Thursday, October 17, 2013
10/17/13 TiLTing Long on Bonds
(a) TLT jumps another +1% to 107. The DJIA has recovered from it’s opening lows, and the SPX is poised to close at new highs.
Normally, I don’t like to chase. However, I’ve been watching for a breakout in bonds, and here it is. So discipline requires that I act on it. Thus I plan to open a position in RYGBX at the close. If I had to ‘explain’ the trade (and I do have to explain it to myself!):
(b) I’m going to disregard the October 15 closing price of RYGBX (14.29) as an anomaly due to the debt ceiling crisis. If I do that, then it’s easy to see that RYGBX/TLT have been treading water since September 23 (pretty much around 105/106 and 14.50 respectively).
(c) That allows me to mentally ‘rework’ the RYGBX position as a breakout from a base of 14.50 (last night’s close). (And trading the markets is all mental.)
(d) I’m pretty sure we’ll see further gaps up from 107.
(e) I’m also prepared to endure some pain with the position. A 2-day gain of +2.5% for the long bond is significantly above average, so profit-taking/retrace is to be expected.
(f) Waiting for a pullback is my usual style (and within my comfort zone). In this case however, the odds are high that I would be waiting for a pullback that never materializes.
(g) It’s not the kind of trade I ‘like,’ but it’s my job as portfolio manager to take the high-odds bet.
Subscribe to:
Post Comments (Atom)
uh oh. I actually went long TBT right before the close at $74.15.
ReplyDeleteI wouldn't worry about it. I did say I was prepared to endure some pain.
DeleteTrue. I'm looking for a $1 or so bounce
DeleteI'm playing the other way and believe rates rise and bonds fall for many years. I've still got 28% of my portfolio betting on this through insurance companies (insurers do well with rising rates, plus I get a dividend and growing business).
DeleteI guess I'm still long bonds via NLY, which pays a dividend. Not sure which way it's gonna go 4-sure but it hasn't dropped much lately.......
DeleteTNX -- from thewavetrading.com ... potential HnS on yields ...
Deletehttp://stocktwits.com/message/16568885
Thanks, Kyle.
DeleteGood to have disagreement from some of you. I'd be worried otherwise.
2nd - I'm mainly playing it from the thinking that we could potentially do a moonshot higher to 1,800 and in that scenario the most recent gains in TLT will evaporate quickly. Plus the move over the past 2 days is quite extreme, registering very overbought readings on the hourly and daily chart with the RSI_EMA tool I use for determining shorter term buy/sell points. Nothing is perfect but I was looking closely at this after you mentioned the other day that Bonds were saying bull shit to the stock market, which I think should actually be read in the opposite way because bonds have been "wrong" for a while. I put that in quotes only because ultimately I do think we go through a rough patch soon and in that scenario bonds typically do better.
DeleteTNX -- Here's another PitchFork draw I saw today ...
DeleteElam Rajaguru @bigelam
@marketmodel 2.4% coming. $TNX. pic.twitter.com/5eQFSTdL7h
https://twitter.com/bigelam/status/390884009237958656/photo/1
Re the markets discussion on the previous page, now that the government mess is cleaned up and we did not get a major correction on this in October (yet at least), I think we ramp up through the end of the year.
ReplyDeleteI know it's the things were not aware of that causes major market corrections, but I find it hard to think of what could cause a correction going into year-end.
Brent,
DeleteI believe we do something like > 1800 > 1350 over the next 18 months. Take a listen in on the OSTK and EBAY conf calls today. Retail spending hit a brick wall according to them both.
I haven't listened, but I'm not sure they are representative of the overall economy, especially OSTK. Plus I wonder if Americans were holding back on spending due to concerns about the government/debt, especially government employees.
DeleteI saw French retailer Carrefour had good numbers yesterday, which may further indicate Europe rebounding, which could be more important in the cycle right now in showing the world economy rebounding.
It is hard to call overall markets, but it still seems that that when I look at stocks, there is still a lot of better value outside the USA now, so probably more upside in these.
Dammit I wish I saw this sooner:
ReplyDeletehttp://kylebassblog.blogspot.com/
His calls are absolutely atrocious. Some of the worst ones I've ever seen. To me he was a one hit wonder. He was bagging on PR recently. Who is tied closely to PR? MBI apparently. That probably was the bottom recently.
Speaking of bad calls, anyone see FMD closed at $1 today? Could this close that gap? That would make my head spin, no doubt.
DeleteYou mean his claim that the US (a country that issues it's own currency) is headed for default?
DeleteI understand the risks with the EPA mandate coming down the pike but boy this PEIX sure as hell looks like another YRCW in the making (taking into account sentiment, horrible prior performance, financials turning around, catalysts in place, extremely cheap on price to sales basis compared to peers (REGI, GPRE etc)). I'd like to see what the ruling is that the EPA comes down with but take a read through the last quarterly report PR:
ReplyDeletehttp://finance.yahoo.com/news/pacific-ethanol-inc-reports-second-195957154.html
Fundamentals for ethanol have improved pretty significantly since that report (i.e., corn has collapsed by 33%, ethanol prices and margins have shot up). I think this is a very very interesting setup. No clear bottom in the chart yet but I could see this thing turn on a dime at some point over the next year.
Right now I have a decent position in it...still waiting on the EPA ruling to decide on what I want to do but it just has the feeling of being a big winner. I'm expecting it to be tough to hold, of course, like all big winners are.
DeleteMy guess is PEIX, if it does indeed go on to be a multi-bagger from here, will first find new lows, then recoup those losses to form a bottom. Maybe the new lows come on the revised EPA mandate or Q3 earnings?
DeleteHere's a good report on them:
http://www.uncommonequities.com/uploads/PEIX_Update3.pdf
If they hit their $1.6 EPS target for 2014 then at some point the market will trade it up to 15X.
TOF,
ReplyDeletein thinking about it some more, I think we head upwards over the next year and find it really hard to see us going back to S&P 1350.
"Per ThomsonReuters, the “forward 4-quarter” estimate this week fell to $118.94, from last week’s $119.04, however the year-over-year growth rate rose to 6.34% this week from last week’s 6.04%. The p.e ratio on the forward estimate is now 14.3(x)."
So, assuming these estimates are accurate, and you put a 15 to 18 p/e on them, you get S&P 1784 - 2140.
The only way we can be down a year from now is if earnings fall or if the multiple paid on earnings falls - it can't be anything else.
Hard to see either of those happening with easy money policy still in place and central banks backstopping any economic weakness. Plus you've still got fundamental economic growth support through an undersupplied housing market and the oldest car market ever needing replenishment. I guess the big risk would be if inflation got out of control and banks had to raise rates, but I don't see that happening with the labour market still underutilized and commodities showing no signs of getting out of control.
David Tepper on CNBC a couple of days ago expressed similar opinions and worth a watch if you didn't see it.
Do you see anything I am missing?
BB - A couple of things I guess:
Delete(1) will the fed pull back on stimulus and what impact will that have?
(2) margin debt too high + lack of new buyers???
I don't really know to be honest. I also have never seen estimates that high. Are those operating earnings or net earnings?
If Europe and/or EM's ARE recovering/entering growth spurt, then it would seem to support further upside?
DeleteI just don't get why the US market is reaching all new highs considering the damage done from the financial crisis.
I get the earnings from http://fundamentalis.com/?p=2689 - I'm not sure how he calculates, but I googled it and it seems to line up with this report from Thomson Reuters: http://www.trpropresearch.com/pdf/This_Week_In_Earnings.pdf/
DeleteCPST - LOL, is the H&S actually failing to fruit?
ReplyDeleteHard to argue against TLT long, considering the chart and recent action the past couple of days. Were bondies really anticipating any need for haircuts on US T's, that's hard to believe......?
ReplyDeleteNES news. I'll translate.... Blah, blah, blah, blah, blah.
ReplyDeleteIt's still unclear!
DeleteBB - It's a mug's game, really, trying to figure out the direction of the overall market. Focusing on sectors that are working based on a sustainable thesis and stocks within those sectors that look good typically is the best strategy.
ReplyDeleteI agree. It is hard enough to figure out an individual stock's direction, let alone the direction of 500 stocks.
DeleteEven in a bad market, you can find individual stocks, that do well. The only exception I've seen to that was in 2008 and I'm quite certain that policy makers won't let that happen again for many years. The only reason to watch the broad market is to try and identify a similar catastrophic event before it happens.
WHR - Looks like a bear flag, might be coming to us.
ReplyDelete90-day breakouts: AXP, BX, CL, DCI, FDX, HBAN, JBLU, PZE, SNDK, SON, STLD, TUP & URI
ReplyDeleteBHI - Remember this one?
ReplyDeleteGPRC just won't quit. Famous last words I know. Hard holding on when its up 50%+ but the company still doesn't even trade at 3X FCF and earnings.
ReplyDeleteI think a reasonable target is $4.20. We shall see. The fundamentals could support a $10 price.
DeleteCONE - Breaking to upside, do you guys know this one at all?
ReplyDeleteINTU - Tax-prep rally?
ReplyDeleteRES - Will this be a double top?
ReplyDeleteWell I closed out the TBT at $37.6. You win this time 2nd! The thing that occurred to me is that the trading was very similar to the trading of GLD right around when it was bottoming out. If that's the case then TLT has some more room to run higher first before falling down and retesting the lows.
ReplyDeleteLong SPY at $173.52 for a day trade.
ReplyDeleteSold $173.75. Another free lunch!
DeleteARR - Was the div increased or something?
ReplyDeleteThat chart is starting to look better and better. That's what I was waiting for on BSBR. What do they pay a 15% dividend?
DeleteYeah, 14% or something like that, it's been cut several times lately.
DeleteSRS - Okay, if T's continue to rally this one should keep moving down, coming to us. It's been a wild ride since mid May.
ReplyDeleteGREK up 50% since July. Wow.
ReplyDeleteYep, I was looking at that chart last night and thinking the same thing.
DeleteThe only thing holding back NBG is Germany's insistance stockholders take haircuts first before a bailout. So some folks are gambling that won't be the case. It might not happen, considering Italian banks have set the example by stepping in front of that same train and it's become a too big to fail story?
Tension is increasing it seems like, can Europe pull it off? BB seems to think so, and that's encouraging me.......
NBG is going to do well, the issue from my thinking is the market cap is too high to get a huge run like IRE had. there will be big bouts of selling and fakeouts that make me worried about taking a big position.
DeleteWhat about Germany, you don't think NBG will go BK without assistance of any kind?
DeleteNBG - This thing's gonna go parabolic, isn't it?
ReplyDeleteFBP - Will this one reach $5.34 today?
ReplyDeleteThe answer is yes, s/r here.
DeleteDC Senators shoot at each other but miss and hit small town America instead.....
ReplyDeleteCCL - Talk about weak, someone can't sell this thing fast enough........ bids just keeps on dropping.
ReplyDeleteALDW - F, another one........ WTF, is this for real???????
ReplyDeleteSBS - Another stock that went' into a death spiral and now is acting strong..... And CCL won't f'n participate........WTF!!!!
ReplyDeleteALDW - up 10% in just a few hours, can you believe this total BS crap the way prices move? It's total BS!
ReplyDeleteBV - I see there's a reference back to BV's server on LOWE's website, perhaps Lowes is a customer?
ReplyDeletescript type="text/javascript" src="http://lowes.ugc.bazaarvoice.com/static/0534/bvapi.js"></script
DeleteARIA - There's some more yummy for ya' if you liked it y-day then you'll like today's price even more.
ReplyDeleteCCL - At least this one came back, sheesh, where'd that bus come from right out of the shoot?
It's like whack a mole with that one.
DeleteAcross the board with that description, there are so many stocks that were hit hard and came roaring back it's difficult to trust this market's ability to price anything.
DeleteSGG - Not bad, eh? "Fire engulfs one of world's biggest sugar terminals in Brazil"
ReplyDelete(a) TLT in fact opened >107, and has yet to revisit yesterday’s closing price.
ReplyDelete(b) On the other hand, it’s having a hard time piercing 107.5x, which is the general area from which TLT plunged in August to its YTD lows. In fact, the ETF met a ton of supply @ 107.48.
(c) It’s now treading water @ 107.teens.
(d) My ‘take’ at this point is we’re likely to retest 105.and change before attracting sufficient demand to break the glass ceiling. At this point it’s also ‘overbought.’
(e) Therefore I plan to exit RYGBX with a fractional gain at the close, and wait for traders to regroup for another rally attempt.
(f) I still think traders will rotate out of stocks and back into bonds during the last quarter of the year. So I’m risking being left behind on Monday, and I’m making another trade I don’t ‘like’ today. Just doing my job!
(g) Reopening JC Penney @ 7.02. This is a trade that will keep working until it doesn’t. But until that point, I’ll keep recycling the trade. The stock appears to be an emotional seesaw for traders.
IDX - I haven't looked but I bet this chart doesn't look anything like the Sensex.
ReplyDeleteCP,
ReplyDeleteI think the bottoming process for CCL is almost complete. Looks very similar to the bottom in June before it took off. I think most people who want to sell because of earnings have now, and the stock is in the hands of strong holders who realize there is good value in the stock and earnings will come over time.
Re NBG, I held that for a long time and lost money, but the reason I sold it is because I read a logical report on why the equity holders of NBG end up with nothing. It may trade up well from here, but unless something has changed, I think you just have traders trying to get in and out.
ReplyDeleteIf you were going to put some serious money into NBG, I'd take a look at their balance sheets and try and figure out who ends up owning the company. No doubt NBG survives as it is critical to the Greek economy (they issue politician paycheques!), but not clear who ends up owning it.
RYGBX closed up just +0.2% at 14.71 (+$0.03). Why bother?
ReplyDelete(a) It was a successful bet, as investors behaved as expected. TLT gapped up at the open and rallied +0.65% before hitting resistance and retreating to close +0.2%.
(b) I now have additional insight (price, volume, sentiment) into current investor psychology re the long bond, which may pay off several times and in many ways over the next few weeks. The kind of insight possible only when I have skin in the game.
(c) The portfolio made money.
It's really that simple. Trading is a grind, and all I do is play the same patterns over and over. My time frames will vary> in 2011 the holding periods were measured in months, and in 2012/2013 they've averaged a day. Sometimes I'm right, and often I'm wrong. As long as I wait for good pitches and cut losses quickly, I should do well over time. Even a few hundred a day fading the sales at JCP can add up to tens of thousands over several months.
BB - Yeah, I'm not gonna give up on CCL, it's this kind of treatment I have to learn to hold through. I won't forget to add a bit more this time if it does happen to pull back.
ReplyDeletenew post
ReplyDelete