The Week Ahead

Market Complacency

Good Morning cherubs,

I hope you enjoyed Independence Day and you are ready for this week - I have extended the July 4th offer.

Last week was strange.

We saw;

• Bonds caught a bid → yields tanking

• Stocks sold, a little…

• Dollar continued to the upside

• VIX ended down half a handle

It’s stunning that we have seen such a bid in bonds in the past fortnight, I believe it is purely a result of recession fears. I find the word recession so subjective… Why? There is no universal definition. Friday’s move/intraday volatility in yields was jaw-dropping. There has been a disconnect between stocks and bonds as of recent times. Why do I mention this? Well, when there is high inflation, stocks and bonds positively correlate. So I am trying to understand whether markets have priced in all the inflation concerns and are now focussing on a recession or specific markets were purely taking a breather from a non-stop beating. For once, I think markets are wrong. I believe bonds are providing an opportunity to either short bonds via ZN or long yields via yield futures. Fixed income market has become incredibly over leveraged in the past year with market participants completely over crowding it - many covered their shorts on Fed news. Which led to the market being like a daisy chain mine… MTM losses forcing shorts to cover for a loss, which blows up more and so on.

For a smaller investor, I think starting a position buying yields via 10YN2 isn’t a silly idea (now 2.88). I expect some more volatility in the near term (perhaps down to 2.50-2.60), followed by an aggressive reversal (3.75). In my career I have never seen so much complacency in the bond market. I thought the global macro and bond guys were meant to be the smart ones ;-).

Stocks wise, I believe that a big dip is coming. Fresh 52w lows. VIX @ 28, VVIX @ 85, S&P @ 3810 - yet EURUSD which currently has a strong positive correlation with S&P is trading @ 1.029.

DXY, expect 107 this week. Oil, expect 104 this week. Gold, expect 1775.

TSLA trades worked well last week…

I still avidly watch AMZN to start a position, I am writing 70 & 80 strike puts for Jan for nice premium here. I’d like to start the position below 100. I have put last week’s “The Week Ahead” below to refresh your mind on the options I am writing.

The Week Ahead

TWTR trades at a nice discount relative to the buyout price. Market seems to be pricing that the deal won’t go ahead/will be negotiated to a lower price.

Remain heavily short ADSK @ 187, ASML @ 500 & SNY @ 55.

Only one of my subscribers on here gave me tickers to look at, I will assume you are all fine or think I will judge you? Don’t be shy :-) I am here to help.

Multiples will continue to compress, I still can’t find any value.

Still writing the options post - should be up this week.

Fed