(Rare) Trading Opportunity for Next Week

Hey There Income Hunters,


I hope everyone had a great week — the S&P 500 sure did, making new all time highs four out of five days.


Next week in the market should be a lot of fun, as well …


Monday will present a very rare opportunity that I’ll take you through it in just a minute.


But first, here’s a look at the sector breakdown:



A lot of money continues to flow toward the reopening “fun stuff,” including gaming and cruise lines.


I spent some time working on that this week myself …


You see, my brother is crazy about fishing — he actually has a tattoo of a marlin on one calf and a shark on the other. So I’m planning a trip to Costa Rica at the end of May for us and our sons.


It will be marlin season at that time and he is determined to catch one. We’re close, but my passion is golf, so we fight over where we go on vacation.


He reeled me in this time. 


I’ve never been to Costa Rica but I heard there is plenty of beautiful nature to see. I’m looking forward to it …


Now, as I mentioned, there is some fun stuff happening in the market next week, including a very rare opportunity on Monday.


Check it out …


Treasury is Offering A Two-Issue Special on Monday


I have included the official announcements below …


The first announcement is the 10-year, which is a reopening of the initial auction from February. The 10-year cycle, along with the 3-year and 30-year, is February, May, August and November.


Treasury auctions a new issue in those months and reopens each in consecutive months thereafter. That helps to keep the short interest to a reasonable level, although the 10-year suffered through a bad squeeze in February …



I sold the iShares 20 Plus Year Treasury Bond ETF (Ticker: TLT) this week and will add to it on Monday morning … 


Why? Because the odds favor a drop in prices… You see, the Fed’s 24 primary dealers, made up of the world’s largest banks and broker/dealers are obligated to submit bids in the auction … 


So, they pre-sell in hopes of buying them back at lower prices


We will get $96 billion in 3-year and 10-year on Monday and then $28 billion 30-year on Tuesday…


Check out the TLT cart below. The ETF has rallied from its recent low at $135, so selling between 137.5-138 is a good location. I expect a trade down to $136 by Tuesday prior to the 30-year auction …


Net Long Positions in Treasuries


I check the net position report issued by the Commodity Futures Trading Commission each week.


The report provides position data on all the futures contracts listed on the Chicago Mercantile Exchange …


This data reveals how positions change from week to week, which can be helpful in showing when either long or short positions are at extremes based on their 3-year average


This past week there was strong buying in 5-year and 30-year Treasuries. Now, if there was already a lot of selling to set up for the auctions, we would that in the numbers — so this report gives me added confidence that selling will come in on Monday …



I broke out the issues of interest and was surprised to see that the net SPX position is short … 


While I have been very bullish on stocks, the consensus narrative has been fairly bearish and these numbers confirm that overall there has been greater selling than buying over the past week …


As #IncomeHunters, we trade with the Fed to remain focused on macro policy and money flow — and ignore the consensus narrative, to improve our probability of success …


Check out gold also. A net short position of two standard deviations from the mean is considered extreme. So that tells me a long position may be advantageous …


May will present even more opportunities for selling TLT short in front of Treasury auctions. Check out the supply increase…


Treasury Loading up on Borrowing for May


This table below shows each maturity bucket of issuance each month. Treasury Secretary Janet Yellen’s job is to manage the issuance schedule to minimize the cost for carrying the government debt.


That may be the largest increase from one month to the next I have ever seen. Maybe she is sensing a big rise in rates, which increases the cost of servicing the debt, so she wants to lock in now … 



Yellen is also increasing the longer maturities more than the short-end. The $5 trillion bump in both 10-years and 20-years is a lot.


TLT matches nicely with 10-year and 20-year, because TLT’s underlying bonds average maturity is 20yrs so it will track the longer maturities on theTreasury yield curve…


Bring It Home


I wrote about it yesterday, but I wanted to again mention China’s announcement on launching Digital Yuan.


It’s a game changer on the global stage


Next Wednesday at 9 a.m. I will take a deep dive into the issue during my weekly Power Income LIVE segment.


I’ve been following China’s progress for the past year and it’s shocking how much they have done to prepare for this launch.


I will send a reminder and event link next week.


Be sure to join me!


Until then…


Live and Trade With Passion My Friends,


Griff

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