Bearish decline imminent? Not quite yet.

The famous 2’s-10’s treasury curve inverted a couple times this week, and yield curve inversions are becoming more regular topics in the circles of FinTwit (Financial Twitter). At the same time, it seems like to many people are nervous or hedging for a major crash to hit. It’s really hard to say here, I could as easily see a short-covering rally through April as a major fund blowup sparking a selloff. My gut says it’s too early to be stacking up on bearish bets, so I prefer building cash to jumping too fast into TLT calls and I really don’t like the risk/reward of buying puts here.

I’ve reduced my precious metals exposure significantly this rally, and I might reduce a bit further – specifically in the to positions where I hold long dated calls – AG and EQX. While I like the long-term story that countries will diversify away from the dollar and US-dollar denominated trade for various reasons, it always scares me when people harp on money-printing with hyper-bullish targets. In my view, money printing is simply a false narrative. I still agree with Rauol Pal’s view that we still have another lower high in yields and likely revisit the lows, but that it will happen faster this time because of the rapid monetary & fiscal easing of 2020-2021 followed by a rapid reversal of both. That being said, here’s a look at the two charts of my two positions I’m most likely to reduce.

I can see both bullish and bearish indications on the charts above, but I lean towards the idea of an intermediate-term pullback followed by a long-term move higher. For now I think we’re likely to see a re-test of that January peak around $7.50 again.

It’s hard to tell what to think here, but I’m inclined to think we’ll see a declining bullish wedge form here which will drop around that $12.30 level before re-testing $14.50 again and perhaps consolidating lower from the large resistance around $16.00.

To be honest, I’m inclined to wait a bit here on both EQX and AG before reducing my call positions further. Both stocks show above average seasonal performance in both April and May anyways.

Here are my latest asset allocations:

  • HEDGES (9.8%)
    • 9.8% TLT Calls
    • 6.5% AG (Silver), calls
    • 4.2% EQX (Gold), calls
    • 2.2% EQX (Gold)
    • 4.1% SILV (Silver)
    • 3.9% SILVRF (Silver)
    • 3.4% LGDTF (Gold)
    • 3.0% MTA (Gold & Silver)
    • 2.9% MGMLF (Gold)
    • 1.7% RSNVF (Silver)
    • 2.0% SSVFF (Silver)
    • 2.4% HAMRF (Gold)
    • 0.8% DSVSF (Silver)
  • URANIUM (19.9%)
    • 7.4% CCJ, shares w/ covered calls
    • 3.3% UUUU, shares w/ covered calls
    • 3.8% UEC, shares w/ covered calls
    • 1.8% BQSSF
    • 1.7% DNN
    • 1.3% ENCUF
    • 0.6% UROY
  • US CANNABIS (14.8%)
    • 1.8% AYRWF
    • 1.7% CCHWF
    • 1.8% CRLBF
    • 2.1% CURLF
    • 1.9% GTBIF
    • 1.8% TCNNF
    • 2.0% TRSSF
    • 1.7% VRNOF
    • 1.3% NOVRF
    • 0.5% PGEZF
  • CRYPTO (1.1%)
    • 1.1% XRP
  • OTHER (0.5%)
    • 0.4% OGZPY
    • 0.1% ATCO calls
  • CASH (15.1%)

I made a couple of trades this week, though I’m trying to be patient here. I bought a couple more TLT calls after Weston Nakamura pointed out that the Japanese 10 year bond yield pulled back to 0.20% and said he might start accumulating. The BOJ has a yield curve control policy defending the 10 year at 0.25% with unlimited QE, and the fiscal year in Japan starts in April, so their institutions buy a lot of 10-year US treasuries once for the yield when it widens like this. It’s also portfolio rebalancing time, and while the S&P 500 is down 5.5%, corporate investment grade bonds shown in LQD are down 8.3%, so target date funds will be selling some stocks to buy bonds. Obviously the big mover here is the Federal Reserve and trying to figure when they’ll end their tightening cycle and start easing, and it seems I need to wait a bit longer there.

Aside from that, my SPY put expired worthless and I added some UROY as Uranium miners pulled back a bit. I’d really like to add more to my battery metals side, but I don’t want to chase because they could come down significantly if the coming slowdown becomes obvious to everyone instead of debated by some. At that time I’ll want to add like crazy because we have under-invested in mining for over a decade, so we’ll be stuck with a long-term bullish situation of chronic under-supply for the next several years. It’s hard for a retail investor like me to look through my trades every week and not be drawn to over-trade, but I prefer to learn the discipline rather than refusing to look.

I’ll end there. To be honest, I kind of rushed through my post today, as I’ve been assembling furniture like crazy after moving last Monday. I work full time and have long Tuesday & Thursday commutes so weekends are key, and this is my first weekend in the new place.

About johnonstocks

I've been trading stocks since 2003, active on Motley Fool's discussion boards and using first Hidden Gems, then Global Gains. I no longer have the newsletters, but I keep up on the WSJ and read David Rosenberg everyday at Education: CFA level 2 candidate MBA-focus in Finance, Marshall, University of Southern California - expected Dec 2010. BS Mechanical Engineering, UC San Diego, June 2002
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4 Responses to Bearish decline imminent? Not quite yet.

  1. Captain Sheeple says:

    I just wanted to say thanks for your market commentary. I enjoy reading it because I have a similar portfolio. I don’t have any cannabis exposure and don’t track that market. How is it doing for you?
    I mainly trade options. There seems to be a sale on bitcoin miners (MARA and RIOT) today so I bought some Jan 23 call options. I typically hold a bearish trading attitude, but I primarily look to buy and hold what is out-of-favor with the market. These days, that approach tends to make me a bull, lol.
    I’d be interested in your thoughts on this video interview:

    Thanks for your work. I appreciated being able to read it….JAG

    • johnonstocks says:

      I saw that, but one big problem I have with it is that the biggest false narrative today is “QE = money printing.”
      In my view, commodities are surging after a decade of poor planning and underinvestment.
      On the monetary side, banks expand their balance sheets to hold treasuries which they can hold, sell, engage in repo transactions, etc. QE just swaps them for a zero-interest ledger balance at the Fed, which they can only transfer to other banks that have accounts with the Fed.
      I also believe that debt is highly deflationary, and the levels of deficit spending we have isn’t enough to counteract that. We had a temporary demand shock with stimmies and WFH followed by supply shocks throughout the chain. Meanwhile we’re in an enormous debt-driven asset bubble that higher rates will pop.
      The government will likely adjust this decade due to populism and/or war and spending will increase like crazy – but until then we continue down the interest rate channel in Rauol Pal’s “chart of truth” while the bull in tech pauses and the bull in commodities resumes.
      I hope that makes some sense, I need to get back to work…

      • JAG says:

        Thanks for the reply. I think we have similar points of view and expectations.

        I initially wrote a pretty long comment here agreeing and disagreeing with various things but who has time for that sh*t? I just have one technical question for you,

        I think TLT calls will be a good hedge if the inflation narrative makes the cheap enough in the future, but have you ever considered (or used) VIX calls as a hedge for the portfolio?

        Thanks for your time…JAG

      • johnonstocks says:

        I don’t trust the VXX ETF much. When they stopped creating shares, they stopped responding to the actual volatility index and spiked on 3/15.
        Also, I don’t use futures or futures options.
        And I think we can say that SPY puts are much more popular than TLT calls right now … the big QE=money printing narrative is getting people either bond bearish or skittish about the trade. I’ve been buying Jan 2023 140 calls for around $3-$3.50, I like the risk/reward there.

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