The First Setup of 2022

I think we have a very high probability setup in play. It's a great setup period, but the question is which direction does it break? I think there is a trade that wins either way, which is why I like the setup.

The setup: the 10-year yield is at a decision point.

The trade: bearish crap-tech aka Cathy's trash and assorted growth stocks. I've posted a lot of these on the blog, those stocks are merely drops in an ocean of trash.

Rationale: Look at the charts below. Value beats growth if the 10-year yield rises. There are lots of trade possibilities. A high conviction trade for a breakout in the 10-year would be a pair trade of long FCX, short ARKK or the choicest cuts within it. the risk with long FCX would be a reversal in rates, a risk-off event (like a more hawkish Fed). Longer-term teh Fed will follow the market and if rates are going higher, then FCX will go up, but in the very short-term it is controlled by whatver comes out of the next Fed official's mouth. #EndTheFed

With trash-tech, if rates go up, stocks like those found in ARKK (to reiterate, I'm using ARKK as a stand-in for the entire market of similar stocks) will underperform and likely drop if the rise in rates is rapid, which is likely on a breakout. If instead rates go down, why are they going down? There could be good reasons, this isn't a guaranteed trade, but my suspicion is a drop in rates would be caused by another hawkish escalation in Fed rhetoric, which could be coming sooner rather than later assuming the Fed cares about expectations. On the other hand, the breakout in the yen says rates may be breaking out no matter what, which makes me lean towards a breakout being in the cards right now.

On a 10-year breakout. Long: value, commodities, financials, USDJPY (US dollar in general), crypto. Short: growth, tech.

On a 10-year reversal, reverse the outlook. Energy and commodities could lead the way lower in a rout of the value/inflation trade, but the ARKK-related trades probably don't do well if its a Fed-triggerd correction.

Value is undervalued relative to growth if interest rates go higher.

Energy versus SPY.

FCX is the 10-year yield.

And how about that Japanese yen? The 40-year restistance line is coming up following today's breakout.

If the 10-year yield breaks out, recent history says news highs for BTC may also be coming.

Update: I posted this right before the open and the early action confirms my expectation. TLT exploded higher after some economic data was released and ARKK collapsed.