Summary
- Signs of a market top abound, as liquidity begins to tighten.
- PAM community start removing upside (long) hedges, anticipating further declines. We will re-hedge if we do not see downside follow-through.
- As proxy to going short equities, PAM and the community have been punting long gold trades, but also do the downside if opportunity arises.
- We believe that more meaningful equity declines will happen in equities if/once bond yields breaks below previous 0,82% support (yield terms).
- That is when we start really focusing on the downside. In the interim we will be doing scalping and hedging/rehedging both ways, upside and downside. We have always done this to offset the paper losses with actual hard cash. Trading long gold is also a good proxy for being short equities for now.
GOOD MORNING ASIA / GOOD EVENING EAST COAST
NOVEMBER 25, 2020
Ernie.YNov 25, 2020 2:41 AM
This looks like Aug/early Sept all over again. ExTremely low put/call ratio levels suggest massive call buying forcing dealers to hedge long. Of course it can go higher but can't imagine this ending well.
TimK123Nov 25, 2020 4:25 AM
I will keep an eye on VIX, when that rises for ES 5% or more for a day or two when indices are looking strong that has been the signal for imminent breakdown in June and September, along with ending digaonals.
TimK123Nov 25, 2020 4:34 AM
Also in June and Sep. the 10Y yield fell for two days before indices dropped it seems.
bogeygolfNov 25, 2020 4:24 AM
Dark Pool finally went down to 38 which is close to last 2 market tops:
RM13Nov 25, 2020 6:48 AM
Thank you for sharing. I counted all the times dark pool reached this level, I got that 8 out of 10 or so preceded corrections..
dj.jdNov 25, 2020 4:09 PM
I would like to know your advice for removing the hedges, RB - I have not closed mine yet.
robert.p.balanModeratorLeaderNov 25, 2020 4:12 PM
moment dj
robert.p.balanModeratorLeaderNov 25, 2020 4:18 PM
If you hedged with long NQs wait for one final uptick in NQ (see chart above)
dj.jdNov 25, 2020 4:22 PM
Thanks RB, that's extremely helpful! I have also under-hedged ES and YM which appear to be a bit weaker than NQ.
robert.p.balanModeratorLeaderNov 25, 2020 4:31 PM
I think we are in a wave 3 of some kind in ES and Ym, as wellas the 10yr yield. Get the best fill you can now.
kizunoNov 25, 2020 7:43 PM
kizunoNov 25, 2020 7:43 PM
RB's 10yr wedge (red) is now part of my eyeballed channel, for now....
sparketNov 25, 2020 8:21 PM
How are you counting the choppiness we’ve been in since September 4th? I’m watching this resistance level around 3650 on ES that we need to clear. If that happens and survives a back test, I really don’t know the bearish case anymore. But from an EW standpoint so far, does anyone have wave 5 off the March lows anchored at early June or early September highs?
ptTL9Nov 25, 2020 9:19 PM
sparket i posted my chart before, it needs updating, i count 1 of V is done, i may be wrong, but 2 of V is done too, (1) of 3 of V is finishing , but what do i know!
ptTL9Nov 25, 2020 9:20 PM
yunengNov 25, 2020 9:31 PM
I've been rooting for the Dow to hit 30k again, but seems to me it is already stalling.
sparketNov 25, 2020 9:38 PM
Interesting. My count is similar, I had an extended 5th off the March lows ending in September. I think it could be some sort of triangle off the sept high. On the daily it isn’t hard to count three wave moves in A, B, and C. Wave D gets weird but I think it might be feasible to suggest we’re close to an end point? That just leaves the last decline into E.
GOOD MORNING EUROPE / GOOD EVENING WEST COAST
robert.p.balanModeratorLeaderOwnerNov 25, 2020 8:45 AM
I believe the 50 pct retracement/correction of the recent 10yr yield decline is over.Hence, we are getting some lower valuations for rate sensitive indices, which are starting to gravitate lower.
NQ has better bid because lower rates favor high-tech -- I believe we will start seeing the reversal of long value and short hightech trade spreads. With further decline in rates, unwinding of these trades will escalate.
Gold will also tend to get some relief (with lower rates, as should be) and may actually rise along with falling YMs and RTYs. There could be scope for XAU to test the 1845/50 support-turned-resistance levels again-*We add to long GCZ0 trades at breach of 1815.
*all PAM BUYS ANOTHER 288 CONTRACTS OF GCZ0 AT BREACH OF 1815, FOR ALL FUNDS
IceveinNov 25, 2020 8:58 AM
Should we use a diff contract? My broker liquidates Dec tomorrow
robert.p.balanModeratorLeaderOwnerNov 25, 2020 8:58 AM
Sorry. of course ice -- forgot that
Feb G1 seems to have enough vol
Resistance already broken
PAM BUYS ANOTHER 288 CONTRACTS OF GCZ0 AT BREACH OF 1815, FOR ALL FUNDS
*Modify to:*
all PAM BUYS ANOTHER 288 CONTRACTS OF GCG1 AT XXX DISCRETION, FOR ALL FUNDS
GCG1 -- DONE AT 1814.10 BOUGHT ANOTHER 288 CONTRACTS GCG1 FOR ALL FUNDS
robert.p.balanModeratorLeaderOwnerNov 25, 2020 9:13 AM
We believe that more meaningful declines will happen in equities once bond yields breaks below previous 0,82% support (yield terms).
That is when we start really focusing on the downside. In the interim we will be doing scalping and hedging/rehedging both ways, upside and downside. We have always done this to offset the paper losses with actual hard cash.
alexddsNov 25, 2020 12:41 PM
RB, so there is no more 7 downside days fo markets ?
robert.p.balan November 25, 2020 9:14 AM
That is when we start really focusing on the downside. In the interim we will be doing scalping and hedging/rehedging both ways, upside and downside. We have always done this to offset the paper losses with actual hard cash.
robert.p.balanModeratorLeaderOwnerNov 25, 2020 12:41 PM
I was looking at the composition of Russell 2000 Index, and I suddenly realized that the index includes a lot of regional and small banks. These are the banks that are most sensitive to Net Interest Income Margin. These smaller banks rely much on net interest margin income (NIM) -- not so much on trading and financial intermediation -- and are therefore very sensitive to Yield Curves (after a lag).
I have shown this chart before at PAM. It shows the linkages between yield curves, the NIM, and the valuation of the US Financial Sector, and by proxy, the Russell 2000 Index.
The sharp drop in Net Interest Income Margin (NIM) does not bode well for US financial sector and the Russell 2000 Index
Net Interest Income Margin (NIM) lags the Yield Curves by 2 Quarters; the US Financial Sector lags the NIMs by circa two years
*There will be hell to pay when the Russell finally adjusts fully to the (lagged) reality in the small banks' profitability prospects.*
robert.p.balanModeratorLeaderOwnerNov 25, 2020 1:10 PM
"RB, so there is no more 7 downside days for markets ?" -- what did I say to make you think this way alex?
I suggest having a daily look at the liquidity models at the PAM Analytics -- I provided it there so that it is a constant reference.
alexddsNov 25, 2020 1:16 PM
Ok, May be I misunderstood , with this contested election which turned to be not that much contested, but this chart looks good, hopefully it will work till next OPEX, thank you
robert.p.balan November 25, 2020 1:10 PM
"RB, so there is no more 7 downside days for markets ?" -- what did I say to make you think this way alex?
robert.p.balanModeratorLeaderOwnerNov 25, 2020 1:19 PM
Trump is going to the Supreme Court alex. Trump is not done yet.
robert.p.balanModeratorLeaderOwnerNov 25, 2020 3:39 PM
Rising Term (Money) Market Rates symptom of tightening systemic liquidity (chart above).
If the Overnight Repo Rate also rises, following the SOFR, equities will be cut by the knees -- whether it's Value or HighTech.
*Instead of selling the indices, which adds to our short positions, we (sort of hedge) the stranded short positions by going long Gold.*
all PAM BUYS ANOTHER 144 CONTRACTS GCG1, DCC DISCRETION -- FOR ALL FUNDS.
*GCG1 -- DONE AT 1817.40 BOUGHT ANOTHER 144 CONTRACTS GCG1 -- FOR ALL FUNDS.*
Gold action not looking good, might test the baseline. We will lighten up long gold position.
all PAM SELLS 288 CONTRACTS GCZ0 -- DCC DISCRETION -- WE WILL RESET THESE LONGS LATER -- FOR ALL FUNDS
*GCZ0 - DONE AT 1809.6 SOLD 288 CONTRACT GCZ0 FOR ALL FUNDS*
robert.p.balanModeratorLeaderOwnerNov 25, 2020 7:11 PM
*We will likely get higher yields from here -- NQ should now make that last uptick, as well as rise in RTY and ES. Gold should test the baseline.*
*Temporary gold hedge*
all PAM SELLS 432 CONTRACT GCZ0 AS TEMPORARY HEDGE TO GCG1 LONGS -- XXX DISCRETION - FOR ALL FUNDS
*GCZ0 -- DONE AT 1807.30 SOLD 432 CONTRACTS GCZ0 AS TEMPORARY HEDGE FOR GCG1 LONGS -- FOR ALL FUNDS*
all PAM BUYS BACK 432 CONTRACTS GCZ0 SOLD AT 1807.30 AS TEMPORARY HEDGE FOR GCG1 LONGS, AT 1,801.50, GTC -- FOR ALL FUNDS
robert.p.balanModeratorLeaderOwnerNov 25, 2020 10:17 PM
*Modify this to:*
all PAM BUYS BACK 432 CONTRACTS GCZ0 SOLD AT 1807.30 AS TEMPORARY HEDGE FOR GCG1 LONGS, AT 1,801.50, OR AT UPWARDS BREACH OF 1806, OCO, GTC -- FOR ALL FUNDS.
robert.p.balanModeratorLeaderOwnerNov 25, 2020 10:40 PM
Fed, IMF Sound Warning That More QE Could Lead To "Unintended Consequences"
*One unintended consequence: hopefully make more money for the PAM community.*
"Several participants... expressed concerns that a significant expansion in asset holdings could have unintended consequences.
sparketNov 26, 2020 12:11 AM
Market expect stimulus and therefore price it in today... so fed creates doubt about stimulus to crater markets, just so they can reintroduce stimulus and save the day. Self-fulfilling prophecy.
robert.p.balanModeratorLeaderOwnerNov 26, 2020 7:39 AM
GOOD MORNING EUROPE
NOVEMBER 26, 2020
An order filled.
PAM BUYS BACK 432 CONTRACTS GCZ0 SOLD AT 1807.30 AS TEMPORARY HEDGE FOR GCG1 LONGS, AT 1,801.50, OR AT UPWARDS BREACH OF 1806, OCO, GTC
*This order was filled.*
*GCZO -- DONE AT 1806.45 BOUGHT BACK 432 CONTRACT GCZ0 TO EXIT THE HEDGE FOR THE LONG GCG1 TRADES, FOR ALL FUNDS*
This bearish very short term outlook is the risk for the GCG1 longs from here. But once 1822 overhead resistance is taken out , all should be clear.
all PAM SELLS (EXITS) 432 CONTRACTS GCG1 LONGS (BOUGHT AT 1814.1/1817.4) AT 1820 LIMIT OR BETTER, GTC -- FOR ALL FUNDS.
We reset the longs if there is a breakout,.
all PAM BUYS 576 GCG1 AT BREACH OF 1825, GTC, FOR ALL FUNDS.
robert.p.balanModeratorLeaderOwnerNov 26, 2020 9:02 AM
PAM SELLS (EXITS) 432 CONTRACTS GCG1 LONGS (BOUGHT AT 1814.1/1817.4) AT 1820 LIMIT OR BETTER, GTC -
*This order was filled.*
*GCG1 -- DONE AT BETTER 1820.5 SOLD 432 CONTRACTS GCG1, FOR ALL FUNDS.*
Someone is having some fun-- DMed me and said he did not realize that making money out of gold trade was so labor-intensive (joke only!).
Yes, very true -- you have to be on the lookout, as a mother hen looks out for her chicks.
But can be very rewarding -- if you forego just a little sleep.
We made more than $3 million scalping here and there, in three days that we were focusing on gold.
Now, we watch the Gold market show us what it wants to do. Waiting for a breakout, or a pullback.
Note to those waiting to exit long NQ hedges (for stranded shorts) --- the next downnove in NQ depends on further yield declines. If TNZ0 breaks above 157-24 resistance, then the yields will fall further, and it is probably safe to unwind NQ long hedges.
PAM BUYS 576 GCG1 AT BREACH OF 1825, GTC, FOR ALL FUNDS.
*Modify to*
all PAM BUYS 576 GCG1 AT BREACH OF 1823 (FROM 1825), GTC, FOR ALL FUNDS.
IF 1823 GOES, WE WILL LIKELY HAVE A BREAKOUT IN GCG1.
One more uptick in NQ (above) -- that means yield will correct higher (below), gold may dip further too (2 charts below).
all PAM SELL 144 CONTRACT GCG1 SCALPERS -- DCC DISCRETION -- ALL FUNDS.
*GCG1 -- DONE AT 1816.6 SOLD 144 CONTRACTS SCALPERS FOR ALL FUNDS*
robert.p.balanModeratorLeaderOwnerNov 26, 2020 2:44 PM
all PAM SELLS ANOTHER 288 CONTRACTS GCG1 AT DOWNWARD BREACH OF 1815, GTC -- FOR ALL FUNDS
PAM SELLS ANOTHER 288 CONTRACTS GCG1 AT DOWNWARD BREACH OF 1815, GTC
*This order is filled.*
*GCG1 -- DONE AT 1814.70 SOLD 288 CONTRACTS GCG1, FOR ALL FUNDS*
sparketNov 26, 2020 3:09 PM
robert.p.balan I’m curious what you think about how Gold has recently become inversely correlated to equities. It looks like it began early this month. Do you think it’s just a temporary phenomenon? I am wondering if gold’s outlook will foretell a corresponding opposite move in inequities or not...
opposite move in inequities or not...
robert.p.balanNov 27, 2020 7:20 AM
ALL coming down.
I look at these price movements as expression of liquidity modalities. They will all come down.
sparketNov 26, 2020 4:58 PM
Thanks. So it’s merely a temporary correlation for now.
robert.p.balanNov 27, 2020 7:25 AM
ALL coming down.
robert.p.balanModeratorLeaderOwnerNov 26, 2020 4:06 PM
all PAM BUYS BACK 432 CONTRACT GCG1 SCALPERS AT 1808.75 LIMIT OR BETTER -- FOR ALL FUNDS.
One final uptick in yields -- may deliver one final downtick in gold and final uptick in NQ (maybe).
bogeygolfNov 26, 2020 5:21 PM
Numerical Decomp Synchronous Flows vs 10y has a week rate of change TCB pushed forward 3w showing a small move up into monday and then a hard roll over ?
robert.p.balanModeratorLeaderOwnerNov 26, 2020 5:38 PM
2020 TCB already rolled over -- that is important bogey.
beckmannNov 26, 2020 6:54 PM
Couldn't a falling TCB be interpreted as money being spent into the economy and therefore supportive of the markets
robert.p.balanNov 26, 2020 7:34 PM
Yes it does Mr. Beckmann -- but it takes a while before that flow works its ways to the price of equities. It is more important as a signaling device for bond yields.
beckmannNov 26, 2020 7:36 PM
Interesting. What length of time would you estimate it takes to flow to equities.
A month perhaps?
robert.p.balanNov 26, 2020 7:38 PM
It works through improved economic activity and shows up as part of GDP growth, so at least one quarter.
Alan.LongbonNov 26, 2020 7:42 PM
There are no more long bond auctions on the radar but that could change tomorrow at the press of a Fed button.
beckmannNov 26, 2020 7:42 PM
Would the reverse also be true? For example a rising TCB signaling to bond yields to rise therefore supportive of markets, and a quarter later negative for the markets?
Alan.LongbonNov 26, 2020 7:42 PM
All inputs via SS payments and then a big tax drain on the 15th.
robert.p.balanNov 26, 2020 7:44 PM
You already see that here. COVID-19 debt sale proceeds have been hoarded at the TCB -- you are seeing consumption/activity already suffering.
beckmannNov 26, 2020 7:47 PM
Alan, is that to be interpreted as debt not increasing (no auctions) and TCB falling (SS payments) signaling for bond yields to drop?
Alan.LongbonNov 26, 2020 7:51 PM
Yes, at least until the 15th when a tax drain makes it go up again by about $200B
beckmannNov 26, 2020 7:53 PM
Robert, yes, but the TCB has been very high since March and the market has gone up a lot since. Is perhaps the market viewing the high TCB as money that will be spent into the economy, money that wouldn't otherwise be so readily available?
Alan.LongbonNov 26, 2020 7:55 PM
You can see on this chart how at TD250 = 15 Dec 2020, how the 5yr ave of the TCB pops up again from the tax drain.
robert.p.balanNov 26, 2020 7:55 PM
All this discounting process done by the stock market is bogus -- it is an explanation forwarded when the one explaining has no firm reason to use. Apologies Mr. Beckmann, I am not alluding to you but all those "discounters" that have no clue.
beckmannNov 26, 2020 7:55 PM
Alan, this is very interesting, thank you both for answering my questions. So from now to the 15th yields should be rising and not supportive of markets. Once the tax drain happens on the 15th, that should be negative also for the markets, is that correct? A double whammy for the markets? Edit: I meant to say yield falling, not rising.
Alan.LongbonNov 26, 2020 7:57 PM
From now until at least the 15th both the TCB and yields should be falling as per the dotted black average TCB line on the chart. Same procedure every year just at different altitudes of TCB stock levels.
The seasonal flow patterns always operate just at different fill levels, like water in a tank rippling the same way no matter if the water tank is full, half full, or a quarter full.
beckmannNov 26, 2020 8:00 PM
This is great information, exactly why I signed up for PAM last year. Thank you both.
robert.p.balanModeratorLeaderOwnerNov 26, 2020 8:02 PM
Gold and TN price updates have ceased.
See you later guys. Let's see if Asia has more to offer. GN and have a joyful Thanksgiving everyone.
bogeygolfNov 26, 2020 2:32 AM
I want wish everybody in PAM a Happy Thanksgiving and say that I'm very thankful for this awesome community. It is so valuable to get expert viewpoints from so many different perspectives of the PAM members. I know that I've greatly benefited from you guys.
wayne_2020Nov 26, 2020 2:33 AM
Well said, Bogey. Same here. I'm so grateful to all PAMers It was a life-changing experience for me over the past few months since I joined.
centexlifeNov 26, 2020 2:35 AM
Thank you bogey. You are so right to give thanks for this incredible group. I have been given by fate the privilege to experience the joy of spending time in the presence of giants.
rickyman94Nov 26, 2020 8:06 PM
Thanks for everything RB! Have a great thanksgiving.
sri2020Nov 26, 2020 10:11 PM
Dear Robert.. Thanks for all the guidance and knowledge you patiently impart us every day! Wishing you and your family a happy Thanksgiving!
robert.p.balanModeratorLeaderOwnerNov 27, 2020 12:45 AM
Thanks a lot guys. Appreciate the kindness.
-------------------------------------------------------------
--------------------------------------------------------------
During the first TEN months of 2020, PAM delivered phenomenal real-dollar trading performance, the best at Seeking Alpha:
PAM's flagship Swing Portfolio, year-to-date (October 31) delivered $103, 997, 327.54 profit on $2,172,813 capital. Year-to-date performance: 4,686.29%, on 787-83 win-loss trades. Year to date 2020 spreadsheet here.
Two other PAM funds: Algo Portfolio and Seasonal Portfolio (private) year-to-date (October 31) delivered even better performances.
More details on the SWING PORTFOLIO October 2020 performance here.
SWING PORTFOLIO's September 2020 performance here.
--------------------------------------------------------------.
Comments
Log in or sign up to join the conversation.