The Big Squeeze


The lede: 

Investors have become so bearish on U.S. government bonds that they risk getting caught out, according to JPMorgan Chase & Co.’s quantitative and derivatives strategy team.

Short positioning in Treasury futures has climbed to a record, increasing the potential for an unraveling of trades betting on further declines in bond prices, Marko Kolanovic wrote in a note to clients. There’s also been an extreme swing in sentiment, with investors unduly focusing on higher inflation risks, said Kolanovic, who heads the team in New York.
“When there is such a large short position, there is always risk of profit taking, or worse, a proper short squeeze,” he wrote. “We also note extreme sentiment swings and the media playing into fears of inflation, while largely ignoring important points such as those most recently voiced by the Fed’s Harker and Bullard,” he said, referring to Federal Reserve district bank presidents Patrick Harker and James Bullard.
We covered the subject earlier this week:  Big Bond Bonce Ahead?
Read the whole thing:
Hat tip Jesse Felder

Schlumberger Sending Bullish Signals

Is Schlumberger bottoming?


As the week comes to an end, we are seeing some positive signs out of the energy sector.  Schlumberger in particular.  The stock has been hammered over the last four weeks.  At the Feb. 9th low SLB was down over 20% from the mid January peak.  This steep flush drove the stock back into oversold territory while retracing the entire Dec. 21 breakout move.  SLB is working in a higher weekly low this week as selling pressure has eased dramatically.  We believe it is setting up as a low risk buy at current levels despite still sitting below the 200 day moving average.  If SLB can reclaim the 200 day in the near term, which rests near $67.50, it will have a very solid base to work from.  On the downside a close back below $64.00 would take out this week’s low signaling the overhead 200 day remains in control. 

Also adding to a more bullish case for SLB is the recent option action.  Here’s a detailed look from our option specialist Bob von Halle:

Position adjustment earlier today in SLB upside calls. Customer liquidated over 5,000 March 72.5 calls (stock was around 65.75 at the time) and rolled “down and out” into the April 70 calls (lower strike, longer time period) and paid $1.18 for almost 5,000 of those. Heavy lopsided calls vs put ratio today at 6 to 1 as oil prices rebound smartly off the $60 per barrel level of last week (WTI). Oil equities have significantly under-performed the commodity prices they are supposed to track by a large margin over the past month. There is ample opportunity for catch up still left at these levels despite today’s up move of 2% in the XOP and OIH ETF’s that track the E&P names and Service companies respectively.

At time of publication we are long SLB in some managed accounts.

Embrace The Boredom

Quote of the day:

“If you’re not prepared to be bored by the stocks you own, you’re not really prepared to make big money in the markets.”

Hat tip Paul Andreola



MCD (Weekly Chart)


Cars, Wine and Stocks

Stocks win:


Don’t see baseball cards on the chart, hmmm.

Hat tip Andrew Thrasher.

Stocks Over Bonds

The S&P 500 Index has topped bonds (10-yr treasury) a record tying six consecutive years.

The last time it made it to six in a row was 1999.


Hat tip Ryan Detrick of LPL Research.

Recession Ahead?

Leading Index up again. Worth keeping in mind about the idea that corrections/bear markets are worse during recessionary periods.


Hat tip

The Market Will Decline

It’s part of the investment process.  Although up until this month stocks have moved steadily higher since the election without even a minimal correction, declines are actually quite common:


The folks at Capital Ideas have put together and excellent piece on the subject.   The title: “Four Ways to Fight Fear With Facts”

The lede: 

You wouldn’t be human if you didn’t fear loss.

Nobel Prize-winning psychologist Daniel Kahneman demonstrated this with his loss-aversion theory, showing that people feel the pain of losing money more than they enjoy gains. As such, investors’ natural instinct is to flee the market when it starts to plummet, just as greed prompts us to jump back in when stocks are skyrocketing. Both can have negative impacts.
But smart investing can overcome the power of emotion by focusing on relevant research, solid data and proven strategies. Here are four key concepts that can help fight the urge to make emotional decisions in times of market turmoil.

Pepsi Piercing Key Support


Pepsi is looking quite vulnerable this afternoon.  Here’s our tweet from earlier today:

In addition, put buyers are very active.  Bob von Halle offers some color:   Note on PEP….very heavy activity in the March 110 puts. Over 12,000 contracts have traded on the day (vs. open interest of less than 4,000), with the bulk of them purchased for $2.85-2.90 per contract. Stock has bounced back from earlier lows, but another batch was bought for $2.50. Current market is $2.40-$2.50 with the stock at $109.5.

We think PEP is headed lower.  We currently have no positions.  Will look to buy at lower levels($106.00 area).

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Doug & Gary