Critical Signal: Rates and Equities

The absence of a move - Intraday Update

I want to take a moment and draw your attention to an intraday signal that is important for where we are moving with equities.

First, notice that the curve is bear steepening marginally. This is primarily being driven by the long end.

I explained the tension in the long end vs the short end in the macro report and alpha report:

• Macro report: Link

• Alpha report: Link

The main idea is that since the curve remains inverted, it is possible that the long end sells off more when there are any pullbacks in bonds. When the curve is inverted, by definition it is going to be difficult for institutions to take more duration risk:

Second, notice how last time the curve bear steepened marginally that ES sold off. Now notice that the curve is bear steepening and ES is NOT selling off. The fact that there is an absence of a move down with there is an impulse that would likely cause it to sell off is an indication of strength and support in ES:

Remember, positioning in ES is still net short:

While there is a risk in positioning due to the implied correlation compression, it’s clear that there is support on a macro basis. If the curve flattens from here into the NFP print, equities are likely to break out again. We are unlikely to close below 5,500 on a weekly basis:

I am still holding the long ES trade I opened on May 30th. I am not adding to it. Right now I am holding.

As we move into NFP this week, there will be some key trades I am running for paid Subscribers. If you haven’t done a free trial, this is probably a week to try it out. We will be moving forward with intensity and speed this week so be ready for a lot. Please review the trades noted in the alpha report: Link