Daily Plan 3/30 '22

Chasing Yield, Complacency, FOMO

Traders-

Rounded up yet another slow grind up, progressively getting weaker and weaker as late adopters and laggards join this rally. A key tell of complacency being smaller and smaller lot sizes as we go higher and higher. Volume has dried up pretty much but short term, Tic TOP indicator has been supportive of the equities. Combine this with ultra low VIX reads, inverted yields, dried up volumes and you have a recipe for spectacular moves in next few sessions (read context and levels below).

From my perspective, what we are seeing is the type of moves which give rise to adages like “Stairs up, Elevator down”. There are other colorful analogies but I will spare you the graphic details :)

This rally has been all about chasing whatever little return the market can get. There is lot of cash on the sidelines, I think it has no where to go with the destruction of bonds, I think equities have really been the only game in town, which I totally understand.

Any one buying a bond here at these levels is essentially committing that the inflation is over, that the rates have gone up for most part. Which may be true, may be it is true for a year or so, but does this really hold up for next 5-10 years? How about next 2 years?

I think there are signs of distribution on the tape BUT needs to be confirmed with the opening levels and Tic TOP indicator.