Don’t Look Now – Rates Are at 2023 Highs

BY ANDREW GIOVINAZZI

July 30, 2023

Yo Pit Crazies,

Below is a chart of the iShares Barclays 20+ Year USGov Treasury ETF (Ticker: TLT). A very smart bond trader in the Pro Room thought around $100 as a good support sign for stocks.

If TLT gets too far below $100, rates are starting to spike and traders get jittery once again and sell their stocks, like what happened Thursday.

TLT two year chart and a near 30% haircut in bond portfolios

It’s time to talk about Thursday because I don’t think traders have forgotten it.

VIX Didn’t Get Back to Thursday Lows

Nothing spooks stocks like a sneeze in the bond market. VIX is not sniffing lows even after the solid rally on Friday:

That could be a problem. The last big earnings we have is Apple Inc (Ticker: AAPL), but even Intel Corp (Ticker: INTC) surprised.

That leaves us with the sticky rate situation into the August Trading Doldrums. It was rising interest rates that got us here and they are still going up. That was enough to give pause on Thursday, and sentiment is not entirely gone.

Realized volatility in SPX is still in the single digits. Even with the larger intraday move Thursday, by end of day the realized closed to close move was only an 8% volatility.

That leaves us where we are going this week. The vicious moves are still, amazingly, on the upside. I like the long strangles or calendars in the ETFs like SPY with some volatility puts.

I think this market will be with us for a while.