Yesterday on Periscope I spoke about the action I was seeing in the Bond/Treasury Market and the S&P (ES). With yesterdays weakness in the ES we did not see a bid come into the Bond/Treasury market. I actually saw the opposite as they were all trading weak together. If you look at the chart below you can see the 30 yr, ES & 10 yr have been moving together over the past 5 days.
In my opinion this type of action could be a problem for the Stock Market. There is a ton of money invested in this Risk Parity trade and even a small amount of unwinding of this trade could result in big moves for both Equities and Treasuries to the downside.
I use a strategy that dictates my trading so noticing this action in Bonds/Treasuries & ES is only a warning sign, not a reason to be short ES.
Which brings me to my ES strategy chart. Today’s close is very important to me. A daily close below 2835 indicates a possible test of 2768 in the coming days/weeks. Two ways I typically execute this type of trade. One way is using options and the other way is day trading futures using shorter term charts to look for short opportunities. Typically when I have a daily signal for direction I only trade that direction until the daily chart changes. That means I will only look at shorts until the target of 2768 hits or we get a daily close back above 2835. If we close today above 2835 then all bets are off for me looking short & I think that we continue to grind higher.
With the look that I am seeing between ES & Bonds/Treasuries I will use that as confirmation when executing. If Bonds/Treasuries are going down with ES I will look to be more aggressive with shorting ES. If Bonds/Treasuries are not going down with ES, then that correlation I noticed is breaking down & will no longer use it for confirmation.