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2022 Santa Claus Rally: Happy ending or losing faith?
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SpyderCall joined discussion · Dec 19, 2022 22:44

The Bank of Japan Announces that They Will Adjust Their Yield Curve Controll Policy

What to Buy
The Japanese recently ended its long-term downtrend. This news coming from the BOJ is going to give the yen further strength. If the yen is going up then you want to buy the yen through these two ticker symbols: $Japanese Yen Trust(FXY.US)$ and $Proshares Ultra Yen(YCL.US)$. If you don't believe in this yen strength then short the yen through this ticker symbol: $ProShares UltraShort Yen(YCS.US)$
The Trends are Changing
The bear market rally appears to be over. And the Bank Of Japan is changing their monetary policy which may hurt equities even further. Check out this short YouTube video to see the change in the trends through the ticker symbols that follow the macro economic environment. I also briefly talk about the BOJ's policy change at the end of the video. Click the link below to watch the video.
The Japanese 10-Year Treasury Yields have been pegged at 25 basis points. Any time the 10-Year yield in Japan approached 25 bps level then the Bank Of Japan implemented their unlimited bond buying regime to buy the 10-Year treasuries, essentially bringing the yield down keeping it below the 25 basis point peg. This is a form of market manipulation to keep bond yields down and stimulate inflation within the economy. One result of this massive buying scheme was that the yen's value would weaken greatly as the BOJ printed more of its own currency to purchase the 10-Year Treasuries. This factor, along with the fact that the Federal Reserve has been sending yields skyrocketing, has helped the US dollar's massive rally. And when the US dollar is on a very strong rally with treasury yields then it has had a negative effect on US equities in the current macroeconomic environment.
Recently the head of the BOJ announced that they will adjust this yield curve policy that has weakened the Yen and strengthened the dollar. We still need to hear more from the Bank Of Japan but the current head of the BOJ is about to resign so this is a perfect pivot point for Japanese monetary policy.
Just look at the reaction in the markets.
The Bank of Japan Announces that They Will Adjust Their Yield Curve Controll Policy
The Japanese Yen absolutely skyrocketed off of this news. This sent the dollar down which strengthened most other currencies on the forex markets.
The Bank of Japan Announces that They Will Adjust Their Yield Curve Controll Policy
Yields in the US skyrocketed just like treasury yields around the world. In the current macro environment high yields are bad for equities. That is the current narrative in the markets at the moment. You can see the major futures indices tanking off of this news while the VIX is skyrocketing. So far this does not look good for equities at all.
Dollar Strength is Over?
Some investors would think that the falling dollar should provide strength to the US equity markets. But if the dollar is falling simply because other currencies are gaining strength then we cannot only rely on the Dollar Index to gauge the health of the equity markets. The domination of the US Dollar in forex markets might be over at least for now. The Bank of Japan is signaling that they will allow yields to rise in their country which will affect yields worldwide. It seems like treasury yields will be the new litmus test to watch in order to gauge the health of equity markets. So if yields keep rising then it will be negative for equities.
This Does Not Look Good For Equities So Far
It looks like the initial reaction is going to follow the change in trends. The bear market rally in equities appeared to be over. And the market reaction to this news from the BOJ seems to confirm the end of the Santa Rally. We need to see the dollar falling with yields for equities to remain bullish. Remember that the market will do whatever it wants so you still want to remain vigilant. In the past when the economy was not in this high inflationary and high yield environment then rising yields were good for treasuries. That has not been the case during the bear market this year. Possibly next year rising yields will be good for equities once again. But this does not look good for equities so far.
$Invesco QQQ Trust(QQQ.US)$ $SPDR S&P 500 ETF(SPY.US)$ $iShares Russell 2000 ETF(IWM.US)$ $VIX Index Futures(MAY4)(VXmain.US)$ $SPDR Dow Jones Industrial Average Trust(DIA.US)$ $Gold Futures(JUN4)(GCmain.US)$ $Powershares Exchange Traded Fd Tst Db Us Dollar Index Bullish Fund Etf(UUP.US)$ $SPDR Gold ETF(GLD.US)$ $iShares Silver Trust(SLV.US)$ $Ishares Iboxx $ High Yield Corporate Bond Etf(HYG.US)$ $Ishares Iboxx $ Investment Grade Corporate Bond Etf(LQD.US)$ $iShares 20+ Year Treasury Bond ETF(TLT.US)$ $Crude Oil Futures(JUN4)(CLmain.US)$
$TENCENT(00700.HK)$ $SSE Composite Index(000001.SH)$ $CSI 300 Index(000300.SH)$ $CSI 300 Index(000300.SH)$ $FTSE Singapore Straits Time Index(.STI.SG)$ $NIO-SW(09866.HK)$ $NIO Inc. USD OV(NIO.SG)$ $NIO Inc(NIO.US)$ $BILIBILI-W(09626.HK)$ $Bilibili(BILI.US)$ $Baidu(BIDU.US)$ $BIDU-SW(09888.HK)$ $XPeng(XPEV.US)$ $Li Auto(LI.US)$ $BYD COMPANY(01211.HK)$ $BYD Company Limited(002594.SZ)$ $S&P/ASX 200(.XJO.AU)$ $FTSE Singapore Straits Time Index(.STI.SG)$
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SpyderCall
Trade the trends via technical, fundamental, and macro analysis. Day Trades, swing trades, and long-term investments.
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