Continuing from

2023 Rabbit continuation of: less verbose and real-time, to be used sparingly

Gamma, Dark Pool and Index all pointing lower on a daily basis.

Would rather not have further dripping on VIX to the point where a major reversal would be imminent.

Yields testing various possibilities, may revisit areas from previous Fed announcement.

Solid financial footing but paying down debt is hard so possible relief without trying to trigger an overly stimulated environment.

Sentiment seems pessimistic but hopeful. Only the long dated yields are near the hopeful side. Will have to wait until the near term notes confirm / form consensus near previous levels.

SOFRs seem to be dragging as well though the 3 month has room for growth. The near term might require adjustment.

//

Services also need to drop with inflation, that might be something to note for payrolls. Slight rocky bottom for bonds.

SOFR 3 month yields dropped a bit, some optimism there. Yields still bouncing around overall.

Services data indicates some softness, but energy is rising again eating into the inflation threshold.

For indexes, drops past the mid-year 2023 high could be an accelerating point for confluence, say around 16k NQ -> trigger sub 13k levels.

Again, data based, and with regards to context and timing in a politically charged year, much unknown.

//

Earnings season is upon us. Vix in contango / pushing lower toward single digits or reversal territory.

Not complaining about the current status quo. Just have to be slightly choosy about positioning and price.

Semis show a potential diamond but unsure of the factors causing this. Embargos, valuation, demand.

//

Bit of a do nothing situation with inflation data, which adds to the Vix drop. Better to overestimate inflation.

Lack of response and waiting games through earnings and Fed announcements. Dark pools, gamma were not setup for a drop either.

Something extra has to happen in combination.. some activity in emerging markets (eem) and china (fxi) for possible rotations

//

There is a catch-up going on with the long dated mustering the lead. Notes and SOFR need to get on similar level as yields de-invert

Perhaps pressure on semis can help the hardware bottom line just as the inflationary mandates place a ceiling on energy

The only thing left is services, but that can lag and can compound / catch the wave of deflationary commodities. Vix kinda stuck

One way to gauge overall loan health in context of yield:

1) Look at Residential Mortgage Originators like mainstream banks like WFC, BAC, C
2) Look at Regional Banks with similar holdings like CFG, HBAN, or KRE etf holdings
3) Look at similar participation in commercial real estate, through VNQ etf holdings

Overall residential and commercial (directly liked to consumer) like SPG seem well positioned
The transfer of super large CRE affects regionals less so these sectors in relation to the consumer are OK
Outside the skyscraper, corporate type of CRE issues in certain areas, though ARE points to biotech/pharma health

PLD (supply chain), EQIX (data center) and WELL (healthcare) seem saturated but AMT (communications) fares better
The direct affect of rates on the largest spend in real estate seem to point to healthy consumer side positioning with upside
Looking more at value in the long term and potential growth that will benefit from adjustments in loan demand from yield changes.

//

Keep in mind also that the swap of less healthy property with the Fed for a promise to buyback at the same price later is in effect until Q2 '24.
Optimizations / Adjustments in the tech, semi, indu space after boom cycles and export regulations esp. w/ China are still being digested.
EVs can probably be included here as BYD auto improves vs. counterparts though supply chain can still be an issue.

The expectation is that, within an organic, consumer based context of loan generation, though there is a certain % of failed loans..
The pullback and rise in yields has tamed this area, softly resetting pricing, inflationary pressure while containing temporary issues.
Whether or not there is a need to wait for services based inflation to soften further is more a question of timing, but the current overall is OK.

The Mag7 may be a different story since this is largely tech, semi, EV based and more prone to supply chain, data center and embargo issues.
Again, the overall health and actions from the central bank have created monetary sufficiency in the face of higher yields for the consumer..
Through the dampening of inflation, effects still to be seen overall, but really strengthening and trimming after the surge in loose policy.

//

So, levels and positioning in picking various sectors probably matter more than directly attempting to follow the yield adjustments.
Likewise, certain sectors are still pulling back after surpassing valuations and growth during the goldilocks period.
Add to this, optimization / disruptions and attempts / pressure to do more with less and things TBD..

gamma, dark indexes are suggesting similar, whether funds adjust their weightings is also TBD..
those are still large components in the DIA, SPX, and NDX that need to be rotated..
again with baited breath dependent on Fed / yields.. commodities seem OK

not much, just nflx tomorrow, JAN23 PM. levels seem OK, tsla intc too

aftermath of semis seems to be strong, though possibly exhausted

ex-us markets still need support, while earnings feed into tech index

//

looks like china fxi is supported, while crypto seems to be pricing in misc.

emerging markets are also reacting, on top of forex and dollar

where crypto may correlate w/ as an alternative to fiat

//

looking into eom, add pfe, sbux, amzn and baba to the list

the yields have enormous headroom to adjust based on data

especially closer to the near term and remains supportive

//

aside from earnings, although some individual companies outperform and have broken out of range

the overall indexes are capped and waiting on resistance, with a breakout gives license to continue celebrations

the major indices, spx ndx dia are waiting but small caps are still hanging on and breaches of support could be detrimental

//

remember that bonds broke support in 2021 and without action could be considered a lost decade for yields

some consumer based companies like amzn, sbux have already broken support but others like lly vrtx, nvo, broke resistance

homebuilders like tol and kbh have broken resistance as well while some bigger companies like mmm pfe have broken support

handspin 

One way to gauge overall loan health in context of yield: 1) Look at Residential Mortgage Originators like mainstream banks like WFC, BAC, C 2) Look at Regional Banks with similar holdings like CFG, HBAN, or KRE etf holdings 3) Look at similar participation in commercial real estate, through VNQ etf holdings Overall residential and commercial (directly liked to consumer) like SPG seem well positioned The transfer of super large CRE affects regionals less so these sectors in relation to the consumer are OK Outside the skyscraper, corporate type of CRE issues in certain areas, though ARE points to biotech/pharma health PLD (supply chain), EQIX (data center) and WELL (healthcare) seem saturated but AMT (communications) fares better The direct affect of rates on the largest spend in real estate seem to point to healthy consumer side positioning with upside Looking more at value in the long term and potential growth that will benefit from adjustments in loan demand from yield changes. // Keep in mind also that the swap of less healthy property with the Fed for a promise to buyback at the same price later is in effect until Q2 '24. Optimizations / Adjustments in the tech, semi, indu space after boom cycles and export regulations esp. w/ China are still being digested. EVs can probably be included here as BYD auto improves vs. counterparts though supply chain can still be an issue. The expectation is that, within an organic, consumer based context of loan generation, though there is a certain % of failed loans.. The pullback and rise in yields has tamed this area, softly resetting pricing, inflationary pressure while containing temporary issues. Whether or not there is a need to wait for services based inflation to soften further is more a question of timing, but the current overall is OK. The Mag7 may be a different story since this is largely tech, semi, EV based and more prone to supply chain, data center and embargo issues. Again, the overall health and actions from the central bank have created monetary sufficiency in the face of higher yields for the consumer.. Through the dampening of inflation, effects still to be seen overall, but really strengthening and trimming after the surge in loose policy. // So, levels and positioning in picking various sectors probably matter more than directly attempting to follow the yield adjustments. Likewise, certain sectors are still pulling back after surpassing valuations and growth during the goldilocks period. Add to this, optimization / disruptions and attempts / pressure to do more with less and things TBD.. gamma, dark indexes are suggesting similar, whether funds adjust their weightings is also TBD.. those are still large components in the DIA, SPX, and NDX that need to be rotated.. again with baited breath dependent on Fed / yields.. commodities seem OK

[EDIT]

Looking deeper into commercial real estate, looks like the yield rout has permanently affected this sector, again a lost decade

The other way of thinking / rephrasing this would be a discounted valuation of property, stagnation due to initial impetus of low rates

Things were essentially paid forward to induce affordability, but is now being recalled back to reality and those cheap loans are being converted into devaluating forces

//

An extension of the analysis would be those companies whose balance sheets were expanded radically from the stimulatory measures and are now readjusting in similar fashion

Those that were less affected by monetary policy and continue to show organic growth would fare much better than those that relied heavily on low rates

The higher yield environment is serving a purpose to screen out the more reactive companies and refix said balance sheets

//

translated to a more technical approach: the previous expansion, and break of resistance levels (now support) created two scenarios:

1) continued healthy breaks of resistance, or defense of previous support/resistance [favorable case]

2) failed re-test of support (previous resistance) [least favorable] or bouncing within range

looking more carefully, tsla either way, intc is off as well

there are a good solid handful that will continue to outperform

though bonds are not looking to fresh, meaning good cash flow is important

//

though intc broke major support in mid '22, there are now other support being broken

semis overall seem ok via smh / soxx. amd, nvda even aapl have filled in the spaces

and chip mfg like amat, lcrx can still power through though after the effects of intc

quickly examining the dominance of stable currencies like usd and chf vs. others

seeing that jpy maintains weakness as a carry which helps offset the weakness of aud, nzd, eur, gbp in context of carries

weakness still persists in asia as aud, nzd through fxi and ewj are hurting but usd and chf seem to be solid regardless

//

yields still wavering and see no relief in yields, though financials are solid for banks and newfi, even crypto

semis that are not diversified globally like tsm fabs in taiwan or even txn in america seem to hurt

some strangeness in amzn and nflx as these consumer based products are also seeing weakness

//

divergence also observed between consumer credit as v and ma may be exposed to delinquencies

while axp seems to cull the higher end of the consumer base that is unlikely to pay late / not at all

forex is wobbling, but anticipate carry trade bumps, though the dollar is causing vol in affected crosses

//

axp also follows a model of being the bank and middleman for transactions, a sort of full view of customer spend

this pattern is also valuable in other spaces where information is key and an in-sourcing trend to keep data sets within

so privacy pertains to both individuals and corps whether blinding or buying out facilities to maintain data privacy

some deals on the daily, AM whipsaw w/ JPY adding to vol

positions possibly exited prior to avoid event risk or at least hedged

taking issue with amzn reaction after fomc as well and aapl thurs

//

if things continue as is, positions unwound will be rewound

something drastic would be necessary to break the trend

mostly for safety reasons, as aud/jpy is down as well

//

forex is reverting and recovering the previous sentiment

indexes seem to react afterward in kneejerk fashion and will likely follow forex

bonds are subdued, though previously hopeful.. end result being trend continuation aka unchg

//

so for EOM, nearing pivot and under for next month, giving value / entry

also near minor support (previous tested resistance) and under most pivots

should be a opportunity for entry and adjustments like most risk events

//

since forex is leading, note that both eur and gbp are lagging until tomorrow / next month

so that is an opportunity to adjust entries and positioning and an indicator for tomorrow

aud and nzd holding through also indicates some stability in the asian markets overnight

//

darkpool and gamma do show some continuation, forex also retesting TBD

the particular removal of "the banking system is sound" statement is irksome

more behind the scenes fed action to cull pain points and help more banks?

dollar basket has been volatile with jpy, eur, gbp all continuing to strengthen vs dxy

enthusiasm in lower yields may have translated to forex

TBD w/ NFP, also watching energy recover

//

crude has bounced and natgas is near support considered a good entry

since the energy complex keeps rising, that part of inflation will be harder to control

not sure about the aftereffects of the removed statement from powell "banks are structurally sound"

//

outlook on amzn is less shiny than previous years, but aapl should have some positive to balance out

consumer credit, ma and v are both near major resistance after breaking support late last year

again, axp may benefit from a better consumer base and being the holding company

//

[backtest/estimize to record trend analysis here: https://www.estimize.com/users/turbinecity]

this is based on observations of action near major support and resistance

companies that break either have a designated trend to reflect earnings

(works better for longs than shorts, may avoid reporting for shorts)

//

using this as a case study example for western alliance bancorp (wal)

wal outperformed, breaking resistance early 2021 and established a bullish trend

the svb regional bank issue dropped below support last year, but we see the reaction today with a big tail

(the bullish trend will continue once minor resistance is broken again, but there is support along the way)

one method to play this would be to sell puts below support with the attention to accumulate only when support is confirmed to avoid downside risk

the dark pool and gamma indexes suggested positivity and dollar reversion

yields also pulled back, but more drastically forex sentiment

the past couple days roiled with fomc and nfp

//

earnings are also a bump in the fabric of continuity

amzn may fizzle the air gap higher while aapl reclaims strength

effect on qqq is then temporary and once again may march higher

//

if china is discounted enough and semis are balancing their exposure

similarly if regional banks are able absorb higher yields for longer

the trend will continue aside from downside risk in asia

//

aud and nzd are still stubborn providing export advantage

their corresponding jpy crosses underperform vs eur and gbp

at least, the antipodes are delayed as the heaviness in china resolves

//

commodity currencies are also more sensitive to the current dollar strength

a muted response in crypto, energy and metals, real estate

helps w/ inflationary pressures, a reversal of front-run fomc sentiment

//

(the runaway risk on stimulatory sentiment makes dip buying the only support, which cannot be healthy)

add to that the 0dte type activities like put selling / call buying that forced MMs to hedge with underlying bought positioning

and those are the scenarios that should be avoided to prevent a house of cards from imploding upon itself

//

the setup the fed provides is a scenario to dampen inflation in favor of deflating inflated assets back to reality

this is based on the assumption that these sectors will maintain demand regardless of higher yields

there are some sectors that still need to respond like real estate w/ builders increasing supply

//

some are still sticky, like car market and loans, where amzn is attempting to break into questionably

in general, almost a necessary evil of convenience, producers may decide to take over distro themselves

provide a direct to consumer model that undermines warehousing models, harder w/ auto franchising laws

//

overall a method to take advantage of strength by cooling things down, monitoring bank risk and aiding as necessary

squeezing out the excess liquidity outside of the system and preventing inflation from being the reason for rising indexes

whether internals are healthy enough is the question, whether there is enough firepower or if not, some kind of eventual pivot

//

adding that part of the brics minus china, with energy pushing and lifting brazil and india can fare better with xp and infy

the energy complex altogether though currently subdued is trending higher including natgas

part of that is also influencing the nordic region with brent and nordstream

Congrats on your journal!

I invite you to participate in this months Journal Challenge, you just need to post your journal link in the event thread:

NexusFi Journal Challenge - February 2024 Hi guys, Continuing our long tradition of encouraging members to have Trade Journals, we are announcing our newest Journal Challenge, sponsored by Ninjacators! Prizes -- the top five trading journals will receive prizes: 1st place prize: Ninjacators …

Mike