Welcome to the morning report, where I go over the setup for the day as it relates to day trading. I’ll review levels using options gamma and show you where the support and resistance lie along with some other proprietary metrics like options skew and my very own Day Trading Bar Score that have good track records for forecasting bullish or bearish tendencies for the day.
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We are struggling with a gap down and pretty risk-off moves so far. It’s another poor day for Semis.
But Gas is going the right direction after hitting the Administration’s Red Line. It’s off about 2% as we await “D-Day” on Iran from the Treasury. There were more and more headlines this weekend about dark fleets getting through the Strait with the help of the US Navy. Again - we need to see the stocks react first before any of that is to be believed. So far, none of it is moving the needle.
The big news this morning comes as CNBC drops an “Exclusive” that Bessent could just use the Treasury General Account to Buyback bonds.
The bond market has a muted response - it’s slightly higher (yields lower).
They aren’t going to do anything until September 9th, so it might be a week or more before we see progress. But there is a lot of money in the TGA (Treasury General Account - the Government’s Checking Account) at the moment and it could be enough to move rates. The big issue would be if he ended up in a losing trade and couldn’t re-fill the TGA in an Emergency (say a Major Hurricane hit an Oil Refinery in the Gulf) because he’d have to sell bonds to get Dollars again to do so, which would then cause the TGA to go down again because it’s comprised of bonds. Talk about some Circular Financing!
If you want to read how the TGA can affect the market, I did a post with some backtesting in it here:
This is going to be interesting to see if it will actually work. Normally, when the TGA goes down, money flows into the Stock markets. If they decide to just divert it towards Bonds themselves, that might have some unintended consequences. It’s pretty difficult to isolate just one asset class and move it without moving all the others too. It’s one reason why meddling in markets is un-wise unless absolutely necessary. But Scott Bessent has no shortage of confidence, and we’ll get to see whether or not the guy can do it or not.
One side effect (and likely Bessent’s primary goal) would certainly be to scare anyone shorting Bonds here out of the market.
Bessent is targeting Hedge Funds here. This is the positioning in the Long Bond market - Blue is Hedge Funds, Red is Commercials and the Green is the Small Speculators. There’s a lot of interest from the little guys to get long here. That’s extreme positioning from them to the long side. And Hedge Funds (in blue) are shorting at a pretty high level too - they have been short bonds for years now. If Bessent gets Hedge Funds to blink, we could have a Short Covering rally in US Bonds. The issue is going to be whether or not there is too much supply from the Small Speculators deciding to sell into the rally. Notice they hold +271K long and Hedge Funds are only short -219K.
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