Market On Open - Thursday 4 April

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No Hikes In Sight, Stonks Up - But What About Bonds?

So far the fear in advance of the Powell speech has proven to be just another equity dip to buy. We’ll see if that continues to be the case but at the time of writing (0430 Eastern) the upward trend in equity indices since the October 2023 lows remains intact.

It should be noted that energy stocks, ETFs and commodities are on the up at the same time as growth stocks. It could be that there is a rotation underway from growth (fakeout up whilst under distribution?) into energy, like in late 2021. Personally I have been building a long oil position using $UCO, but I have not rotated capital out of growth. I think if growth starts to sell off - really sell off - we will see it. For now my working hypothesis is that persistent inflation can lift most all risk asset prices - commodities and equities anyway - for as long as the Fed doesn’t drop the hammer with a rate hike. The question which is harder to answer is bonds, specifically US treasury bonds.

Here’s $TLT (you can open a full page version, here).

US federal bonds hit the deck not at the October 2022 equity lows, but in October 2023. The air of rate hikes had led to significant shorting of federal bonds and, most likely, the year-prior launch of a bull market in equities had led to some rebalancing of portfolios out of fixed income and into equities. None other than Bill Ackman, who it should be noted sits on a key Federal Reserve advisory committee, called a halt to the trend when he Tweeted, it’s time to stop shorting bonds. And lo and behold, yea verily did bonds riseth at the behest of Lord Ackman. The reign of King Bill I (Gross that is) was declared finally dead and buried. Long live King Bill II!

$TLT - a proxy for US federal bonds - rose right away and has since put in around a 50% Fibonacci retracement. Here’s where $TLT stands right now. (You can open a full page version, here).

I've placed the Wave 2 low at yesterday’s low, but TLT could drop to $84 or so and a bullish longer-term pattern still be in play. If rates drop then we may see bonds move up; if rates are hiked then we may well revisit the Ackman Line In The Sand; rates flat with a chance of a drop, unclear. Personally I have a small position in $TMF (3x daily TLT) which is a tad underwater; I’ve realized small scalper gains twice this week using $TMV (3x daily inverse TLT) and I have way overhedged TMF using UCO (2x daily long crude oil futures). My logic being, if inflation up, oil up; if bonds rise too, all well and good, but if bonds fall then (1) I will probably continue to seek scalper gains with $TMV and (2) I am roughly 5:1 UCO:TMF so gains in oil ought to more than offset losses in bonds.

As regards equities, I continue to look upwards towards year end. So let’s check in on our usual charts - we cover the US 10-year yield, the S&P500 in three incarnations (SPY, ES, UPRO), Nasdaq, the Dow and the Russell ditto (unlevered ETF, futures and 3x leveraged ETFs in each case) - plus some sector-specific levered and unlevered ETFs. We do this daily for our paying members here, whether you are a member of the Inner Circle or our Market Insight membership tiers.

If you’ve yet to sign up for one of the paid tiers here? You can do so from the links below. The signup links below will give you the options, but if you have any difficulties signing up, you can reach us right here.

By the way there’s a (for me at least!) useful thought piece on trading bonds below the paywall.

Short- And Medium-Term Market Analysis