one oversold indicator vs another) and I think if memory serves correct short interest was low before the big late Nov rally ,so I think it can be a good indicator of potential for a strong rally but it doesn’t rule out a strong rally if it’s not present either .
Short interest in the Euro was at an all time high recently though I remember reading somewhere , so it can also vary across markets.
I’m itching to get short again as I always feel better when my position matches my broader view. The hard thing is to go against your view when you feel the market says you should.
But again we get down to timeframes. You could easily argue the right long term trade here is short (as long as you’re prepared for some big equity pullbacks) and the right short/medium term trade is long
Thx for the post. I had already noticed that the equity rallies go hand in hand with higher rates. The absence of this from the latest rally is a warning signal & leads me to believe that the risk asset rally is primarily the result of government intervention, at least of some sort. A scan of ETF performance shows that being long treasuries and equities has been the right trade the last few months – doesn’t really make sense. Your chart gives this historical perspective.
[...] such as the dollar and U.S. Treasury bonds. Analyst Tony M. discusses this in a brief entry: "There have been three large divergences between equity and credit since the late 90s and each … Another analyst, M3 Financial Analysis, posted a series of charts of the eurodollar, the dollar [...]
[...] Analyst Tony M. discusses this in a brief entry: “There have been three large divergences between equity and credit since the late 90s and each time c… [...]
[...] as the dollar and U.S. Treasury bonds. Analyst Tony M. discusses this in a brief entry: “There have been three large divergences between equity and credit since the late 90s and each… Another analyst, M3 Financial Analysis, posted a series of charts of the eurodollar, the dollar [...]