No doubt, after the last 48 hours of trading, dip buyers are emboldened. 

That said, I am planning to move back into a net short position - but I will be reactionary as I wait for some loss in price momentum. 

Thanks for reading my Diary today. 

Enjoy the evening. 

Be safe.

The Spyders (SPY) and (QQQ) s are now up seven to eight dollars from the morning's lows.

With S&P cash +40 on the day, I am itching to add to a small Index short.

But not yet...

For those that are keeping count, here are my averages on today's index shorts - SPY ($467.62) and QQQ ($384.32).

Peter chimes in on the auction and on Bostic's comments: 

The 3 yr auction was above average. The yield of 1.237% was just below the when issued of 1.24%. The bid to cover of 2.47, was just above the one year average of 2.44. Lastly, direct and indirect bidders took down 77% of the auction, the most I've seen going back to 2003.

Bottom line, the highest 3 yr yield since February 2020 brought out some buying. It still though remains well below the expected rate of inflation where the 3 yr inflation breakeven is at 3.04% today, up 8 bps, thus providing a deeply negative real yield. The auction results isn't move markets as yields are pretty much where they were just before the reported results. The 3 yr off the run is up almost 2 bps on the day and higher for the 7th day in the past 8. The 10 yr auction we'll see tomorrow.

3 yr Yield

I just wanted to give context to Atlanta Fed president Bostic's comment today that when the time comes, he wants to shrink the Fed's balance sheet by at least $100b per month from what will be about almost a $9T balance sheet come March. In the 20 months of QT in 2018 and 2019, the Fed's balance sheet shrunk on average by about $35b per month when it went from about $4.4T to just under $3.8T. Thus, Bostic's recommended pace would be pretty aggressive relative to the previous QT experience. And to say again, you can draw a direct line between QE and broad financial conditions so good luck Fed.

The spectacular climb from Monday morning's depths continues apace. 

I am giving the market wider berth before I add to my small Index short positions.

I have a routine doctor appointment between 1:30 and 2:30 today. 

Radio silence during that period.

You want to see volatility?

Look at the intraday chart today of (NVDA) .

A big improvement in breadth at 12:50 pm.

Breadth

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Heat Map

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From my pal Herbela: 

I am taking profits in the portion of my (COIN) purchased yesterday at $217.55 - now at $231.50.

Generally speaking I thought Powell's testimony was a bit more dovish - re: Fed's balance sheet runoff - than expected. More on this later! 

We can see the response from the markets - weakness in money center banks and strength in technology. 

And bonds continue to have a bid. 

If markets continue to get carried away on the upside I will accelerate my shorting.

I have added to my (SPY) and (QQQ) shorts at $467.83 and $385.28, respectively.

I added to Amazon (AMZN) on strength - a rare act for me.

Here is a list of the largest winners and losers in today's trading session:

View Chart »View in New Window »

On the rally off the lows I have shorted very small (SPY) and (QQQ) at $466.24 and $383.26, respectively.

I have been and may continue to be wrong on cannabis stocks - but I add almost daily to my large long holdings:

Goldman Sachs recently made the case for Chinese stocks.

As posted in my Diary, I am long (GDS) and (BABA) - so far so good.

Last week's "Trade of the Week," Citigroup (C)  , continues to be the world's fair.

Here is the market breadth and heat map as of 10 am.

Breadth

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Heat map

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I should be long some volatility - but still looking for an option to buy vol.

Over the years I have found VIX.X to be an imperfect vehicle.

I bought small Amazon (AMZN) this morning.

I have been looking for an entry point in this underperformer.

* It's time to shorten timeframes

"There is the old story about the market craze in sardine trading when the sardines disappeared from their traditional waters in Monterey, California. The commodity traders bid them up and the price of a can of sardines soared. One day a buyer decided to treat himself to an expensive meal and actually opened a can and started eating. He immediately became ill and told the seller the sardines were no good. The seller said, "You don't understand. These are not eating sardines, they are trading sardines."'

- Seth Klarman

Given my negative market view and based on the notion that volatility will rise - I am more in an opportunistic trading mode than an investing mode at this point in time. 

I want the market to shake out before taking on any more meaningful investment positions.

I have taken in my (SPY) and (QQQ) shorts $465.63 and $380.39, respectively. 

Small profit. 

Speaking of China: 

zerohedge @zerohedge

Goldman on China: "In light of the latest Covid developments -- in particular, the likely higher average level of restriction (and thus economic cost) to contain the more infectious Omicron variant -- we are revising down our 2022 growth forecast to 4.3%, from 4.8% previously" 

I would say that this also adds to the continued supply chain problems that I have frequently warned about.

This is real important:

I have added to my (SPY) (at $467.24) and (QQQ) (at $382.52) shorts in the premarket trading.

I took away three things from Monday's volatile session:

* The decline showed me that there is a great deal of potential market risk and vulnerability -- and that many traders, products and strategies are more levered to equities than some assume.

* The rally showed me that dip buyers still exist.

* We are in a heightened regime of volatility.

With most of investors' focus on Fed policy, the economic/property situation in China/Evergrande worsens:
--EVERRE--
                     YIELD PRICE AXE AXE
TKR       CPN    MTY  CCY    BID OFFER MID    COD BID SZ ASK SZ
EVERRE 8.25 Mar-22 USD 12.00 14.00 3682.07 -1.00 0.000 0.000
EVERRE 9.5 Apr-22 USD 11.00 13.00 3186.90 -0.50 0.000 0.000
EVERRE 11.5 Jan-23 USD 11.00 13.00 661.44 -1.00 0.000 0.000
EVERRE 10 Apr-23 USD 11.00 13.00 366.64 -1.00 0.000 0.000
EVERRE 7.5 Jun-23 USD 11.00 13.00 255.58 -1.00 0.000 0.000
EVERRE 12 Jan-24 USD 11.00 13.00 300.89 -1.00 0.000 0.000
EVERRE 9.5 Mar-24 USD 11.00 13.00 194.83 -1.00 0.000 0.000
EVERRE 10.5 Apr-24 USD 11.00 13.00 197.07 -1.00 0.000 0.000
EVERRE 8.75 Jun-25 USD 11.00 13.00 114.75 -1.00 0.000 0.000Source: Mark Grant

This morning the 10-year U.S. note yield is down by another two basis points (to 1.76%) -- and down a total of 6-7 basis points from yesterday's high yield print.

Yesterday I made a mistake in not watching the intraday recovery in bond prices during the equity meltdown as, with the benefit of hindsight, it provided a green light to the market's stellar rebound.

Morgan Stanley raises Amazon (AMZN) price target to $4,200 from $4,000 and Tesla's (TSLA)  to $1,300 from $1,200.

At 5:10 a.m. I shorted small in (SPY) and (QQQ) on the early morning spike.

Short SPY ($467.66), QQQ ($383.03).