Yo Pit Crazies,

Saturday Mark and I teach a class on how to construct trades. There is a Think or Swim goodie + the best way I know how to read what the market is doing. Sign up and be happy.

The snap below is problematic. Yeah stocks are going down but VIX is jumping way more than the move in stocks. VIX has been climbing steadily since last week when Hamas decided to ruin everybody’s month with a short but deadly invasion into Israel. On top of that bad brew rates keep going up and up. This reminds me of 2008.

Hear me out on this. Congress spent a lot of time dilly dallying on TARP and pretending the problem was not there in 2008 when the Fed stepped in to be the buyer of last resort. I still think Goldman Sachs wanted to make sure AIG paid all of their CDS obligations but that is another story. It is the Congressional dilly dallying that is the problem. Right now there is no Speaker, no budgets and no end in sight for the ridiculous Federal Spending. A 40% increase in Federal Outlays in 4 years so why are we not back to 2019 levels?

That is a one way freight train. The market does not like, and cannot price easily, one way freight trains.

But we can trade them.

SPX and TLT have a surprising correlation

I was surprised by the chart below. The one way freight train that is the blue line is the Ishares Barclays 20+ year USGov Bond ETF (Ticker: TLT). This break in the two is nothing new and has been going on since Jun. I think a big reason is that stocks are adjusting to higher rates like everyone else.

1 year chart of TLT and SPX, TLT is the blue line

The issue now is the folks that need to listen don’t have a speaker, a budget or a plan to bring down government spending. The Chinese are selling bonds and buying gold according to Griff. So where does that leave us? Equities are getting slowly squeezed but implied vols are getting very squeezed. No one wants a bond rout but that is what might happen.

I like some SPX put butterflies in the current market now that the downside has caught a bid. I added some in the Pro Session today. For now this is not over.

To Your Trading Success,

AG