What To Do With This 10-Year Yield
Like the old saying, “If
you live long enough you see just about everything.” I state this
simply due to the rather odd events unfolding presently in the markets. A bond
market massacre, and an equity market relatively resilient, although yesterday
afternoon’s swoon may have been the result of traders finally taking notice of
bonds (just a crazy thought). Nonetheless, despite recent range-bound sessions,
the market is throwing off all sorts of mixed signals. Yes, the trading is darn
right tricky in here, but I sense something brewing. What it is I honestly do
not know, but there are too many cross-currents and contradictions for this to
end in an orderly way. Time will tell.
Out of the gate, I was really excited due to the
employment numbers. I have been doing very little HVT
trading due to the lack or intra-day range, so I was positioned
(trades that last 15 or 20 minutes, or perhaps all session) on the long side
right out of the gate in hopes there would be some solid follow-through. I had
chosen Amazon (AMZN),
Boston Scientific (BSX) and
Imclone (IMCL) based on their charts. This
is standard during the summer, that is what gets you through. After being
stopped out and then re-establishing the same positions, gains were to be had,
albeit nothing as I had expected. While one can never ‘expect’ the market to
follow what you believe will happen, when you get such a deluge of positive
economic news (at least that is what the headline numbers indicated) it seemed
real strange that more follow through was not evident. I can only assume it is
the bond market.
Most observers believe that a recovery will be
tepid at best; any exogenous shocks and the frailty becomes even more
pronounced. Given that much of the hoopla surrounding the markets recently has
been housing and retailers, the recent surge in rates will certainly have an
impact. However, at present the market seems to be ignoring it.Â
Can a 43% increase in the yield on the 10 year go
unnoticed, or more importantly, not have some negative impact? Sure, but that
seems unlikely. Think about the big banks and institutions who are licking
wounds or perhaps worse as a result of this. Mortgage rates up over 1% in the
last few weeks. Bottom line, rates are still historically low, but the rise may
be just enough to do damage to an already frail picture.
It is safe to say that after the opening
yesterday, there were few opportunities. However, the market always catches you
when you least expect it. The move at around 3 PM EST, see chart below, has
simply dropped us right back into the nasty trading range, 989 no less. Today
will be dictated, at least initially, by the employment data. I say initially
because you simply do not know what they will do after the news is digested.
If
the news is viewed real positively/negatively, look to do these types of trades:
1. Fade the opening gap (assuming no run-away
moves)
2. Get positioned after the first 5-10 minutes
with the predominant trend.
3. Rely more on 5-minute charts, but use all the
same rules and strategies that you employ on a 1-minute chart.
The run-up in rates begs another question, “What
about housing stocks?” Well, this is certainly a negative. Refinancing and
mortgage applications are way off, but more importantly, stocks like
Centex (CTX) are beginning to break down.
While the housing stocks are notoriously
volatile, the potential on the short side could be quite good.
It looks the employment numbers came in a bit
better than expected, although probably not enough to give the market an upside
surprise, perhaps a few more days in the range, we will see.
| Support/Resistance Numbers for S&P and Nasdaq Futures |
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As always, I welcome your comments and questions.