I am doing some selling, regardless of what USD is doing. If items held start to look suspect in their own right, or do not fit the balance I want going forward, I’ll take cash, which is not suspect right now. Even though the analysis was spot on before the USD bounce began, I, the faulty trader, have now been ruffled by its bounce twice! So much easier to project in advance than manage in reality.
[edit 2] With respect to the above, here is the trade log so far…
Sold for limited losses and small gains: HBM, the chart I liked lease of the 3 diversified metal stocks added (RIO, BHP), AAXJ, as I’ll hold BABA instead for now, XLE to exit Energy for now (individual items still on watch), ZM & SILV because screw bottom feeding for right now, SILV will still be there later. ARREF because its chart looked at me funny and cash pays me 5%+.
Cash now 84%. Of most interest to me beyond this summer of clowning around, is the prospect that maybe the yield curve is changing from the drudgery of the final stages of flattening/inverting to steepening, which will bring on changes aplenty, along with a fair amount of mayhem to be managed.
First, the US dollar is putting the screws to the de-dollarization brigade as the bounce continues. We are now getting to the nitty gritty of a bounce that will test our resolve to hold the daily bearish view or force us to abandon it in favor of the bullish bigger picture situation.
USD is still set up bearish on the daily chart with the SMA 200 (orange) sloping down, but another thing is true also. USD made a false breakdown in July that was a bear trap, at least for short-term traders. So Uncle Buck is banging resistance #1 at the SMA 50. It’s important, but of more importance than either of the other points, #2 looks viable for a test on a classic deep summer stock market hiccup/pullback/correction.
I will not tolerate a break through #1 without at least considering raising more cash or, though I don’t particularly like doing it, hedging. I will not tolerate a break through #2, period. #3 is more of a last resort marker to keep the daily chart bearish.
Meanwhile, it’s an anti-USD disturbance that was fully anticipated. USD is not doing anything we did not already project before the bounce had even started. It’s just easier to talk about it ahead of time than sit through its effects in real time. Each can manage it as they will. But the reminder is that in the near-term at least, cash is paying out nicely.
Moving on, here is an important ‘beneath the market’ indicator doing something interesting. The 10/2yr yield curve is ticking a new high to the previous mini steepening. Recall that I have viewed the renewed flattening into July as a sort of test of the one from March, from which we’d be on watch for a steepening. Well, this little double bottom with a tick to a new high certainly qualifies as a candidate. Nothing’s ever a sure bet, but if I were to bet mine would be that we are on a new and extended yield curve steepener right now.
What is the implication of that? Well, YC can steepen under inflationary or deflationary market signaling. With nominal Treasury yields rising and long-term yields rising harder the signaling is an inflationary steepener.
But also recall that the plan is for it to eventually morph to a deflationary steepener, which could happen if/as markets take a hard correction and asset refugees knee jerk into the perceived safety and liquidity of T-bills and short-term Treasury notes at a much higher rate than long-term bonds.
The upshot is that if Yield Curves start to steepen inflationary it could mean rotation to the anti-dollar stuff (commodities, precious metals, perhaps EM, etc.). In other words, the existing plan we are trying to get off the ground. Again, we watch USD’s progress. Either way it’s no grand new commodity super cycle.
But the BIG plan is for a deflationary steepening, because regardless about inflationary market signaling in bond yields today, inflation is fading in money supplies, not to mention in backward looking data now routinely being released. Our bigger plan remains deflationary with a possibility of an end to the greatest bubble ever.