What follows is how the 2&20 crowd are positioned via Hedgopia .
I hope everyone has a safe and enjoyable holiday season. Because remember…
” Okay, alright, Christmas is over and business is business. You keep on buying. Dilute the S.O.B .”
And with that in mind, off we go, righto!
10-year note: Currently net short 44.2k, down 89k.
Is the big one around the corner? The big breakout, that is?
Ten-year Treasury yields, at one point at 2.5 percent, closed out the week at 2.49 percent. It was quite a rally. The weekly high just about kissed the upper end of a three-decade-old channel.
A breakout here will be massive, with repercussions across asset classes as well as economies.
Because it is a descending channel, with the passage of time, the level where a breakout occurs, continuously declines. In March this year, it was just north of 2.6 percent. This was also a level – 2.62 percent, to be precise – reached last December, and unsuccessfully tested in March this year.
Back in January this year, Bill Gross, of Janus Henderson, said that if 2.6 percent was breached, bad things would happen in the fixed income market, essentially saying this would signify the end of the long bull market in bonds.
Now, in order to test that resistance, bond bears would have to first force a channel breakout, which, should it occur, will be a major development.
If the bears are serious this time around, the most likely path for now is for these yields to go back down and hold support. The 50-day, for instance, is at 2.37 percent. This would give them an opportunity to reload. At the lows this week, TLT (iShares 20+ year Treasury bond ETF) was down 3.4 percent, and a pause is only natural.
30-year bond: Currently net long 104.3k, up 3.4k.
Major economic releases next week are as follows. Happy Holidays!
On Wednesday, the S&P Corelogic Case-Shiller home price index for October and the pending home sales index for November will be published.
Nationally in September, home prices rose 6.2 percent year-over-year. This was the highest growth rate since rising 6.3 percent in June 2014. The last time prices fell y/y was in April 2012.
Pending home sales, which lead sales of existing homes, rose 3.7 points month-over-month in October to 109.3 – a four-month high. In November, existing home sales rose 5.6 percent m/m to a seasonally adjusted annual rate of 5.81 million units, which were the highest since December 2006.
Crude oil: Currently net long 636.8k, down 17.1k.
Thus far, the bull-bear tug of war around shorter-term moving averages on spot West Texas Intermediate crude ($58.47/barrel) has gone the bulls’ way. For the last several weeks, they have also successfully defended resistance-turned-support at $54-55.
November’s all-time high of $59.05 is a stone’s throw away. As is the daily upper Bollinger band at $58.77. These bands are once again narrowing. A sharp move is likely upon us.
On the weekly chart, a pennant has formed. Can non-commercials contribute toward a breakout? They are already aggressively long.
In the meantime, the EIA report for the week of December 15 showed momentum continued to build in U.S. crude production, which rose 9,000 barrels/day to 9.79 million b/d. Since OPEC and Russia reached a deal in November last year to cut production by 1.8 mb/d, U.S. production has gone up by 1.09 mb/d.
Gasoline stocks rose, too, up 1.2 million barrels to 227.8 million barrels. As did distillate stocks – up 769,000 barrels to 128.8 million barrels.
Crude imports increased as well – up 471,000 b/d to 7.83 mb/d.
Crude stocks on the other hand dropped 6.5 million barrels to 436.5 million barrels. This was the lowest since October 2015.
Refinery utilization inched up seven-tenths of a point to 94.1 percent.
E-mini S&P 500: Currently net long 83.2k, up 15.4k.
Flows continue to diverge. In the week through Wednesday, U.S.-based equity funds lost $22.2 billion. This followed outflows of $16.2 billion in the prior week. The two-week withdrawal of $38.4 billion was more than $32.4 billion these funds took in the prior nine (courtesy of Lipper).
Contrast this with healthy inflows into S&P 500-focused ETFs. In the same week, SPY (SPDR S&P 500 ETF) attracted $4.2 billion, and VOO (Vanguard S&P 500 ETF) $372 million. IVV (iShares core S&P 500 ETF), however, lost $1.4 billion. In the past three weeks, $21.1 billion moved into SPY (courtesy of ETF.com).
The cash gapped up Monday to a new intraday high of 2694.97 – just outside the daily upper Bollinger band – followed by slight downward pressure in the subsequent sessions.
December-to-date, the bulls defended the 10-day twice. Seasonality is in their favor. With that said, it increasingly feels like they are already on board in expectation of a Santa rally.
Euro: Currently net long 86.2k, down 27.7k.