ridethepig | Recession Strategy📍 This chart update comes from the ' Alpha Protocol - Seeking Immediate Extraction '
The cramped inversion should aways be considered the end game of an economic cycle. But of course we will get the v shapers and naysayers who obliges that stonks only go up. The space available to operate against the Robinhood army is becoming more flexible. Sharp speculators are seeing more of an advance in the 2's 5's curve and abandoning ship when it suits them.
The threat of recession completely materialised and shows the importance of outguessing its weakness. You can learn from this inversion that:
1️⃣ Every other time this happened it ended badly for the global economy via recession. ✅
2️⃣ A Fed that lags and finances the Whitehouse will only add fuel to the flames... "it's different this time". ✅
3️⃣ The longer the delay in USD devaluation from Fed, the worst the blow is going to be in Equity markets. Assuming USD does not devalue materially into 2020 its repo will grow and continue expanding the balance sheet , one way or another eventually this is going to look like Fed has been financing the WhiteHouse and then the game is up.
Powell's noble attempt to pick a fight with the end game in an economic cycle can be regarded as having come to nothing. The threat comes from confidence and credit. Aiming for a complete annihilation across risk assets into 2021, the presence of the inversion was sufficient. Now this move will be made with momentum.
US05Y
Real Yields vs. Gold (Divergence of the Year)What are real interest rates? The real interest rate is the rate of interest an investor, saver or lender receives after allowing for inflation. It can be described more formally by the Fisher equation, which states that the real interest rate is approximately the nominal interest rate minus the inflation rate.
Now, two scenarios unfold. One, the gap in the chart closes when real yield goes back below zero. As we transitioned into QE this year--rightly so with bonds inverted 6 months before-- before COVID. It was the catalyst. Now with 5 years of the fed funds rates being near 0 to "average out" inflation, how to you think this chart will respond?
A tip. QT is the opposite of QE.
US10Y-US02Y Inversion;Un-Inversion compared w/ Dotcom FractalRemember, the stock market isn't the economy. A healthy economy usually is correlated to a healthy stock-market (price valuations, liquidity) However, the reverse is not true. The stock market isn’t the economy. There are a lot of private businesses in the U.S. that don’t reflect in the stock market. The stock market is forward looking while economic data reflects what happened in the past (backward looking). The stock market doesn’t reflect how the economy is “today”, instead it reflects where investors think the economy will be in the future (3,6,12+ months). When you look at March of 2009, stocks at that point had bottomed, with unemployment continuing to rise--peaking at 10% in Q4 of 2009 (6 months from the March 09’ bottom). Now keeping in mind that the stock-market is forward looking and that economic data is backward looking, we can make the assumption that speculation accounts for the difference that investors would price in if they had current economic data.
The stock market is more volatile than the economy.
Geopolitical tensions, external environmental affects, currency rates, also contribute.
The stock market is just a collective of speculators, with investors being optimistic towards the reopening of the economy. Markets have done well when news gets less bad.
Stimulus
Since mid-March, the fed has both cut interest rates to near zero, buying trillions of U.S. dollars of assets. Low interest rates encourage business to borrow at low costs. One of the things this does is set a floor for investors who assume that interest rates will be low for a while, giving them purchasing power. Multiple studies done that showed a good percentage of Americans using part of their $1,200 stimulus checks to trade stocks” (Fitzgerald, 2020). This can be directly correlated with Robinhood new accounts peaking 4 weeks after the checks began to ship (Bloomberg, 2020) and also Google Trend all time high’s for words like “Buy stocks” ( Google , 2020).
According to Pew Research, only 14% of U.S. families are invested in the stock market, with 52% having “some” investments via 401k or IRA’s. This mean that the gains disproportionately benefited a minority of the country. I think that it’s clear the stimulus positively affected Wallstreet while leaving Mainstreet behind.
US5Y Breakeven Inflation vs. WTI (USOIL)The graph above shows that the correlation between the breakeven inflation rate and oil prices is not limited to the steep decline that occurred in 2014. Indeed, the correlation between the two series over the entire period shown (January 2011 through March 2019) is 0.65. Prior to 2015, the two series appear to occasionally move together. The comovement was particularly obvious when the two series exhibited large changes, rising together in early 2011, falling together in late 2011, etc. From January 2011 to January 2015, the correlation between the series was 0.49. From January 2015 to March 2019, the correlation between the two series became even more apparent, rising to 0.85. A few academic papers have tried to analyze the cause of the comovement, but the high degree of correlation between the two series remains puzzling. Even if changes in oil prices pass through to consumer prices, one wouldn’t expect such a close correspondence between oil prices today and consumer prices at a 5-year horizon.
15:21:58 (UTC)
Sat Aug 15, 2020
US Dollar Index & RatesThis circular relationship is leaving many analysts puzzled as to what's next for the Dollar. Weight of the evidence points to a lower Dollar for now.
A truly weak US Dollar means the clocks ticking on the current bull market in Bonds and subsequently the upward trend in equities.
ridethepig | End Game in the Cycle📌 This diagram portrays the final stages in the economic cycle which I called in 2019. The position arose after Equities began extending beyond reality; all sellers needed was an intending cause.
The construct of the ingredients here are clear and simple, after Fed cleared the runway till 2022 you can see the risk coming out of bonds. Of course now it creates the "following subtle trap" where the belly of the curve begins to move towards the front end which then brings the 30Y with it.
It is worth pointing out where other countries in the world are as there is little divergence on the rates differentials now:
📍 Spain
📍 Singapore
📍 Canada
📍 UK
📍 Japan
📍 Germany
There is no reason why the US cannot see a retracement back to 0.9% / 0.8% levels ... Watch for the next dominos in Equities and Gold based on deep knowledge of the flows as we can call it. More risk to come.
ridethepig | US Yields Breaking Higher!So much for the 5th wave... the formulation has truncated after the payrolls report.
This is an example of an erroneous freeing. In similar patterns, the rebound will translate in a 5 wave impulsive sequence which is somewhat cramped after the knee-jerk reaction from covid. The appropriate positional response to the lows here is to ride the pig , what we are talking about is taking measures outguessing the road to normalisation of rates which we have not yet recognised as such.
Now we turn to the analysis of play in unemployment claims, despite how the media are selling business as usual we have a long (and likely sluggish) road to recovery, because of the poor handling of lockdowns and closures.
The one who is playing the macro data always has the upper hand, but this is especially the case once we clear the 'knee-jerk reaction' from the virus. The recurring bankruptcies, layoffs, social unrest and shutdowns have been forgotten about after politicians promising diversions! Smart money will not move so easily. Retail will pay their tribute in the form of horrible losses to an unconditional truth. Vix has completed the round trip, first prize to all those riding it from 85!
Of course the swing from 85 was no less imaginative than the swing from +/- 11 lows:
We are entering into a new development for volatility, my models are forecasting a dramatic expansion into year-end which will make it very difficult for manual or emotional players. 2022/2023 looks like the start of the next bull run in global equities, expectations are for advanced conditions to remain with us for 12-18 months.
Easy Money: Update on my US05Yr Short from this WeekDownside remains,
17:17:45 (UTC)
Fri May 22, 2020
Weekly Downside for 2 yr yield Short 01:57:49 (UTC) Tue May 19, Weekly Downside for 2 yr yield Short 01:57:49 (UTC) Tue May 19,
FR US yields vs EURUSDInterest rates are crucial in the movement of currencies. The blue is EURUSD. Those things are not 100 percent correlated but it is something that needs to be paid attention to.
In this post I will demonstrate the relationship between French American bond yields (interest rates) differential and EURUSD.
We use 2 principal yields 2 yearly and 5 yearly composite differential.
As you see, once the yields differential hits the resistance or reversal level (here we use DeMark and Camarilla reversal levels) - there is a reaction in EURUSD. EURUSD keeps moving some 30 pips more (fakeout?) and then turns as well.
On weekly differential chart we see that the differential is at 0 level after a poor bullish breakout. There is also fractal pattern in play.
We also see DeMark monthly pivot squeeze on 60 min (DeMark squeeze predicts volatility and turns in the markets).
You may also use German yields instead of French ones - not much difference actually.
Both American and European yields are in their lowest levels. German ones dropped below 0.
Beyond price actionThis might contradict our price action analysis but this is something that needs to be taken into consideration.
As many know, German 5 yrs bond yields - US 5 yrs bond yields differential is regarded by many intermarket analysts to be leading indicator for EURUSD. EURUSD is supoosed to follow this differential and some traders make a strategy out of this.
And what we have been observing since 2018 was a significant divergence going on. The differential is the way above its 200 ema.
However we ought to remember also that DE05y unlike US05Y are in the negative zone now (for a long time already), this might be the reason of the current divergence.
D05y bullish move into 0 or above will surely drag the eurusd up if the differenatial keeps trending up.
This subject of intermarket analysis is not my expertise, though. Just sharing my observations.
The suspicious is the fact that on EURUSD monthly pre-breakdown candle is missing DM 3 breakdown qualifier (pre-breakout candle shadow is the way too long).
ridethepig | US10Y Market Commentary 2020.04.10An important chart update for all early and late cycle players, the lows in US10Y Yields are not yet locked and this is holding the window open for a final leg to the downside cooking in Global Equities and risk markets.
A lot of buying interest in bonds towards 0.85 / 1.00 highs which will be enough to keep the downtrend in pay. I am looking for a full ABC completion from a strictly technical sense to complete the pattern. It will make things a lot easier for later in the year / into 2021 (and beyond).
On the map a very simple area to track:
Steel Resistance 0.89 <=> Strong Resistance 0.77 <=> Soft Resistance 0.69 <=> Mid-Point FLIP 0.6 0 <=> Soft Support 0.48 <=> Strong Support 0.39 <=> Steel Support 0.30
Thanks as usual for keeping the support coming with likes, comments, charts and etc... jump in with your questions and views!
ridethepig | One For The History Books...Negative US Rates !!!Negative rates are finally here for the US with the 6mo t-bill ticking below -2bps (feed is slightly delayed here). Simply meaning that you will now need to pay the US government for 6mo cash deposits. This is the only way they can continue in the "end game" strategy.
It is a well known phenomenon that the US 2's 5's was ringing alarm bells last year , those who were able to conduct their middle-game carefully were able to build credible trading ideas that leave the opposition hopeless in the endgame.
One of the main requisites for BTC to succeed in the endgame is based on the ability that FED can continue to confiscate while the "People vs Establishment" narrative deteriorates via lack of confidence in monetary policy. The endgame is much more the part of trading in which advantages are needed from economics. Now, the realisation of advantages, specifically advantages in Volatility .
In order to understand the flows across the entire board, you must learn about the endgame by starting from its individual elements, because it has such elements, just like the opens and middle-game strategies. We have previously already dug into these in detail that allow you to form ideas like this for the crash in German Equities.
Thanks as usual for keeping the support coming with likes, comments, charts and etc!
ridethepig | US 10Y Yields At 1.50 Support A deliberate soft closing down at the 1.50 lows (instead of breaking through allows for an underestimation in the bounce); here, the systematic approach of buying the dip deserves victory. We can cast some light together on playing through the flank:
In the extraordinarily traditional sense an inversion which we are looking at always leads to a recession and volatile positioning. This change of cycle that I have mentioned usually crops up in Vol first:
But what is typical of the big leagues, and this of course is no exception in US10Y, is and will remain advanced playing fields for advanced swing traders only. Retail making use of this soft close and betting on the continuation will provide the fuel for a spike as they cover and become trapped in a squeeze. Even when smart money appears to have a gun pointed at the head, it always finds the time to mass his troops in defence (now you see why this weekend was vital!!!!)... If you are keen to learn, you should model yourself around these premises.
All the best and thanks for keeping your support coming with likes, comments, charts, questions and etc!!
ridethepig | US 2s10s Curve Breaking HigherI have been talking about the curve steepening for some time after we cemented the lows. From a technical perspective, the breakout is implying a test of 60 over the coming weeks and months. The US 2s 5s Bond Curve also looks to be triggering a major break up:
This will reflect a medium term breakout with large forces clashing against each other and diverging at the prior lows in a long-term swing. A mixture of profit taking and momentum tiring. A break above is triggering the flows, with next key levels in play at 35.5bps, 49bps and 60bps as the final target.
US10Y
DE10Y
As usual thanks for keeping the support coming with likes, comments, questions and etc! Feel free to jump into the conversation in the comments with your views/charts.
ridethepig | US 2s5s Curve Screaming Recession in 2020A timely update to the 2s5s US Curve which is breaking higher with the resteepening after flattening from 2016. This breakout indicated we have marked a meaningful base with the next target in play at 29bps which is the measured target from a breakout.
(1) Every other time this happened it ended badly for the global economy via recession.
(2) A Fed that lags and finances the Whitehouse will only add fuel to the flames... "it's different this time".
(3) The longer the delay in USD devaluation from Fed, the worst the blow is going to be in Equity markets. Assuming USD does not devalue materially into 2020 its repo will grow and continue expanding the balance sheet , one way or another eventually this is going to look like Fed has been financing the WhiteHouse and then the game is up.
For those tracking the renewed steepening there are plenty of opportunities if you know how to capture the symmetry; for example Banks outperforming was a no-brainer:
Defensives outperforming:
Rotation in full swing:
End of the Cycle? Smells like it...
Recession is calling...
Thanks for keeping all the support coming with likes, comments, charts, questions and etc! Best of luck those tracking for the end of the cycle... this chart will be one for the history books.
ALPHA PROTOCOL: SEEKING IMMEDIATE EXTRACTIONYou have opened the grave of an economic cycle. Before we dig deeper into the nature and consequences of our discovery, we will discuss the background to the thesis and consider first what we know from history a few lessons;
(1) Every other time this happened it ended badly for the global economy via recession. A
(2) A Fed that lags and finances the Whitehouse will only add fuel to the flames... "it's different this time".
(3) The longer the delay in USD devaluation from Fed, the worst the blow is going to be in Equity markets. Assuming USD does not devalue materially into 2020 its repo will grow and continue expanding the balance sheet, one way or another eventually this is going to look like Fed has been financing the WhiteHouse and then the game is up.
Protectionism is a serious error. There is no yellow brick road to success with protectionism, and it is no surprise the US via media manipulation have the masses deluded. This is a necessary component to the makeup of the next economic cycle; but it must be in balance, any overshoots or undershoots will destroy the effectiveness in manipulation.
Central Banks have been buying 20% of Gold supplies, expressing a view on global risk at rates we have not seen since the Nixon era when mortgage rates were surpassed by wages and no surprises this is also happening again now! Those with a background in fixed income will know alarm bells are ringing louder than usual in bond markets with wages ticking higher than mortgage rates. This is not sustainable and when danger threatens and the crowd does not smell it, don't stand like a sheep, rather run like a deer.
Now that Pandora's Box has been opened, it is equally important to understand the consequences and have a pulse to guide us on how to proceed:
Utilities starting to form a top:
Consumer Staples in the decade long chart:
For those with a background in waves you will know this is a typical example of a 5 wave count. This is time to start paying attention for any signs of a meaningful top forming. We know that once this final wave is completed a corrective chapter will begin. This chapter down is only a third of the pages compared with the rally and we can 'read' through it quickly.
Rotation in full swing:
Cyclicals vs Defensives :
Tracking Unemployment closely :
Vol sitting on the launch pad
Use this chart to good advantage, time to start paying close attention for early signs of a turn. As usual thanks for keeping the support coming with likes and we can open the conversation in the comments for all to share ideas and questions.
ridethepig | US10Y Market Commentary 2019.13.12A timely update to the US10Y Yield chart as we breakout with November highs in scope. We will not be covering US fundamentals here today and instead will focus on key technicals in play.
For the flows in our map for today and the rest of 2019 we have the key levels in play (highly recommend adding all to charts):
Steel Support => 1.65
Strong Support => 1.70
Soft Support => 1.78
Soft Resistance => 1.90
Strong Resistance => 1.98
Steel Resistance => 2.05
For those wanting to dig deeper into what and why we are trading these lows, it is the same swing as widely discussed in October:
Best of luck all those in Fixed Income and in particular US Yields for the final months in 2019...a difficult environment to say the least. Highly recommend all to dig deeper into the macro picture built on Telegram and in the previous chart archives.
Thanks for keeping your support coming with likes, comments and etc!
INTERMARKET | US05Y vs GC1!As real rates rise, the probability of gold having topped increases significantly
