Debt shorting is now a risk back on trade.
Let's take the HYG shall we. All these people who don't believe they will get their return investing in corporate bonds. First and foremost the SPX rally started with two things, a bounce at a key technical level of 1805, that's a gimme. And from there those shorting corporate debt sort of decided to cover as well. This created this predictable rally up to the SPX "2020" we've been colloquially calling out since 1805. Now the SPX did trade up to 2011 (a teeny 0.4% off from our call--not bad all your savvy day traders in chat).
But when we got there things held steady just like the notorious scribble chart called for. And it was in this steady spot that those who held onto corporate debt in their trade decided to start selling. This reversal in the HYG is a leading indicator of things to come. And if it gets shorted continuously from here we can say hello to SPX 1800 and below. Here is what the SPX looks like today. I scribbled on the chart to show how tricky a top can be. Of course that's not canon, but that upper resistance still can be achieved before Fed day 3/16. So if trying to short, it's best to just grab every peak you find in the next few weeks as long as SPX is below 2040.
And if you want an even bigger picture have a look at oil. If you remember from our podcast we showed just about all things trading up to consolidation, even oil. We were calling for a $38.00 top in oil which was the same consolidation as everything else. Once oil got there, the predictable down day was inevitable.
And a quick lesson in fibs. As you can see in the CLJ6 WTI Contract that the 50% fibs almost identically line up with our price targets. Even in the age of computerized trading, the 23.6, 38.2% and even the 50% Fibonacci tend to show up on the long term charts like the daily and weeklies. They also neatly line up with the support and resistance levels and consolidation points too. Just another way to tell that you're doing your TA right. I personally don't use the fibs too often on intraday equities or futures trading, except for the 50%, but for the longer term trends they are just a second layer of confirmation that can be helpful.
And again why this works is that when there is no earth-shattering news in a particular commodity, volume stays low, and the natural ebb and flow of the computerized system mixed with slight amounts of covering and risk-aversion in the form of shorts profit taking, you just see these things drift up to these familiar and comfortable places before a second wave of a trend happens.
This "rally" in things these last few weeks I believe was nothing more than covering before a second wave of pretty bad things possible to come. Credit in this marketplace is shot. And if the HYG starts to tank, start preparing your bunker by stocking up on water, shotguns, and lawnchairs...because the zombie bear apocalypse will have begun.
I personally won't be touching any longs until SPX 2080+ or SPX 1700- Between one and the other, my trade is shorting the highs until the HYG turns around and shoots for the moon. Best of luck, especially if trying to long from here...
and as always, stay liquid my friends.
Submitted March 08, 2016 at 08:38PM by gabriel87120 http://ift.tt/1TrvM6u
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