The collision of global markets and social mood

Thursday, June 12, 2014

Patience & Conviction

The 10-year has bounced back, the gap was filled, and the arc has held.

124'11.05 is the number that would makes things a lot easier for the 10-year. As much as the media flips out when prices climb, it means rates stay low, and that's what our credit-addicted economy needs. Falling prices and rising rates would gum up the works at this juncture. And with money velocity still slowing rapidly, a rise in rates would not be a sign that the economy was expanding. Remember Greek yields in 2010? Rising rates would be an early warning sign.

The stock market is still plagued by a lack of volume. Not only did it go up on extremely low volume, it has come down thus far on even lighter volume. In relative terms, this suggests that the highs will be retested, if not exceeded.

Wave counts suggest the same scenario. However, lower prices are still on the table too. As the market corrects, I'm adding to my existing SPXL position in small increments and am also scalping SPY puts and calls. SPXL has not not kept up with the implosion of UVXY, which has caved in a stunning 30 points in just over a month. Leverage is a double-edged sword. And UVXY is highly levered.

In trying to build a position in UVXY, I will add up to 10 tranches at different levels. I've only added two tranches to the small portion that was remaining after the April decline, and even that amount is a pain trade. So I'm slowly squaring up the SPXL against it. This requires a long-term view and a ton of patience & conviction. No problem there.

A bounce may have started yesterday. If so, 1950 is game. But so is a further probe lower to 1934.92 or the 38% level at 1922.16 which would likely bust the arc.

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