Bonds Are Actually Worth Something?
Over 500 years ago, Christopher Columbus set out to find the value of a bond. Yesterday, he may have finally found something.
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Kind of an exciting day today, although bloody to the Mind The Tape portfolio after a solid start to the week.
In case you missed it, I closed the bond short today. Let’s take a look at that first.
Bond markets were closed yesterday for Columbus Day, and today, they woke up and chose violence.
I had been watching that 4% yield number on the 10y as a natural place for a bounce, and when we didn’t get it, I was tempted to load up the short again.
Luckily, I didn’t, and today, we bounced right back down to it.
I think somewhere in here is a reasonable place for bonds to stabilize, so I took the bond short off. After such a consistent, straight-line selling, I am more worried about a short squeeze than I am about missing out on continued short profits.
We are nearly back to pre-Soft Patch levels. These values feel roughly fair.
This was a great trade. Let’s give thanks and move on.
The End of Semiconductors As We Know Them
NVDA and the Semiconductor sector dramatically lost their highs today on extremely weak order #s from ASML. ASML is one of the largest semiconductor companies, but they focus more than most on creating tools for non-AI semiconductors, such as those that go into cars, refrigerators, etc.
To make things even weirder, ASML published their results a day early due to a “technical error.” That couldn’t have helped the market react efficiently.
The ASML New Orders number was genuinely terrible, and deserved to spark a sell-off. No one is arguing that. Still, I can’t help but feel like the resistance levels I flagged yesterday in the chat were as much to blame as the ASML earnings.
Note that before today's sell-off, NDX briefly touched that resistance line I pointed out in July, before rejecting violently
It's a similar story in SPX, though I think the resistance was less defined here.
This is something you see all the time in markets—there is some nebulous “think” that the market is waiting to do (sell off violently, in this case), and it just takes a catalyst.
Just to be clear, this does not mean there isn’t signal in the sell-off or that there can’t be follow-through. There certainly can be on both accounts.
Still, none of this leaves me with a “run for the exits” feeling on the AI trade, or the NQ long. It’s simply a good reminder of why we must be careful with leverage and wary of volatility, especially going into the election.
Is The Great Rotation Beginning?
We briefly got a powerful rotation into small caps like the Russel 2000 in July. The table might be set for it to happen again.
I think this rotation, if it’s beginning, will be related to the slowdown in China's stocks and bonds, which are finally catching a bid today. Lower yields and a lack of other places for capital to flow out of the Qs will boost IWM and other US small caps.
I’m not excited to jump into this trade. But I’m watching it. It’s 100% true that these large-cap tech stocks are priced at a heavy premium, while the small-cap stocks are at some of their lowest valuations. That could continue to not matter for another year, or it could begin to matter tomorrow…
The Rest of The Week
I realize this post contains a lot of uncertainty. Being a good trader means being comfortable with uncertainty. It’s the only constant.
I’m going to continue to watch and see this week. The market will tell us more clearly how it’s thinking about things if we just watch the price action.
If you want my real-time trades and thoughts, make sure you’re in the chat.
Good luck out there!
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