BY ANDREW GIOVINAZZI

August 17, 2023

Yo Pit Crazies,

Normally I leave the bonds to Bill Griffo as our expert in fixed income. The issue I have is when the bond market messes with the stock market. That time is now.

What’s funny is that the other bond ETFs like the iShares iBoxx High Yield Bond Fund (Ticker: HYG) has not suffered the same fate as the larger US Gov Barclays iShares 20+ Year Bond Fund (Ticker: TLT):

Recall Fitch downgraded the US Gov, not run-of-the-mill businesses. So the loss of confidence is not in the US economy but how the government is being managed. That’s a harder thing to divine.  

There was a nice tell in the VIX futures market.

Let’s see how VIX is managing it.

Front Month IV is Popping

As short term IV pops, the VIX cash moves up to the futures. After watching this curve for 10 years, that number should be about $2 – right now it’s just over $1. That’s a little light that says the market is expecting some movement in the short term, just not a ton.

The keyword is not yet. Sentiment in the market has turned a little salty as AI riches have turned into government mismanagement.

Since we are in Market Setup 2 now, the question is how long we will stay there. This could be the start of something big but it is not full blown yet.

In the Trading Desk, we bought SPDR S&P 500 Trust (Ticker: SPY) strangles and iPath Series B S&P 500 VIX Futures ETN (Ticker: VXX) puts. Long market movement but flat volatility. More on this tomorrow.

To Your Trading Success,

AG