Disclaimer
This is for informational purposes only.
Discussion
Trade: Pre-market I shorted SPY on green.
Trades 2-4: Swapped SPY short for October $440 puts, and bought $435 puts expiring 8/18 and 8/21.
Trade 5: Sold 8/18 and 8/21 puts and half the October puts.
Rationale: This move in rates is the real deal, yet everyone and their brother, INCLUDING ME, is looking for a reflexive squeeze rally on a consolidation in rates. As the 1987 analysis suggests, higher rates doesn’t have to mean an immediate plunge in stocks. We will get a reflex rally. But not from right here with this much complacency on the way down. The market needs to puke down to the 100dma level of 4200-4300 before it can snap back and give the appearance of an all-clear signal. I will trade accordingly.
Rationale 2-4: HY CDX decisively risk-off all day despite flat market. Massive complacency about buying this dip. Zero pushback from the Fed on this move in rates. I think the set-up is in place for a bloodbath into Monday, followed by an oversold reprieve into Powell 8/25.
Rationale 5: VVIX had a big spike and reversal into that puke around 3:20. Good sign of very ST exhaustion. Other little sign is that 2s are starting to come in a bit - could be a signal the Fed may be getting a bit uncomfortable with what’s going on.
