Bonds and Yen Kill on Friday, But Powell Kills Next Wednesday

Strange day. Bonds rallied strongly and yen trades paid off. Oil was up most of the day before reversing. My portfolio is more overweight TLT and USO positions after today. I am flat on the broader market aside from some calls on EWI and EWG, plus the XLC position. That was destroyed by poor earnings from SNAP today. That stock sank about 40 percent and nuked the social media space. The jump into the yen was profitable, but the raining is still ahead given my use of OTM calls.

The markets were constructive for a rally today. The dollar pulled back, oil fell and bonds rallied. Whether that sparks follow through remains to be seen.

The S&P 500 Index filled its gap and that was also the underside of the trendline I had drawn.

If I could call the plays for next week, and using BTC as a proxy, a pullback to the blue horizontal followed by a breakout to new highs would be my call. Then the rally can complete in early August and timewise, the market will be on the 2008 analog.

If I had to pick a bearish chart for the market, Google move to the bottom of its post-June channel. The XLC trade will go up in smoke if Google breaks down.

The island in TLT survived the day. Normally, I wouldn't put much emphases on an island in TLT, but today was an important macro day with the flash services PMI below 50, signaling economic contraction. The Federal Reserve has already seen next week's GDP report and we'll see it on Thursday. The consensus is at 0.4 percent and the Atlanta Fed GDP Now model is at negative 1.6 percent with one more estimate on Wednesday. A negative number will trigger a technical recession, which in turn will unleash a political backlash on the beleaguered Baizuo admin. 

A recession would ratchet up political pressure on the Federal Reserve. How independent are they? Will Powell invert the curve like an animal? Or will he pivot? I'm not sure it matters here for TLT longs, except that the near-term expected move in TLT will be higher the harder the Fed attacks inflation and assuming that is successful, with oil cratering below $90. If a Fed pivot instead sparks inflationary action in markets, it could weigh on long bonds even if investors expect a less hawkish Fed.