By Kevin Muir of “The Macro Tourist” fame; reposted here with permission
Although I have a theory that on Quantitative Tightening expiry days the stock market is weak, the last two haven’t worked out.
To be fair, I warned you about this past one as it coincided with the day before the FOMC meeting – a period long known to be subject to abnormal stock market strength due to the FOMC drift.
But here we are, with tomorrow (Wednesday August 15th), having just a shade over $23 billion of bonds expiring.
So even though I am not one to hop upon the “world-is-ending-because-of-EM-contagion-bandwagon”, I am taking a flyer on the short side for tomorrow’s trading.
Recently QT expiry days have coincided with month-end and it will be interesting to have a large redemption day occur on a more “regular” trading day. It will be a great test of the theory in a more “pure” environment.
Don’t mistake this punt as a change of heart to the bearish side. It’s purely a one-day-trading position.
Let’s hope it’s not three in a row as that cat looks really mean…