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QQQ vs the TLT: which is worst?


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#1 Charvo

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Posted 07 July 2017 - 01:42 AM

 

Both are arguably in decent downtrends in the short-term.  Sovereign bonds all over the world have gotten hit.  Bunds have been torched.  QQQ high fliers have gotten hit too.  It almost feels like hedge funds have been hedging their FAAMG longs with treasury bond longs.  I think the eventual resolution to this will be the QQQ taking a bigger dip in the coming days while TLT regains some stability as the risk off flight gains traction.  

 

I was reading an article about AAII investors being 67% invested in stocks while having 15.5% allocation in bonds.  The stock allocation is above average while the bond allocation is below average.  The cash allocation of 17.2% is also below average.  I would have to think this represent true market sentiment.  

 

  • “Overweighting stocks; bonds return nothing and will go down with rising interest rates.”

 

https://www.forbes.c...w/#5ac5bbf11a2b

 



#2 Charvo

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Posted 07 July 2017 - 03:57 AM

 

The QQQs are even threatening to underperform the VWO emerging market etf.

 

 

The TLT vs VWO actually looks like it is flattening out.

 

VXN is at 18.  This is elevated which means folks are definitely buying puts on the Nasdaq 100.  I think a countertrend rally in the QQQ with the VXN falling a bit would be a good short.



#3 Data

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Posted 07 July 2017 - 08:09 AM

There is also chatter about the risk-parity funds unloading both bonds and stocks.  I think it was the shallow March decline when this last occurred.  Plotting TLT and SPY, there are significantly long stretches where they appear to have 100% correlation to each other and then breaks for a short time.



#4 Charvo

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Posted 07 July 2017 - 08:43 AM

This treasury bond decline has narrowed investment and high yield credit grade spreads to treasuries even more.  Although they could narrow more, the levels are similar to the middle of 2014.  

 

https://fred.stlouis...es/BAMLC0A4CBBB

 

531592_untitled_460x252.jpg


Edited by Charvo, 07 July 2017 - 08:45 AM.


#5 Data

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Posted 07 July 2017 - 12:19 PM

SPX is now up the same amount as the last BOJ intervention on Feb 3.  It didn't take long for the two central banks on either side of the US to step in.  JGB yield > 0.10 is the trigger.


Edited by Data, 07 July 2017 - 12:19 PM.


#6 Charvo

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Posted 07 July 2017 - 09:32 PM

SPX is now up the same amount as the last BOJ intervention on Feb 3.  It didn't take long for the two central banks on either side of the US to step in.  JGB yield > 0.10 is the trigger.

 

This is a chart of the US 10 year spread over the JGB 10 year.  Maybe things change next week.



#7 Charvo

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Posted 08 July 2017 - 12:07 AM

 

This chart is of the NDX buy write index vs the TLT.  It shows a well-defined range. It could go higher, but I think this ratio is probably headed down in the medium term.  That's just my view.



#8 Data

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Posted 08 July 2017 - 08:55 AM

2011-2012 dip is going to be distorted due to the Fed's Operation Twist 1 and 2 where they sold short-term treasuries and bought the long bonds.   The 10-year yield dropped from 3.2 to 1.5 percent.

 

During 2014-2015, there was the strong dollar effect due to the end of QE3 and BOJ/ECB going big with debt purchases.    Stocks traded sideways.  Commodities declined.

 

In addition to yesterday's auction, the BOJ added to its scheduled purchases for the rest of the month.

 

The other central banks appear to be backing off more purchases, but continuing to jawbone the markets weekly.  The markets react negatively for a day to discussion of exit strategy until one of the bankers tries to dampen expectations of an end to QE.



#9 Data

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Posted 08 July 2017 - 02:28 PM

"The Swiss National Bank's foreign-exchange reserves--accumulated on a massive scale since 2012--dipped slightly last month to 693.5 billion Swiss francs ($721 billion), the SNB said Friday. The figures suggest the central bank has pulled back on its currency intervention efforts."

 

http://www.foxbusine...-from-euro.html

 

By comparison, their trade surplus is less than $12 billion and the reserves are far in excess of size of the country's economy.