Play Expanded ECB Q€ w/ Long HYG above 86.50
The ECB has to expand QE. We've seen:
I expect Draghi to, at a minimum, hint at expanded QE - read as "yield stability". His words have been very powerful in the past, and we're likely to see an over-reaction (weaker EUR/USD - GS estimates 2 big figures) should he speak up. Such an overreaction will likely filter through to US high yield. This morning's exuberance in US and European equity markets and credit spreads, in spite of weaker oil and China's overnight tumble, smells of positioning for central bank easing.
HYG has staged an impressive rally from its October 2nd lows. It's taken out its prior low at 83.45, rebased at 84.63 and has since broken through bearish trendline resistance from late May. 86.50 provides a solid resistance level to get long above, with plenty of room to run higher.
Wave analysis points to an intermediate target at 88.51, while fib extensions are a bit higher at 89.62.
I'm poised to enter some 86 calls today as a speculative play on an EBC overreaction. Will re-evaluate the trade after hearing from Mr. Draghi.
- Decelerating economic data, led by Germany
- Abysmal and worsening inflation expectations
- Persistently stronger Euro (ECB is VERY keen to see weaker Euro. They sold Germany on QE b/c of Euro strength)
- Yesterday, we saw bleak Eurozone lending survey data, to boot
I expect Draghi to, at a minimum, hint at expanded QE - read as "yield stability". His words have been very powerful in the past, and we're likely to see an over-reaction (weaker EUR/USD - GS estimates 2 big figures) should he speak up. Such an overreaction will likely filter through to US high yield. This morning's exuberance in US and European equity markets and credit spreads, in spite of weaker oil and China's overnight tumble, smells of positioning for central bank easing.
HYG has staged an impressive rally from its October 2nd lows. It's taken out its prior low at 83.45, rebased at 84.63 and has since broken through bearish trendline resistance from late May. 86.50 provides a solid resistance level to get long above, with plenty of room to run higher.
Wave analysis points to an intermediate target at 88.51, while fib extensions are a bit higher at 89.62.
I'm poised to enter some 86 calls today as a speculative play on an EBC overreaction. Will re-evaluate the trade after hearing from Mr. Draghi.