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Bullish Patience Wearing Thin After Yields Send Tactical Signal - Morning Market Squeeze

Key Tactical Takeaways:

> We're going long ... at the open & using rallies to short ... and .... We've tightened our DISH stop & took a small loss on ADPT.


> Although Tuesday's near-term breakdown in the 10-Yr yield and XLF's tired upside momentum make XLF a good tactical short opportunity, the short-term trend will stay leaning bullish against .....


> We are looking for an hourly close < ... by AUDJPY to offer the next leg of confidence that risk-on appetite is top-heavy.

> After Tuesday's close < 0.88%, the 10-Yr yield has been exposed to an eventual test of the critically important ... area.


Some Quick Thoughts:

Patience. When it comes to trading, it means everything, and as the years tick closer and closer to that final dirt nap it's something I've certainly gained more respect for. For the many market purists like myself that have grown increasingly disgusted with the economic inequality and prolonged risk asset buoyancy that comes from historic levels of monetary market manipulation, waiting for the right time to take on contrarian positions has not been easy since 2009.

When it comes to trading, everyone needs to follow some sort of system. At the core of our trade ideas sheet, which by the way has realized a 70% gain and a max drawdown of just -2.4% since we began publishing in late June (contact me at info@extractmarketanalytics for more details), are volatility-based triggers. For record keeping purposes, we have to chronicle our buy and sell ideas at the open on the day after such signals are triggered. With this in mind, we will be going long ... at the open this morning, after Treasuries benefited from September's Retail Sales disappointment. For any of you looking to follow this idea, you can be a bit more patient in finding your entry point, perhaps by setting limit orders at the weekly or monthly VWAPs (Volume Weighted Average Price) that sit at ... and ..., respectively. Retail sales in the US edged up 0.3% mom in October, following a downwardly revised 1.6% gain in September and below forecasts of a 0.5% increase. This comes after average daily pandemic cases in October were 50% higher than September, a period that enjoyed a boost when the summer case surge in three of the largest states pulled back.


Despite the new bid for Treasuries, we still think that there’s enough positive sentiment about the US economy to limit the size of the coming Treasury rally. In addition, as we showed in our latest Weekend Macro Press, intermarket analysis tells us the appetite for natural resources, high beta and both domestic and international high yield stocks is forcing key ratios vs. things like safer consumer staples, Treasuries, low beta stocks and gold has developed to the point where any short-term rotation back into safety should ultimately end up being healthy countertrend action.


Bottom Line: After patiently waiting for the S&P 500's large dispersion from its long-term mean (see page 8) to finally weigh on the positive effects of vaccine-related headlines, Tuesday's 10-Yr yield breakdown is our cue to start taking on more defensive tactical positions. The next leg of confidence would come with an hourly close < ... by AUDJPY. In terms of equities, we're far more interested in positioning for mean reversion via shorts in ... and ... than in SPY. At this time, we’re anticipating staying long TLT until the 10-Yr yield nears a target of .... We'll need a bit more evidence before aggressively shorting ..., but any rally that nears the recent highs would certainly be a good starting point.


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