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Discussion
With the window of weakness wide open into May 1, I want to take advantage of today’s weak bounce and downgrade the tactical outlook (8 weeks) to bearish, implying there is a high probability of -5% downside from current levels.
IG CDX did come in nicely today, but overall breadth was weak at barely more than 2:1 and defensive sector relative strength came back sharply following early morning weakness.
S&P manufacturing and services PMIs data come out tomorrow, and given the underlying strength of the US economy there is a good chance the data come in hot, igniting the next up-leg at the long-end of the UST curve.
As detailed today in the newly formed WOTE Asset Management Trade Log chat channel, I traded around this change in outlook today.