Hello everyone,
There is much to discuss today, and it took some time to draft and condense this post.
Based on relative strength and breakouts, the setups in computer hardware, crypto, and financials are some of the most attractive in this market. Before I get into those, I want to discuss the bigger picture with bonds and global equities. Let’s dive in.
Bonds
I'll begin with Futures positioning to set the stage for today’s post. In May, commercial hedgers (‘smart money’) became record-long US equity futures and then began unwinding that position over the following quarters as stocks rallied significantly.
It’s been a similar picture for bonds but with a lag. Hedgers got record-long US Treasury bond futures in August. And it wasn’t until this week that they’ve finally begun unwinding that position significantly:
This is occurring right as the widely tracked 10-year Treasury yield backs off from 2-year resistance after a slew of inflation reports:
Yields will likely come down further (ie. bonds rally) while hedgers continue to reduce their record-long bond position. This has bullish implications for equities, especially for tech and financials, which I’ll cover in more detail later in this post.
Out on the fixed-income risk spectrum, corporate high-yield (junk) bonds and commercial mortgage bonds continue acting very strongly. We’ll look more at the mortgage space in the Financials section.