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Attachments: Yieldjunkie's Short-term Sentiment: Indices, Macro Risk Env
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Yieldjunkie's Short-term Sentiment: Indices, Macro Risk Env

  • #21
  • Mar 25, 2021 10:11am Mar 25, 2021 10:11am
Exciting day ahead with the auction in focus. Nasdaq futures sold off into US close yesterday and found little support overnight. Early morning support, which has been fairly consistent over the past week, was weak this morning and after a brief spike into the open it's been almost all selling since. Going to be a choppy day.

At the moment I'm seeing broad-based USD support - one thing I have much to learn about is the speed and strength at which the carry trade comes into play, as I expect we'll see upward pressure on the dollar for at least a quarter.
Live Challenge All Time Return: 171.5%
  • #22
  • Mar 25, 2021 12:25pm Mar 25, 2021 12:25pm
7yr auction was somewhat of a dud - overall it was confirming of my sentiment on yields, but it wasn't as ugly as the prior 7yr auction so no major knee-jerk selloffs. That much doesn't entirely matter, this is a slow moving and very heavy train we are dealing with. I'm certainly going to extend sentiment on this trade - I expect yields to continue to slip upwards and choppiness in tech and US corporate bonds to ensue, with pressure to the downside.
Live Challenge All Time Return: 171.5%
  • #23
  • Mar 30, 2021 12:39pm Mar 30, 2021 12:39pm
Quoting yieldjunkie
10-25 days: Negative sentiment for risk assets post-UST auction. I expect auction high yields to reflect an increased premium requirement on behalf of institutions to own USTs. Higher UST yields relative to SP500 dividend yield is going to attract capital flows if frothiness in equities continues, as the volatility is costly and TTM gains in equities are substantial. I expect realization of those gains at the margin. Higher UST yields (lower prices) will also incentivize traditional hedged corporate bond managers to reduce bond positions as they...
With the last day of the quarter tomorrow, 10-year UST yields continuing to capture media attention (currently just ~1.71%), and my position remaining green (though nothing impressive).. I'm extending sentiment out for another 20 days.

There are a number of headline items which would provide further downward pressure on US equities, the most significant being the proposed Biden tax plan. I have read some semi-compelling cases for higher tech despite rising yields but I'm not at all convinced. The premise of those arguments all seem to rely on 1) "bond yields settle(ing) back within a range; 2) significantly longer time horizons than my planned trade; 3) continued innovation driving seemingly endless earnings beats; 4) performance comparisons relative to assets like US corporate bonds, which I also consider to be short candidates.

That means that for the time being I'm sitting back and letting the trade play out.
Live Challenge All Time Return: 171.5%
  • #24
  • Apr 1, 2021 2:28pm Apr 1, 2021 2:28pm
I certainly missed a few opportunities to take profit and reload the trade but I likely would have been limited to <10% gains. I seem to have landed on >10% as my threshold for any circumstantial recycling of this trade, in portions of no more than 75% of my total position.. and I'm going to go ahead and jot that down here to cement the rule since it seems to have stuck (based off a nearly identical set of trades from earlier this year, which I will leave out the details of since I didn't share it ahead of time and closed the entire position before opening this one.)

I tend to let the profit taking portion of my trades materialize with new information and as I navigate the positions I take, rather than pre-determining the thresholds. Call it human weakness, but it's how I like to trade when conviction is high.
Live Challenge All Time Return: 171.5%
  • #25
  • Apr 6, 2021 10:20am Apr 6, 2021 10:20am
Added at $11.5656 as the ETF broke below it's 52-week low this morning - should leave my cost basis for the position ~$12.89
Live Challenge All Time Return: 171.5%
  • #26
  • Apr 6, 2021 10:30am Apr 6, 2021 10:30am
I completely expect to stomach further downside as the month of April passes - I'm leaving room to add to this position one more time but at this point it's a waiting game.

In the grand scheme of things, I'm net-long risk owing to other traditional accounts and investments. Most assets right now aren't on strong enough footing for trades to line up the way I'd like, so my trading is limited. My overall investment allocations continue to benefit from the broad-based upside, though to no credit of mine - away from allocation decisions, they are passive investments. There are several areas where I don't play around with allocations unless a major market move confirms some sentiment of mine, in which I may rotate into cash if I need to shift into "capital preservation mode" and begin planning re-entry.
Live Challenge All Time Return: 171.5%
  • #27
  • Edited 3:13pm Apr 8, 2021 2:40pm | Edited 3:13pm
Quoting yieldjunkie
.. but at this point it's a waiting game.
In the meantime, I'm going to take aim at my strategy and the logic involved in an attempt to totally blow it apart. I'll either come out of this with a better sense of the risks involved, or very confused.

The way I see it there are two factors that would dampen the yield/allocation relationship that I outline in post #6, on which I am basing this trade. The first dampening factor is the premise that there are no other reasonable alternatives to deploy assets in the current environment than equities. The second dampening factor is that I am overestimating the ability or preference for institutional flows to willingly adjust to the changing yield environment.

Factor 1: There are no other reasonable alternatives than stocks to deploy assets, and as such any downside action in equities is likely to be absorbed as the market perceives recent highs as the "correct price." In turn, all marginal capital that is able to be deployed into equities will continue to flow there, outweighing any major downside volatility in equities which may arise from asset-class comparative yields and the rotational effects.

For this to take place, there must be widespread complacency as it relates to forward P/E ratios and implied growth relative to historical ranges.

Factor 2: In a divergence of what we have seen historically, the mechanisms in each the bond market and equity market will operate separately. In other words.. the profit realization and subsequent dumping of US corporate bonds owing to the short-UST leg of the trade will exist in strength, pushing UST yields higher and putting cash back on the sidelines (where it will remain) or into long-UST positions.. but rather than attracting marginal capital away from equities, any new risk capital remains as cash or continues to chase equity performance (leaning on the premise of factor 1) thus diluting the macro-rotational factors which would affect NQ negatively.

For this to take place, there must be no perceived difference on behalf of institutions between holding cash and fixed income instruments; or there must be higher barriers than I am taking into consideration as it relates to institutional having the ability to rotate between the asset classes, which would maybe stem from risk management behavior in lieu of the current environment.
Live Challenge All Time Return: 171.5%
  • #28
  • Apr 8, 2021 2:41pm Apr 8, 2021 2:41pm
Quoting yieldjunkie
{quote} In the meantime, I'm going to take aim at my strategy and the logic involved in an attempt to totally blow it apart.
Anybody is welcome to join!!
Live Challenge All Time Return: 171.5%
  • #29
  • Apr 8, 2021 3:11pm Apr 8, 2021 3:11pm
Factor 3: The market has priced in too-much post-covid-normalcy and while some parts of the globe may return to pre-covid economic behavior, many don't recover nearly as fast or at all.. causing supply-chain and international trade/growth havoc. Thus, equities fall in a traditional sense and rather than UST yields rising, they fall further owing to crowded buying of safety assets. This third factor wouldn't necessarily end poorly for my trade, as it's difficult to perceive a redux of the stay-at-home tech trade seeing as prices hardly even fell.. but in any event, its another deviant outcome.

For this to take place, vaccinations rates must fail to achieve intended levels, governments must fail to feel comfortable enough to "reopen," and US Equity investors must begin to perceive economic data on a historical (absolute-level, not percentage change) basis.



I think this is actually a fairly plausible outcome (I'd give it a ~25% chance), though not the rosy one. If this were to take place, I would likely still see a big victory on this trade but it would basically mean that the world has not gotten over covid and that the central banks' most extreme attempts at preserving the economic machine were not totally successful. Notice I've been circumventing the inflation discussion alongside this entire thread, and will likely continue to do so - I need much more research to adjust my view of inflation into something that would fit my "short-term" trading mantra which defines this journal.
Live Challenge All Time Return: 171.5%
  • #30
  • Apr 17, 2021 11:13am Apr 17, 2021 11:13am
Excellent piece I read this weekend examining changes in term premiums of USTs here:
Increasingly fragile equilibrium
Live Challenge All Time Return: 171.5%
  • #31
  • Apr 26, 2021 2:49pm Apr 26, 2021 2:49pm
Quoting yieldjunkie
Factor 3: The market has priced in too-much post-covid-normalcy and while some parts of the globe may return to pre-covid economic behavior, many don't recover nearly as fast or at all.. causing supply-chain and international trade/growth havoc. Thus, equities fall in a traditional sense and rather than UST yields rising, they fall further owing to crowded buying of safety assets. This third factor wouldn't necessarily end poorly for my trade, as it's difficult to perceive a redux of the stay-at-home tech trade seeing as prices hardly even fell.....
As I spend more time thinking on this, a variation of this outcome is seeming to be more likely than the (~25%) chance I initially gave it. It would seem to me that we are likely to see a confluence of downward pressures on stocks owing to: 1) uneven global recovery from covid; 2) the ingestion and passing of peak of US economic data (YOY and base effect included); and 3) realization of a higher likelihood that the US will begin repaying additional gov't debt sooner than what was initially anticipated, manifesting in the form of tax increases.

The original premise for this trade was based largely on continuation of the following:
Quoting yieldjunkie
As we are exiting the covid-uncertainty period, and with USDs continuing to flood the market into risk-assets (catching the eye of every performance chaser and benchmark investor), UST yields now, one month, and two months ago were far from sufficient to attract the marginal capital. In short - the market is beginning to demand a higher return. Everything here happens at the margin - when the marginal buyer stops, price slips and yields rise on USTs and that's what we are starting to see happen.
With covid recovery becoming increasingly uneven across the globe, demand for USTs is likely to remain strong enough to dull the type of response I was initially anticipating. I still see yields on the US 10yr rising to something like 2% or 2.25% by year end on account of anticipated inflation, but this is a slower move than I was expecting a few months ago.

Where this leaves me, is a trade that may be segmenting itself, but is still valid enough to keep open. I see mounting downside pressure in US equities as covid becomes a thing of the past (in the US) and we shift back to more reasonable measures of anticipated growth. From that point, the weakest links in global recovery will have their negative effect on US Equities on account of the globalized nature of today's markets. As markets agree upon a lower level of anticipated growth equity valuations will be adjusted appropriately, both in terms of tangible aspects (a company's financials and outlook) and mechanical aspects (stock valuation models rely heavily on anticipated growth rates to discount future cashflows.) Ultimately I see a higher likelihood that there is a downside correction in NQ in the coming two quarters than likelihood that broad-based growth continues at the current pace, leading me to extend my sentiment on this trade until the end of the current quarter, though downgraded from High conviction to Medium.

In this thread, I have been reserved when it comes to the topic of current valuations and bubble-speak and plan on keeping it that way because “the markets can remain irrational longer than you can remain solvent.” Whether I or others think financial assets are inflated or in bubble territory wouldn't mean the market consensus on pricing will change anytime soon, so I remain focused on the short-term - In which I think there is still the opportunity to juice this trade.
Live Challenge All Time Return: 171.5%
  • #32
  • May 3, 2021 4:29pm May 3, 2021 4:29pm
A few recent observations, which I want to keep note of in this journal:

The q/q Advanced GDP Price Index released last Thursday came in significantly above estimates, at 4.1%, and was largely overshadowed by the GDP number in terms of financial reporting. At face value, this seems to be the largest upward deviation from estimates in the history of the metric.
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Apple, which absolutely crushed estimates across the board when it reported earnings after market close on 4/28, has failed to hold any breach above it's 4/28 closing share price of $133.48. Seems the market was pricing in something better than a 41% EPS beat? The chip shortage surely played into forward guidance, but it's a bit difficult for me to reconcile that with the total non-response on behalf of the market to these earnings.
Live Challenge All Time Return: 171.5%
  • #33
  • May 12, 2021 10:48am May 12, 2021 10:48am
I just subscribed to your thread. I have long been an admire of people that know who to use fundamentals and which data should be analyzed in in correct sequence. I hope to learn a lot from your posts. Will you also write any post on how to start learning about FA and recommend and books in how it relates to trading? Thanks for taking your valuable time to read this.
Luck has no place in trading. Leave that for the poker table.
  • #34
  • May 12, 2021 2:08pm May 12, 2021 2:08pm
Quoting Pair-me-up
I just subscribed to your thread. I have long been an admire of people that know who to use fundamentals and which data should be analyzed in in correct sequence. I hope to learn a lot from your posts. Will you also write any post on how to start learning about FA and recommend and books in how it relates to trading? Thanks for taking your valuable time to read this.
Thanks for the feedback and interest! I'm definitely still learning, myself.

Quoting Pair-me-up
Will you also write any post on how to start learning about FA and recommend and books in how it relates to trading?
Absolutely - It's been a busy week, but when some time frees up I'll be back here adding to the thread and will keep this in mind. Same goes for book recommendations
Live Challenge All Time Return: 171.5%
  • #35
  • May 13, 2021 9:58am May 13, 2021 9:58am
Quoting yieldjunkie
A few recent observations, which I want to keep note of in this journal: The q/q Advanced GDP Price Index released last Thursday came in significantly above estimates, at 4.1%, and was largely overshadowed by the GDP number in terms of financial reporting. At face value, this seems to be the largest upward deviation from estimates in the history of the metric. {image} .
Since this post, there have been several relatively large surprises as it relates to US economic data:
1) Non-farm payrolls with a massive ~725K miss.
2) Core CPI m/m with the largest reading in the history of the metric.
3) And to a lesser, but confirming, extent.. today's Core PPI m/m.

In the same fashion as before, I'm leaving the inflation-forecasting debate out of this, and simply noting the observations which I deem significant.

In terms of upcoming data, my next major focus is tomorrows Capacity Utilization rate. This is one of those last pieces which, by staying low, has offered some relief as it relates to inflation and "running hot." As always I'll also be watching UST yields, UST auctions, and breakeven rates. The Retail sales data tomorrow may be a bit of a bore, but there's always the chance for a surprise.

Quoting yieldjunkie
Apple, which absolutely crushed estimates across the board when it reported earnings after market close on 4/28, has failed to hold any breach above it's 4/28 closing share price of $133.48. Seems the market was pricing in something better than a 41% EPS beat? The chip shortage surely played into forward guidance, but it's a bit difficult for me to reconcile that with the...
To update on this aspect: things have not changed. AAPL closed $122.77 yesterday, or, -8% since blockbuster earnings. There are several similar examples in which I could make this same case currently, but Apple is a perfect example to focus on owing to its size as part of the index and its stellar balance sheet/debt profile. Market numbness to this scenario is a testament to price levels and sensitivity to rates as it relates to valuation.
Live Challenge All Time Return: 171.5%
  • #36
  • May 13, 2021 10:11am May 13, 2021 10:11am
Quoting yieldjunkie
10-25 days: ...
- Downward pressure on Nasdaq. (Conviction: High, contingent upon high UST auction yields)
- Downward pressure on IG corporate credit. (Conviction: High, contingent upon high UST auction yields)
I just realized that I never fully explained why I've focused on Nasdaq and not Investment-grade Corporate credit. In short, there aren't any ETF options out there which meet my liquidity preferences and allow me to play the short IG Corp leg of the trade in perpetuity. I'm not interested in bleeding time-value by using contracts and as an individual I would need a much larger book to play this trade outright with an appropriate basket of securities.
Live Challenge All Time Return: 171.5%
  • #37
  • Edited 4:55pm May 28, 2021 11:17am | Edited 4:55pm
Dividend yields continue to fall (S&P500). It remains tough to see a compelling case for equities at these prices when you remove fed support from the picture, but following the fed pays off as long as you keep your finger on the trigger for when the communicated message changes. It's been months since I have been able to recycle this position, and it's feeling stale. If I can work out a better alternative to this trade, I may roll it into that alternative at the next chance. Summer is slow and usually boring, but lighter volumes will lend to knee-jerk volatility in this environment.

In the meantime, my focus has been and will likely remain on crypto and alternatives. Energy assets and carbon credits are very interesting longer-term plays, as is property at the right price. In currencies it's seeming like alot of opportunity is on the horizon as central banking policies diverge. I aim to trade short-term volatility within the frame of my sentiments listed below - nothing wrong with being stuck in a short-term trade that I like on a longer basis so long as I'm not bleeding.

Sentiment (< 3 months):
US Equities - Bearish, Medium conviction
US Corporate Bonds - Bearish, Medium conviction
US Treasuries - Bearish, Medium conviction

Sentiment (3-9 months):
US Equities - Bearish, High conviction
US Corporate Bonds - Bearish, High conviction
US Treasuries - Bearish, High conviction
USD - Bullish, High conviction
Oil - Bullish, Medium conviction
NatGas - Bullish, High conviction
Gold - Bullish, Medium conviction
Silver - Bullish, High conviction
Crypto (BTC, ETH) - Bullish, High conviction

Sentiment (long-term):
NatGas - Bullish
Carbon Credits - Bullish
Copper - Bullish
Silver - Bullish
Aluminum - Bullish
Nickel - Bullish
Crypto (BTC, ETH) - Bullish
Live Challenge All Time Return: 171.5%
  • #38
  • Jun 23, 2021 9:11am Jun 23, 2021 9:11am
Quoting yieldjunkie
Ultimately I see a higher likelihood that there is a downside correction in NQ in the coming two quarters than likelihood that broad-based growth continues at the current pace, leading me to extend my sentiment on this trade until the end of the current quarter, though downgraded from High conviction to Medium.
Well, it's nearing time to update this sentiment and I was right to downgrade this conviction. It's clear that there is a high chance of a NQ downside correction when the US Fed decides to taper, but I'm not willing to carry my entire position until then. In terms of UST yields, to my surprise, the market has not demanded a higher yield even after a 5bp raise in the reverse repo rate (from 0.00) and a similar rise in IOER. Without the higher UST yields, the trade lacks kindling.

Quoting yieldjunkie
Sentiment (< 3 months):
US Equities - Bearish, Medium conviction
US Corporate Bonds - Bearish, Medium conviction
US Treasuries - Bearish, Medium conviction
In this three month period we have one Fed statement/rate decision and then the Jackson Hole Symposium. There is a chance that tapering is announced at either of these two events, most likely the latter. Over the next two days I'll be taking a loss and reducing my SQQQ position likely by ~65% in favor of adding to my longs, which comprise of a market-standard basket skewed towards quality, high dividend paying names, and thematic names associated with the bullish sentiments listed in the prior post and the associated supply chains/logistics. Typically I sell in the morning and buy near the close - I wonder if that adage reverses with an inverse instrument

What I will do is re-open these trades immediately in advance of the two meetings with Jackson Hole garnering a larger position size. This is a game of executing trades and changing sentiment as close as possible to the US Fed's decisions.
Live Challenge All Time Return: 171.5%
  • #39
  • Jun 23, 2021 9:30am Jun 23, 2021 9:30am
Quoting Pair-me-up
Will you also write any post on how to start learning about FA and recommend and books in how it relates to trading? Thanks for taking your valuable time to read this.
The best way to learn is to consume quality information. I have a formal education in the space, which I will admit doesn't actually teach you how to trade or do much, but it is valuable nonetheless to have a base and to understand how others are likely to make decisions in the most basic sense. Try to isolate good sources, such as institutions, and read as much of their new material as possible. Similarly with economic data, just consume and take note and eventually you will build a historical reference and realize the fundamental relationships and their scalars which you may only have read about prior.

You will never be able to read it all, so once you have a basic understanding of how the industry is traditionally taught to make decisions, I'd recommend shifting focus to only the newest and most up-to-date information. The next great trade is likely going to be a different strategy and circumstance from the prior, so the name of the game is information consumption and creative adaptation.

I've read alot of books so it is somewhat difficult to isolate the best for FA. My focus is slanted towards understanding how institutions manage risk and trade and using that, alongside economic data and current market commentary to put together a framework to operate within. Wiley's Risk Management and Financial Institutions book is excellent for understanding institutions and one of my favorite handbooks, though it is dense.

My last recommendation here is to splurge on current material and subscriptions if you can, and cut the ones that you don't feel you are learning from. Bloomberg's publications, the Economist, and even research firms like Morningstar will provide more material than it makes sense to read and it is largely of high quality.

Hope this helps - happy trading!
Live Challenge All Time Return: 171.5%
  • #40
  • Jun 24, 2021 11:59pm Jun 24, 2021 11:59pm
Attached Image (click to enlarge)
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Quoting yieldjunkie
{quote} The best way to learn is to consume quality information. I have a formal education in the space, which I will admit doesn't actually teach you how to trade or do much, but it is valuable nonetheless to have a base and to understand how others are likely to make decisions in the most basic sense. Try to isolate good sources, such as institutions, and read as much of their new material as possible. Similarly with economic data, just consume and take note and eventually you will build a historical reference and realize the fundamental relationships...
Thanks for your valuable time that you used for a great response. I will check out that book for sure. I don't trade the NQ yet.. but one of the discord channels that I am on...well.. just about everyone and their dog trades the NQ or the ES, etc. I think only one member of the group is good at the fundies like you. But I think you beat them. ha ha ha. This week I have been long the MYM. This is my second trade of the week. I am up over 1000 ticks this week so far. but I do feel that with more fundies added to my tool box, I can work on more swing or position trades.
Luck has no place in trading. Leave that for the poker table.
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