Trader Scott’s Market Blog
January 15, 2017
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There have been several posts recently about the extreme bearishness in the US Treasury market. I bought bondson December 1stas a trade, partly because of the bearishness, along with the technical situation with the selling climaxes and retests. And despite a good rally in bond prices since December, the bearish positioning by speculators in bonds has become even more extreme. Treasury short positions are at record highs, except for the 30 year, which is at multi-year highs. Recently almost each week, the short position goes from record high to even more record(er) high. Can it keep getting more lopsided – of course. But the potential size of the rally would grow even larger, along with the point and figure counts into the backups in price. A more surprising rally would then begin to cause doubts about a whole range of consensus theories (theorems for the algo crowd). Even tho the bond market itself isn’t very sexy, it is a massive market with alot of capital flows. And it has large effects on other markets. Bond yields affect stocks, sometimes positively, sometimes negatively, especially at extremes of either market. With yields and the stock market, it often tends to be a doesn’t matter until it does situation. The recent drop in rates has mainly been on the longer end, causing a flattening of the yield curve.Two yearyields haven’t moved down much. The flatter yields will affect the big bank stocks in the US, but it’s the European bank stocks which are the most worrisome to me. Deutsche Bank and the Italian bank stocks like Unicredit get most of the attention, but it’s Credit Suisse which really is not being recognized for its’ potential. It’s unlikely they will get a bail out. It’s the European (and Japanese) situation, politically, currency-wise, and banking related, which is getting closer and closer to being bullish for both gold and the US$.
There is presently way too much of a consensus about Trump’s’ policies and how they will affect economics and markets. But the enactment of his policies, and certainly the effects, will not be at all certain. What has become “certain” is Trumpflation/Trumponomics and its’ bearishness for bonds, and its’ bullishness for stocks along with the $ – and its’ bearishness for gold. I’ve been bullish on the US$ for years, and continue to be, but this bigger $ rally, time-wise, is winding down. The bottom was in March 2008, and Trump has had ZERO to do with the bull market in the $, but it’s amusing to hear completely misinformed people claim that. (However the bull market in the US$ actually had something to do with why Trump got elected.) When I initially bought the$, Donald Trump wasn’t even on the radar screen. He didn’t have anything to do, so far, with the $ bull market, but he will certainly have something to do with the major top in the S. The bigger $ rally will cause its’ own demise. Likewise, the President-elect will not be pleased at all with a “too strong” $.
We’ve heard from the $ bears who are bullish on commodities because the $ is about to crash. Basically the opposite has occurred. The US$ is near 14 year highs, and yet commodities bottomed as a group early last year. Many of them went to multi-year highs last year like coffee, cotton, and natural gas. How did that happen. We hear all the time about how the $ and commodities move in opposite directions. I’ve maintained my bullishness on the $, and yet also turned bullish on commodities early last year (I missed the January low in base metals). Correlations in markets fall apart at short, intermediate, and long term bottoms and tops. The secular low in commodities was in early 2016 and the secular low in gold was in December 2015. Right now gold and bonds and the Yen are highly correlated. But that isn’t always the case, and it will change again.
Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day.Scott returned to markets over fifteen years ago where he continues as an independent trader.