Professional Trader's Market Analysis Ahead of Bessent's Bond Buyback Announcement
Today's action will all be about Bessent's buyback announcement.
The buyback is set to be announced today at 11am, with the actual buyback taking place tomorrow.
With that the case, we can expect the market to react today.
The current expectation according to headlines yesterday is:
BESSENT SET TO ANNOUNCE LARGER US TREASURY BUYBACK AS WALL STREET EXPECTS $5-$6 BILLION OPERATION, PUTTING LONG-TERM BONDS IN FOCUS.
A BIGGER BUYBACK COULD REDUCE NET LONG-DATED DEBT SUPPLY AND HELP CONTAIN ELEVATED YIELDS, WITH THE ANNOUNCEMENT COMING AHEAD OF 10- AND 30-YEAR TREASURY AUCTIONS.
Now, there are some rumours that the buyback could be a lot more than that 5-6B expected, with some rumours on Wall Street of up to 10B.
Anything more than 5-6B will be positively reacted to in the market, as bond yields should fall against that expectation.
Anything less, and it could lead yields to chop around as they are, or potentially go higher.
It's a bit of a binary event, but $4B is the baseline that we can all expect at a minimum.
It won't be less than that.
The following quote from Bessent yesterday was to do with the yen, but signals intent:
https://preview.redd.it/rypp69samhoh1.png?width=1400&format=png&auto=webp&s=19b8e7cf92a080f959c7d6b70c1e33c55f8e7edc
we also saw Bessent comment on the AI trade saying:
We can't slow down on AI. China won't slow down.
If we get bond yields moving lower, we should see the usual sectors respond positively:
Gold
Bitcoin
AI/high beta.
This is the current state of the bond yields:
10Y moving higher above its breakout:
https://preview.redd.it/mfpzytlbmhoh1.png?width=1400&format=png&auto=webp&s=bb948ada1d1b0e94042ad245d52593b9aa7726e5
This mostly on oil moving higher.
BTC continues to chop around under its ATH VWAP.
https://preview.redd.it/cjfrz9lcmhoh1.png?width=1400&format=png&auto=webp&s=d4b72295e498a81fe1932c32c326cb75012e7e70
Then we have gold trying to hold this weekly support.
https://preview.redd.it/sz0kxm8dmhoh1.png?width=1400&format=png&auto=webp&s=d23883f7cccf2fd05be0162f7235001928d0873a
Regarding Semis and the AI trade, I wrote about it below, but Astra was a big development that seems to have reignited some optimism in AI, and pushes us closer to AGI than we have been.
I also expect Anthropic to try to one-up OpenAI with another major release ahead of their potential IPO. If that happens, it would be another headwind for software and could create another catalyst for AI infrastructure.
However, we have constantly seen over this summer that every time SMH runs into resistance, and IGV runs into support, we see a rotation back into software.
Currently Software is at the 30d support.
SMH is at the ATH VWAP.
https://preview.redd.it/rti1taudmhoh1.png?width=1074&format=png&auto=webp&s=059be651bf43b0fcd86756eb0552d8ed2f576720
If we want to see meaningful rotation back into SMH, as opposed to just a "bounce", this is the time to do.
key levels to tkake out are 578/580
Then 595/600.
Regarding the overall index, we did move lower yesterday, and are slightly lower this morning.
The key level to hold on ES is the pivot at 7640, which may be extended with a margin of error to 7628 (50d EMA).
https://preview.redd.it/2ou6tnkemhoh1.png?width=1202&format=png&auto=webp&s=09f4ffaa9f9868520a14be9c907a0cc8ca27f86f
We are approaching that support in premarket.
most likely we see a bounce from there, but it depends on the buyback announcement. A solid buyback should give us impetus to push meaningfully higher from that support.
most of the data still supports higher.
The 1W Standard deviation range is 7623-7814.
Backtesting this through history, we have a 70% chance of closing within this range.
So that is a reasonable support to expect a bounce from also.
Another datapoint: Over the past 20 years, the three-session stretch into 9/11 has historically been the most bullish period of September:
9/9: Up 71%
9/10: Up 81%
9/11: Up 76%
So that's the next 3 sessions into the end of the week, although we do have PPI and CPI on Thursday/Friday, which will be the main determinants beyond the bars of the data.
The Aion data is still suggestive of higher here, with potential Mid September turbulence before what looks like higher into EOM and then weakness into October.
Let's see how that materialises. Directionally it's been reasonably accurate, but the magnitudes of the moves have been disappointing on the index level.
Breadth has been really weak. if we lose that 7640 ES pivot we can see weakness set in off the back of that breadth, but for now, that is a reliable support to work off of and expect a move higher from.
https://preview.redd.it/ywc43j3jmhoh1.png?width=1400&format=png&auto=webp&s=8b3e2853a3517670d129abbfc2a722841ac700b8
Heatmaps are generally still bullish. I shared full examples with the subs in the full write up, but an example here:
QQQ
https://preview.redd.it/nopqwkclphoh1.png?width=784&format=png&auto=webp&s=13d4e0ab18de5902d128d0c63eef525fd4fe24a3
https://preview.redd.it/qsa9u405nhoh1.png?width=784&format=png&auto=webp&s=917f293ebc2a3c3ca9c27a590f25ffc85ee1b002
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